At the end of November 2023, the Croatian mutual funds recorded a total NAV of EUR 2.14bn, growing by 1.7% MoM, but still remaining negative on a YoY basis at -4.4%. In the last 12 months net contributions to mutual funds amounted to EUR -77m, so majority part of value decrease comes from lower assets. YoY NAV decrease in absolute terms amounted to EUR 99.2m, while in NAV, management fees are also accounted for. At the same time, compared to the pre-COVID-19 level, the current NAV is app. 31% lower.
The Croatian mutual funds, one of the most important participants in the Croatian capital markets, have recorded solid MoM growth for the second month in a row, according to the latest report by the Croatian Financial Services Supervisory Board. In fact, during November 2023, the total NAV grew by 1.7% MoM (October 2023: 1.9%), reaching EUR 2.14bn. However, on a YoY basis, the Croatian mutual funds have still not managed to recover the losses recorded during the year, leading to a 4.4% lower NAV YoY. Furthermore, compared to their pre-COVID-19 maximum, the current NAV stands at app. 31% lower level.
To better understand what are the primary drivers of these changes, and to be able to make conclusions based on the data, it is important to look at the developments of the asset classes. On a MoM basis, the largest increase was recorded by bond holdings, which increased by EUR 16.3m, or 1.2%. Following them there are shares at EUR 9.1m, or 2.6%, and receivables, at EUR 8.9m, or 57%. On the other hand, on a YoY basis, the largest increase was recorded in shares, which grew by EUR 72.6m, or 26%, while the majority of other asset types which recorded growth, had recorded significantly lower levels of it. On the flip side, deposits and cash recorded a decrease of EUR 168.8m, or 45%, followed by the money market, which declined by EUR 21.7m, or 33%.
Total assets of Croatian mutual funds (January 2015 – November 2023, EURm)
Source: HANFA, InterCapital Research
Besides the changes in the assets, net contributions to the funds amounted to only EUR 1.9m during November, but they are positive since April when they were almost EUR 18m. Meanwhile, when we look at TTM (trailing twelve months), the total net contributions to investment funds amounted to EUR -76.8m, while the YoY NAV decrease in absolute terms amounted to EUR 99.2m. In other words, 78% of the decline in the NAV of the funds came from the decrease in the net contributions, while in NAV, management fees are also accounted for.
Due to this, the increase in the value of bond holdings on an MoM basis could have come from two other sources: the increase in the inherent value of bond assets that are held by the funds, but also due to the decision by the fund managers to allocate the available resources in a way that favors bond holdings. This was to be expected of course, due to the fact that the current yields offered by bonds seem quite attractive, especially in the long term, for two reasons. Firstly, as inflation continues to decline towards desired levels (2% to 2.5%), the need for high-interest rate levels by the ECB is reduced. In fact, there have been signals that rate cuts might come later this year. This relates to bonds in a way that investing in them right now when the interest rates are high and “locking” those investments for a longer time period will yield higher returns when the inflation cools off and interest rates are lower. Secondly, bonds are seen as one of the least risky types of investments, so shifting investments from other asset classes (such as deposits and cash) seems to also be a contributing factor.
This is a recent trend, however, as the YoY data shows that the majority of investments were targeted toward shares. This includes investments into both domestic and foreign securities and deposits. Here we see a discrepancy, however, as domestic securities and deposits underperformed, both on an MoM (EUR -17m, -2%) and YoY (EUR -301m, -29%) level. On the flip side, foreign securities and deposits recorded growth on the MoM (EUR 68m, +5.4%), and YoY (EUR 359m, +37%) level. However, it should be noted that the decline in domestic securities and deposits came mostly due to lower levels of Croatian government bonds held, which declined by 40% YoY, while domestic shares grew by 34% YoY. This is in fact, in line with the levels seen by the major Croatian indices, which grew by similar levels to this during the period.
Finally, turning our attention to the current AUM of the funds, bonds still make up the majority of the asset holdings, at 61.6% of the total, representing a decrease of 0.28 p.p. MoM, but an increase of 3.19 p.p. YoY. Next up there are shares at 16.4%, which is an increase of 0.15 p.p. MoM, and 4.03 p.p. YoY, as well as deposits and cash, which declined both on a MoM and YoY basis, at -0.15 p.p. and -6.95 p.p., respectively. Lastly, there are inv. funds, which hold 9% of the current AUM, declining by 0.09 p.p. MoM, but increasing by 0.37 p.p. YoY.
Current AUM of Croatian mutual funds (% of the total, November 2023)
Source: HANFA, InterCapital Research
