Mutual Funds Pakistan: UBL – Liquid Fund

Portfolio Manager
Junaid Qamar has worked previously at a prominent asset management company in Pakistan before joining UBL Fund Managers. Initially, he was managing UBL Money Market Fund (UBL-MMF). However, now he is responsible for managing three fixed income funds namely; UBL Liquidity Plus Fund (Rs15.6b), UBL Savings Income Fund(Rs2.2b), and UBL Growth & Income Fund (Rs3.4b) which totals to more than RS21b. He has been running the UBL liquidity plus fund (UBL–LPF) since its inception (June 2009) and to date it is the largest money market fund in the industry.

Strategy
Due to longer duration of the portfolio, the fund manager appears to have a passive strategy for UBL-LPF but the increasing fund size and sudden re-alignment of asset allocation before the announcements of Monetary Policy demonstrates that it is not passive. Moreover, the fund seeks to provide attractive daily returns while being highly liquid.

Opinion
UBL–LPF has achieved above average returns with extremely low volatility return-wise which ensures steady returns. The fund has managed to deliver stable returns over the period of two years while being fairly liquid. However, the fund has disappointed despite having the largest fund size. In fixed income funds, normally as the size of the fund grows the cost of running is supposed to decrease but UBL–LPF’s is the most costly when compared to its peers. Total expense ratio of the fund for the 9MFY11 period stood at 1.2 per cent; that is extremely high if only compared within its category which has more than Rs10b under its belt. UBL-LPF posted a slightly above average return of 11.86 per cent for the period of FY10-11, with an expected expense ratio of more than 1.7 per cent, the fund tends to lose its charm which it created of being the largest money market fund. The fund grew by 41 per cent in the last financial year and as at May-11 UBL-LPF is approximately 57 per cent of the total asset under management of UBL Fund Managers. The volatility in the fund size is very low, which confirms that at quarter- and year-end a huge variation in fund size will not be experienced; as investor concentration risk is low. Looking at the fund’s historical composition pattern, on average it tends to keep more than 70 per cent in T-Bills, around 13 per cent in cash and roughly 11 per cent as term deposits with commercial banks, while the portfolio’s duration hovers around 60 days. High historical average of duration states that the funds inclination is more towards investing in longer duration T-Bills, but the fund manager’s ability to foresee and readjust the portfolio mix well ahead of time is appreciable. Currently, the fund is invested 84 per cent in T-Bills while rest is placed with Banks and DFIs with duration of portfolio around 69 days. The fund manager is not expecting any changes in the discount rate under the present circumstances, hence the longer duration. Even though the fund is able to attract investors and is taking the lead in fund size, it fails to amaze on the front of generating returns and keeping the cost of running the fund low.