At the end of November 2022, the NAV of Croatian mutual funds declined by 21.9% YoY, and 21.7% YTD, but managed a modest increase of 2.2% MoM, amounting to HRK 16.8bn. When compared to the pre-COVID-19 high, this number is 27% lower.
According to the latest report on the changes recorded by the Croatian financial markets, published by the Croatian Agency for the Supervision of Financial institutions (HANFA), at the end of November 2022, the NAV of Croatian mutual funds amounted to HRK 16.84bn. This means that after declining for 2 consecutive months, the NAV showed a small increase of 2.2% MoM, but still declined by 21.7% YTD, and 21.9% YoY. Compared to the pre-COVID-19 maximum, this number is still 27% lower.
Moving on to the changes recorded by the asset classes, on an MoM basis, the largest increase was recorded by bonds, which increased by HRK 439.6m, or 4.6%. Following them, we have shares, which grew by HRK 210.3m, or 11%, and receivables, which increased by HRK 96.9m, or 160%. On the other hand, the largest decrease was recorded by the money market holdings, which decreased by HRK 393.7m, or 44%.
Meanwhile, on a YoY basis, the largest decrease was still recorded by bond holdings, which decreased by HRK 2.5bn, or 20%, followed by deposits and cash, which declined by HRK 2.1bn, or 42%. On the flip side, the largest increase YoY was recorded by receivables, which increased by HRK 87.9m.
Total assets of all Croatian mutual funds (2015 – November 2022, EURm)
Source: HANFA, InterCapital Research
Looking at the securities and deposits, on an MoM basis, they recorded an increase of HRK 290.3m, or 1.95%, while on a YoY basis, they declined by more than HRK 3.38bn, or 18.3%. Of this, domestic securities declined by HRK 59.9m on an MoM basis, or 0.75%, while on a YoY basis, they declined by HRK 2.89bn or 26.8%. They accounted for 52.32% of all securities and deposits. On the other hand, foreign securities and deposits increased by HRK 350.2m, or 5.1% MoM, but declined by HRK 487.7m, or 6.3% YoY.
Finally, taking a look at the current asset structure of the funds, the largest share is still held by bond holdings, at 58.4%, representing an increase of 1.2 p.p. MoM, and 1.7 p.p. YoY. Following them we have deposits and cash, which amounted to 16.7%, representing a decrease of 0.3 p.p. MoM, and 5.8 p.p. YoY, and shares, at 12.4% of the total, representing an increase of 1 p.p. MoM, and 1.3 p.p. YoY. Lastly, we have investment funds, which account for 8.6% of the total asset holdings, representing negligible change MoM, but an increase of 1.8 p.p. YoY.
Croatian mutual funds AUM structure (November 2022, %)
Source: HANFA, InterCapital Research
One other data point that is interesting to look at is the net contributions to the funds. During November, they increased by HRK 68.9m, implying that the increase in the NAV of the funds is both because of the rise in the value of assets but also due to a higher number of purchases into the funds. Breaking this down further, the largest change was recorded by bond funds and other fund category, with the bond funds decreasing by HRK 257.6m, while the other fund category grew by HRK 323.4m.
What all of this data can tell us is that under the current macroeconomic and geopolitical situation, with high inflation rates and the potential for further escalation of the war in Ukraine, the mutual funds are proving quite resilient and are switching more of their assets into riskier asset types, especially shares. However, the focus remains on foreign shares, and with the recent announcement of no double-taxation agreement with the US, the entry of Croatia into the European Monetary Union, as well as Schengen, there are incentives to invest in foreign equity, something that can be seen here. Moreover, the most recent inflation rate (13.5% in November) implies that holding investments in lower-risk but also lower-yielding assets not only reduces value over time but creates a higher opportunity cost in the current situation. As such, the switch to riskier assets is expected.