UAIB: Analytical Review of the Collective Investments Market in Ukraine in Q3 2017

In the 3rd quarter of 2017, the world's leading stock markets and Ukrainian one accelerated growth, and inflow into investment funds also increased together with it. Ukrainian open-ended CII has grown almost three times during this period compared with the previous quarter, and the annual capital flow in the sector was positive for the first time since the 2nd quarter of 2011.

In place of the previous dynamics, in the 3rd quarter of 2017, demand for CII increased, in particular for open-ended funds, as well as for venture ones, where the number of investors increased and capital inflows escalated. In addition, closed-end CII with public offering entered the market for the second time in a row, which also increased the number of investors in the sector.

The strong growth of the stock market during this period, against the backdrop of certain macroeconomic successes, pushed up profitability of CII, which invested mainly in securities - in particular, open-ended, interval and equity funds, at that the first and latters were ahead of deposits in hryvnia by annual yield.

The asset management market of non-state pension funds, as well as of insurance companies, continued to grow in the 3rd quarter due to increase in value of these sectors’ assets.

The key trends of asset management industry in Ukraine in the 3rd quarter of 2017 were as follows:

Number of AMC, according to the UAIB, grew by one for the quarter - to 300 companies. During the quarter, 3 AMCs were closed down.

The number of registered CII as at September 30, 2017 increased to 1,676, while of existing funds, which have reached the norms for minimal asset value - for the first time in a year – decreased - to 1,153. Reduction was mainly due to the dynamics of venture UIF (-8). Also, one closed-end fund with public issue entered the market.

Assets of those CII, which reached the norms, returned to growth in the 3rd quarter - by UAH 6,139 mln.(+2.5%). As at 30.09.2017, they amounted to UAH 248,167 mln., including venture funds - UAH 239,943 mln. (+2.4%). Growth continued in sectors of open-ended and interval CII.

NAV of all CII together also increased - by 2.3% - to UAH 203,637 mln., including venture CII - up to UAH 195,621 mln. Net assets of open-ended CII increased to UAH 72 mln. (+11.9%), interval - to UAH 76 mln., closed-end CII with public offering - UAH 2,494 mln.

The net inflow of capital in open-ended CII in the 3rd quarter of 2017 sharply increased and amounted to +UAH 2.5 mln., and the annual one – which was recorded for the first time since the 2nd quarter of 2011, - amounted to UAH 1 mln.

The number of CII investors continued to decline (-13.5%), but this was mainly due to interval CII, among which one earlier reorganized reciprocal fund with a large number of small participants left the market. In open-ended funds, the number of investors grew for the first time in the year (+1.6%), and in closed-end CII with public offering - by 15.3%). In total, as at September 30, 2017, there were 228,283 investors in CII, more than 98% of which were retail investors - residents of Ukraine, and almost 96% - participants of interval funds.

The largest investors of CII (by share in NAV) as a whole remained Ukrainian legal entities, which in the 3rd quarter increased their aggregate investments, but their share declined again - to 66.6% in net assets of all funds. In venture funds their weight also continued to decline further - to 67.9%. In open-ended funds Ukrainian citizens increased their investments and expanded their share to 75.2%. Venture funds were the most popular among these investors by volume of expanded funds, and interval ones - by NAV’s share at the end of September (82%).

CII asset structure in the 3rd quarter of 2017 showed a further decline in the share of securities in assets of open-ended and closed-end CII with private issue (including venture funds), while in closed-end CII with public offering it increased at that time. The aggregate investments of open-ended CII in equities rose to 41.8% in their NAV. As at 30.09.2017, in the aggregate portfolio of CIIs’ assets, securities amounted from 18% in venture CII to 67%, and 72% - in open-ended and interval ones, respectively.

Venture funds further increased "other" assets (including corporate rights and loans) - to 78.3% in their aggregate NAV.

Open-ended CII again increased the volume of assets in banks - almost to 26.

CIIs’ rates of return for the third quarter of 2017 increased in all sectors, with the exception of closed-end non-venture CII with private issue, although it was positive in this sector too. The most profitable in terms of average increment in the value of investments for the quarter among CIIs’ sectors by type of funds were closed-end CII (with public offering) - +9.3%, and equity funds were again leaders among diversified and specialized funds with public offering by asset classes - + 8.9%. Open-ended funds doubled their yields - to 5.6%.

The leaders in terms of rates of return since the beginning of 2017 and for the year were the same categories of CII as in the previous quarter: open-ended funds during the 9 months brought on average about 20% and equity funds - more than 30%; for the year the first ones provided almost +22%, the second ones- +46%.

Assets of non-state pension funds and insurance companies under management continued to grow in the 3rd quarter of 2017: about +5% for each sector. At that, the number of AMC managing the assets of the 58 NPF decreased by one (to 36), and among the participants in the insurance asset management market - remained unchanged (2 AMC and 6 IC).