Portfolio Manager
Ahmad Nouman is currently in the driving seat. He has been associated with NAFA since August 2008, after taking over from Rukhsana Narejo in July 2009. Initially, he was responsible for NAFA Income Fund (NIF) and later assumed the responsibility of managing NAFA Government Securities Liquid Fund (NGSLF) and NAFA Savings Plus Fund (NSPF).
Strategy
The fund is betting on an unstable interest rate scenario by keeping the duration capped to 45 days of the portfolio, with a minimum of 70 per cent of assets under management invested in market treasury bills (MTBs) as per regulation. Compared to its peers, the fund strives to generate optimal returns, while insuring highly liquid.
However, the fund manager foresees that discount rates will remain high. Reason being the Government of Pakistan (GoP) is heavily relying on T-Bills to finance its fiscal deficit. Concurrently, advances to deposit ratio of banks have decreased while an increase has been registered in investment to deposit ratio. This has resulted in an approximately 209 per cent jump in the total outstanding stock of T-Bills, which currently stands at Rs1.8 trillion as compared to Rs582 billion on December 31, 2008. Hence the pattern strongly suggests that interest rates will remain high and keep the returns of the funds on a steady path.
Opinion
Though since inception NGSLF fund has managed to post mediocre returns, the volatility of returns is low (despite quarterly dividends), however liquidity of the portfolio is high, which in turn tells us that this fund is one of the top stable funds of in its category.
As of May ’11, NAFA Funds have Rs17.4b under its belt, in which contribution from NGSLF was Rs10.9b (currently Rs10.8b – Jun’11). An investor should always calculate the total expense ratio of the fund, which tells you the total expenses including the management fee that has been incurred over the year. Total expense ratio is always greater than management fee; hence investor will be paying 1.50 per cent (already higher than peer avg) plus over and above to cover for other expenses to NAFA funds to manage their money.
However, NGSLF on account of following a passive investment style hasn’t been able to generate aggressive returns. Since inception, the composition of assets reflects the current composition which consists of T-Bills (86.3 per cent), term deposits receipts (9.5 per cent) and cash balance (4.1 per cent). Apart from passive strategy, the fund has shown a stable growth of 45 per cent from Rs7.45b (Jul-10) to Rs10.81b (Jun-11) with negligible volatility in its fund size and with that the fund has proven to provide high liquidity to investors. Overall, the fund in FY11 has posted a return of 11.48 per cent (net of management fee, Workers’ Welfare Fund (WWF) provisioning and all other expenses).
High fees damp our overall regard for the fund, although it is highly liquid, stable and is very much suitable for investors looking for a steady income stream but then again, considering other attractive funds it fails to hold your attention.
