UAIB: Performance of the Collective Investment Institutions in Q4 2013

In the Q4 2013 the Ukrainian collective investment institutions continued gradual growth and improving of key performance indicators, which, however, was accompanied by some negative effects.

Main trends in Ukrainian CII market in Q4 2013 were as follows: a stable number of AMC, further increase in the number of funds and assets - mainly in the venture sector; closure of a number of open - ended and interval CII and narrowing of these sectors by NAV; as opposed to Q3 - two-fold reduction in capital outflows from open-ended funds - mainly because of domestic output, including institutional investors; reducing the total amount and proportion of securities held by CII, except open-ended funds, where cash decreased more significantly; increase of rate of returns in all sectors of CII by types of funds, except interval ones, and also fall in equity funds and mixed investments (balanced) funds.

Number of AMC in Q4 2013, according to UAIB data, remained at 347 companies, although 2 AMC were suspended and 2 created in Kyiv during the quarter. There was 1604 registered CII (after 1593 in Q3), and the number of CII that reached the norm of minimum value of assets continued to grow (+ 11 funds) - up to 1250. This was associated with an increase in the number of venture CII (+30 ). The number of open-ended and closed-end non - diversified CII decreased most significantly - by 4 and 14 funds, respectively. As of 31.12.2013 in the state of liquidation there were 5 open-ended, 4 interval, 19 closed-end and 22 venture CII.

 Assets of CII increased in Q4 mainly due to the venture capital funds, although the sector of other closed-end CII also boosted them;  total assets of investment funds under management increased by UAH 5,663 mln. (+3.3 %) to UAH 177,523 mln, and of venture CII – by UAH 5,526 mln ( +3.4 %) to 168,183 mln.    

Since the beginning of 2013 CII increased their UAH by 20 321.86 mln ( +12.93 %) due to the growth of the venture capital funds’ sector  by 22 271.08 mln (+15.26 %).

 NAV as at Q3 and similar to total assets in Q4 rose due to all closed-end funds, including venture capital funds. Total net assets increased by UAH 4,764 mln (+3.1%) to UAH 158,424 mln, with venture capital - by UAH 4 647 mln ( +3.2 %) to UAH 149,881 mln. 

In 2013 NAV of all funds increased by UAH 19,164 mln (13.8 %), however the venture funds only by UAH 20,382 mln (15.7 %).

 The outflow of capital from the open-ended CII in Q4 slowed down twice, to the level of Q2 - more than UAH 12 mln, that was associated with the release of several AMC from the sector and the market and, consequently, the elimination of several large funds, outflow of which was the most extensive in the previous quarter. Traditionally, less than 10% of the open-ended CII experienced more than half of the whole outflow (from one to three, depending on the month). The number of funds with a net inflow of capital was almost the same as in Q3 - only from 2 to 4 funds each month, and their total volume of net attraction decreased significantly - up to UAH 0.13 mln. for the quarter (after UAH 0.2 mln in Q3).

Annual net outflow from the sector in 2013 reached UAH 48 mln, that is 11 % less than in 2012.

For the last three months of the year, as well as throughout the year, CII investors invested primarily in venture CII funds. Domestic institutional investors had the largest weight in this sector - 78.3 % (after 77.6 % in Q3 ), and the same was for the whole CII sector. They were not only the most widespread, but also the most active investors in late 2013 - their total funds in the venture CII increased by UAH 4,584 mln, and in all CII – by UAH 4,607 mln (also due to the  closed-end non- venture funds). At the end of the year Ukrainian enterprises had in all funds 77.4 % (after 76.8 % in Q3 ).

 In contrast, non-residents, including businesses, have sharply reduced their investment in CII – by UAH 1,362 mln. (in venture capital – by UAH  1,229 mln.), that, amid activities of other categories of investors, narrowed their share from 18.8 % to 17.4 % (in venture capital - from 19.5 % to 18.1%).

