ICRA Nepal has reaffirmed the [ICRANP] AMC Quality 3+ (AMC3+) fund management quality rating (FMQR) assigned to NMB Capital Limited, indicating adequate assurance on the fund management quality.
The rating reaffirmation factors in the relatively healthy performance of the mutual fund (MF) schemes being managed by the company and the adequately established organizational structure to manage the existing/proposed schemes. The rating action also factors in NMB Capital’s fair track record in MF management, compared to its peers, along with its satisfactory investor service practices while adhering to the regulatory guidelines and investment policies. The rating further draws comfort from the ownership and continued technical support from its parent, NMB Bank Limited (rated [ICRANP-IR] A-). The company’s experienced senior management and fund supervisors, involved in the management and supervision of the schemes, also provide comfort. However, the extent of involvement of the supervisors in managing the schemes is not clearly mandated through a legal framework and hence remains a rating concern. Nevertheless, a stable Government with a target to increase the pace of the country’s economic growth along with the ongoing improvement in the capital market and the regulatory framework remain positives for market development and hence fund returns.
The rating is constrained by the high volatility in the market index in recent periods leading to muted equity returns and there by impacting the net asset value (NAV) of the MFs. As a result, the MFs have also slowed their pace of incremental investments/trading in equities. The volatility in the market could be partly attributed to the tightening liquidity in banking, the increase in listed shares over the last few years and the lack of large institutional investors/market makers. Any changes in the regulatory framework or banking liquidity, which could impact the market, could also have a bearing on the scheme’s performance, given the AMC’s targets to increase the equity investment in its second scheme as well as its proposed scheme. Since the equity market is currently dominated mostly by the financial sector, the ability of the fund manager to diversify will also remain constrained. Additionally, the rating is constrained by the limited diversification avenues even in debt markets, the unavailability of hedging tools for investment in the market and the evolving nature of the MF industry. Hence, NMB Capital’s ability to maintain prudent asset allocation (i.e. mix of equities, fixed income investment and cash), in line with market movements, while improving the NAV of the schemes would drive the schemes’ performance.
NMB Capital has managed two close-ended MF schemes so far. Its first scheme–NMB Sulav Investment Fund-1 (NMBSF1 of NPR 750 million) was issued in October 2014 and is set to mature shortly (October 2019). This equity-oriented scheme reported healthy growth in the NAV, which stood at NPR 11.92 (against a face value of NPR 10) as of mid-June 2019 (~81% growth in the NAV since its inception including ~62% cash dividend distributed so far) compared to the growth of ~37% in the stock market index. The second scheme under the company –NMB Hybrid Fund L–I (NMBHF1) a hybrid scheme amounting to NPR 1,000 million was issued in October 2016 with a tenure of seven years. As per the scheme’s document, the equity investment allocation was in the range of 15-55% with the rest being towards fixed income earning securities. The company plans to launch its third close-ended scheme shortly –an equity-oriented scheme named NMB-50 amounting to NPR 1,200 million with a 7-year tenure.
Source: ICRA Ratings Nepal