UAIB: Analytical Review of the Asset Management Market in Ukraine in Q1 2018
In January-March of 2018, the world's leading stock markets were subject to increased volatility, which eventually meant the quarterly losses for most of them. At the same time, the Ukrainian stock market, like some emerging markets, has grown steadily, supporting the influx into investment funds, in particular, into ones with the public issue, and the rates of return of those collective investment institutions, which invested in securities.
Demand for open-ended CII increased in Q1 2018, while the sector of venture CII went through a period of replacement of the liquidated funds with new ones, the number of which was larger. Thus, despite the further growth of aggregate assets under AMC management, the assets of funds that reached the standards declined in January-March of this year. Negative value dynamics of portfolio securities of a number of these funds, which was connected with supervisory actions of the regulator, also put the downward pressure on them, in particular, on venture CII.
Ukrainian open-ended CII at this time, in the context of a rise in the stock market, growth accelerated more than two-fold in comparison with Q4 2017, and the net inflow of capital into them increased, updating the record of the annual net sales for the last decade.
The key trends of the asset management industry in Ukraine in the Q1 2018 were as follows:
Number of AMC, according to the UAIB data, has not changed - 296 companies - during the quarter 2 AMCs were closed and the same number of them was created (received licenses).
Number of registered CII as at March 31, 2018 increased to 1,713, while the numberof operating fundsthatreached the minimum asset standard grew for the second consecutive quarter - to 1,166. Expansion of the industry was supported by new venture UIFs, which in total grew by 9 (+1.4%).
Assets of CII that have reached the standards (‘recognized’ CII) declined in Q1 2018 - by 0.9%, although the assets of all CII under management, including those that have not yet reached the standards, increased by 4.4%. As at March 31, 2018, assets of "recognized" CII amounted to UAH 261,189M, including venture funds - UAH 252,508M (-1.0%). In the sectors of open-ended, interval CII, as well as in closed-end CII with public issue, growth continued.
NAV of all CII together decreased also - by 2.0%, to UAH 209,228M, including venture CII - up to UAH 200,918M. Net assets of open-ended CII increased up to UAH 83M (+10.7%), of interval ones- up to UAH 81M (+3.1%), of closed-end CII with public issue - up to UAH 3,029M (+14.4%).
Net inflow of capital in open-ended CII in the 1-st quarter of 2018 sharply increased and amounted to +UAH 2.1M, and annual - to +UAH 5.7M.
Number of CII investors in the first quarter of 2018 increased for the second consecutive year (+0.6%), mainly due to venture and open-ended CII. In open-ended funds number of participants increased by 24 in Q1 2018, including 21 of retail resident depositors (+1.2%), to 1,735 investors in total.
In total, as at March 31, 2018, there were 261,488 investors, 98.6% of which were retail investors - Ukrainian residents, and 95.6% were participants of interval funds.
The largest investors of CII (by NAV share) as a whole remained Ukrainian legal entities, which in Q1 2018 reduced their share to 63.6%. In venture funds, their weight in net assets declined to 64.8%.
In open-ended funds, citizens of Ukraine once again increased their investments the most amongst all categories of depositors in absolute terms, and their share increased to 76.2%. At the same time, venture funds remained the most popular among these investors among the various categories of CII in terms of volume of funds accrued for the quarter, while interval funds were the most popular by the share in NAV at the end of the quarter (almost 80%).
CII asset structure in Q1 2018 showed a further decline in the weight of securities in assets of venture CII, while in other categories of funds dynamics of these assets changed to the opposite one: the share of financial instruments in open-ended, interval and closed-end CII (excluding venture) against the backdrop of overwhelming growth in the stock market. In particular, the total investment of open-ended CII in equities rose to 49.4% in their NAV.
As at March 31, 2018, securities in the aggregated portfolio of CII assets ranged from 15% in venture CII to 74% and 82% in open-ended and interval ones, respectively. In open-ended CII, the volume of assets in banks and their share in the sector’s NAV decreased (to 20.7%), while venture funds continued to increase "other" assets (mainly corporate rights and loans) - to 80.5% of their aggregate NAV.
CIIs’ rates of return grew in the first quarter of 2018 in most sectors of CII, and especially - in equity funds. At that, on average, it remained positive everywhere, except for bond funds, where only one fund suffered losses during this period. Equity funds (+11.8%) were the most profitable by the average quarterly increase in the value of investments in January-March as among diversified CII with public issue by asset classes, and among all categories of CII. Open-ended funds in Q1 2018 slightly lowered the yield on average - to +6.3%.
Equity funds remained the leaders by rates of return for the year in March of 2018 (+25.7%). Open-ended CII over this period yielded an average of 22.8%, showing the second result.
Assets of non-state pension funds in the 1st quarter of 2018 continued to grow (+0.8%) and at the end of March amounted to UAH 2,485.2M, while NPF under AMC management (excluding CNPF of NBU) - UAH 1,216.6M (+1.9%).
Assets of insurance companies under management decreased for the first time since the 2nd quarter of 2015 (-13.8%).
Number of AMCs managing the NPFs’ and ICs’ assets, as well as the number of these entities in Q1 2018, remained unchanged (34 AMC NPFs and 2 AMC SC, 58 NPFs and 6 ICs with assets under AMC management).