 Citizens of Ukraine, as well as corporate domestic investors, doubled the accelerated increase of investments in CII (+UAH 1,400 mln, including the venture - +UAH 1,171 mln.), that contributed to an increase of their share in the net assets of CII from 2.9 % to 3.6 % in venture funds and from 4.6 % to 5.1% in all CII funds.

 In open-ended funds the presence of institutional investors decreased the most notably - especially for the residents (UAH -9.12 mln), although in relative terms the fastest cut was done by foreign investment enterprises (26% or UAH -1.77 mln.). Finally, the Ukrainian natural and legal persons had almost equal shares in open-ended funds (47.5 % and 47.6%, respectively) as of 31.12.2013.

 The structure of assets in Q4 2013 continued to be corrected in the face of shrinking of funds investments in securities ( UAH 2 762 mln., 90 % of which - in the venture CII ), as well as some other types of assets in certain sectors of CII. Share of equity instruments in the aggregate portfolio of all sectors, except public CII, decreased and ranged from 28.7% in venture funds to 48.1%,  47.2% and 72.1 % in the open-ended, closed-end and interval funds respectively.

 The most significant was the reduction in assets of all CII corporate bonds (UAH -1,405 mln), shares (UAH  -921 mln) and notes (UAH  -727.40 mln), in non- venture funds  - in equities (UAH -360 mln).  In the open-ended CII due to the exit of investors the money in bank accounts decreased the most (UAH -10.20 mln), as well as in government bonds ( UAH -4.4 mln.).

 Venture CII at the end of 2013 reinforced the increase of "other" assets (UAH +7, 086 mln.), that is, together with the reduction of assets in bonds ( - UAH 1,451 mln), led to the increase of the proportion of the first  ones in the aggregate portfolio of the sector from 63.9% to 66.6 %. "Other" assets, particularly in venture CII,  include receivables, corporate rights of the company, expressed in other forms than securities, and loans to the companies in which CII partly owns the equity (venture capital funds).

 Rates of return of CII in Q4 in general continued to rise, with a moderate rise in indexes of equities, which, however, did not affect significantly the results of the majority of funds because of the structure of their assets which to a greater or lesser degree differs  from the composition of the index basket.

 The number of funds which have shown the increase in the value of their securities in the sector of public CII has grown to 22 funds of 31, closed-end non-venture ones - to 55 of 111, interval - fell to 13 of 28. The average rate of return of open-ended funds amounted to +2.45 % (after +0.2 % in Q3 ), with the range of results of certain funds from -10 % to +46 %. Interval funds showed from -21 % to +76 % with an average yield of 0.6% (after +1.6 % in Q3 ). Closed-end CII brought from -49 % to 87.9 % with an average of +15.9 % (after +1.0 %).

 Based on the results of beginning of 2013, due to the dynamics in Q4, closed-end CII ( +16.2 %) were the most successful; interval funds retained the achievements of previous quarters ( +7.0 %) and  the open-ended funds generally compensated the loss of Q1-Q2 and showed an average +0.6 %.

 Among diversified CII with public issue in Q4 the leaders and outsiders  reversed: equity funds brought averages -1.6 % (after +5.4 % in Q3 ), and "other" funds were leading with an indicator of +5.9% (in Q3 it was 0.3% ), among which the rangeofvalueswas the largest ​​- from -8 % to +76 %. Bond funds, which reappeared at the end of 2013 according to the criteria of the actual structure of assets, showed consistent results +3.3%. Mixed investment funds, which number at 31.12.2013 was the largest  (34 ) showed -0.3 %, that was the result of a wide and diverse range of performance of certain funds (from -21 % to +46 %). There was no money market funds for the second quarter in a row.

 For 2013 YTD rate of return of bond funds led the way ( +13.8 %), while no one single CII met the criteria of the class in Q2-Q3. Among classes of assets that existed during the whole year, "other" funds had  the most revenue ( +4.5% ), as well as equity funds (+4.3 %). Mixed investment funds had also a positive result ( +1.5 %) in 2013.