UAIB: Analytical Review of the Collective Investments Market in Ukraine in Q2 2017

Against the background of increased volatility and weakened growth of leading stock markets in the 2nd quarter of 2017, the influx to the investment funds in the world and in particular in the EU continued.

Ukrainian equities also mostly increased during this time, albeit at a slower pace, and in tandem with them, also a number of collective investment institutions had positive results. Also, open-ended CII received an additional inflow of capital in the 2nd quarter for the first time this year and for the second time over the past 12 months, which drastically reduced the annual outflow.

Demand for CII in the 2nd quarter of 2017 was somewhat weakened, however, in some sectors, particularly in open-ended funds, a capital inflow was observed, and in closed-end CII with private issue, increase in the number of investors took place.

Preserving of mainly upward dynamics of the stock market at that time supported profitability of many CII. In open-ended and interval funds, the share of equities was the largest among CII sectors and among different types of assets within each sector. Nevertheless, among non-venture CII only open-ended funds as a whole showed positive returns for the 2nd quarter, as well as competitive returns in comparison with deposits in national currency – for the year.

Key trends of asset management industry in Ukraine in the 2nd quarter of 2017 were as follows:

Number of AMC, according to the UAIB, increased by 4 for the quarter - to 299 companies. At that, 6 new companies were created in Kyiv during the quarter.

Number of registered CII (total) as at June 30, 2017 increased to 1,661, and of acting funds, which have reached the norms for minimal asset value - to 1,157. Growth of recognized funds was mainly related to the dynamics of venture CIF (+11). Also, one closed-ended fund with public issue entered the market.

Assets of the CII, which reached the minimum standards, decreased for the 2nd quarter by UAH 4,910.6 mln. (-2.0%, after +7.3% in the 1-st quarter). As at June 30, 2017 they amounted to UAH 242,028 mln., including venture funds - UAH 234,377 mln. (-1.8 %, after +7.4%). At that, sectors of open-ended and interval CII continued to grow.

NAV of CII as a whole decreased by 2.7% (after +8.3% in the 1 st quarter) to UAH 199,087 mln., including venture CII - UAH 191,590 mln. Net assets of open-ended CII increased to UAH 64 mln. (+4.8%, after +5.8% in the 1 st quarter), interval - up to UAH 67.0 mln., closed-end CII with a public offer - UAH 2,396.4 mln.

Flow of capital in open-ended CII in the 2nd quarter of 2017 changed to a positive one for the second time during the last year and amounted to +UAH 0.9 mln., and annual outflow fell to -UAH 0.5 mln. (from -UAH 2.2 mln. in the 1 st quarter).

Number of CII investors in April-June of 2017 decreased insignificantly (-0.04%). Most of them exited from interval and venture CII, their number also dropped in closed-end CII with public offer. In open-ended funds the number of investors decreased only by 4 (-0.2%), while in closed-end funds with private issue - increased by 2,495 (+126.6%). As at June 30, 2017, there were totally 264,048 investors in CII, of which 98.5% were retail investors - residents of Ukraine.

Ukrainian legal entities as a whole, which owned 67.7% of net assets of all funds, remained the largest investors of CII (by share in NAV), although in the 2nd quarter they decreased their total assets in CII. In venture funds their weight fell to 69.3%. In open-ended funds, despite the largest increase in assets of individuals-residents, their share declined to 72.6%. Closed-end funds with private issue, including venture ones, were also in demand among Ukrainian citizens, while foreign companies and citizens prefer open-ended and venture funds.

CII asset structure in the 2nd quarter of 2017 experienced decrease of securities’ weight in assets of all CII sectors, except for interval ones, where it continued to grow. At that, there was decrease of their aggregate value in interval funds, as well as in open-ended ones, while in all sectors of closed-end CII - its further growth took place. As at June 30, 2017, in aggregate portfolio of CII assets securities amounted from 19.0% in venture funds to 67.0% and 75.8% - in open-ended and interval CII, respectively.

Venture funds further continued to increase "other" assets - up to 76.6% of their total NAV.

Open-ended CII has again increased volume of assets in banks, as well as investments in equities; share of the first ones increased to 25.6%, and of latter - decreased to 41.6%.

CII rates of return for the second quarter of 2017 dropped in almost all sectors, except for closed-end non-venture CII with private issue - in contrast to the first quarter. Open-ended funds were again the most profitable by average increase in value of investments for the quarter among CII sectors by types of funds –

+2.7%, and among diversified and specialized funds with public offer by asset classes – they were again equity funds - +3.5%.

The leaders in yield since the beginning of the year and for the year were the same categories of CII: open-ended funds brought for half a year an average of over 13%, and equity funds - almost 20%; for the year the first ones provided almost +23%, the second - more than +53%.

Assets of non-state pension funds and of insurance companies under management continued to grow in the 2nd quarter of 2017: +1.4% for the former and +20.5% for the latter. At that, number of AMC, as well as of NPF and IC with assets under management decreased over this time.