Asset managers rush to pharma cos for lucrative returns

​The country’s asset managers for mutual funds (MFs) have been showing an immense interest in the domestic pharmaceutical sector due to its potential growth prospect and stability.

The pharmaceuticals and chemicals is the most prominent sector in terms of holdings received from asset managers, with its four companies securing positions among top ten stocks in asset managers’ portfolios.

The companies are Renata Ltd, Square Pharma, Beximco Pharma, and Marico Bangladesh.

The pharma companies logged healthy profits over the last one decade, while the outbreak of the coronavirus pandemic led to a significant boost to their earnings due to the widespread use of hygiene products.

Bangladesh’s pharmaceutical products were exported to 199 countries in the just concluded fiscal year 2022-23, generating over $175 million in turnover.

The sector meets 97 per cent of domestic demand which is worth about $3.5 billion, as per industry data.

Talking to The Business Post, Shahidul Islam, managing director and CEO at VIPB Asset Management Company, said that companies in the pharmaceutical sector have witnessed amazing returns in recent years, with the pandemic paving the way as they made record profits in the last two years.

He has attributed the higher growth of pharmaceutical firms to the rising demands for hygiene drugs in both the local and foreign markets due to the culture shock during the pandemic. The sector has had so much potential for a long time. As a result, AMCs are very focused in outing funds in the sector.

Top 10 securities in AMCs’ portfolios:

The portfolio investment of asset managers was Tk 633 crore in Renata Limited as on March 2023, the highest for a single company, as per a report produced by EBL Securities, a stockbroker.

The second-highest Tk 447 crore AMCs’ investment was put in Square Pharma, followed by Tk 393 crore in BATBC, Tk 130 crore in Bata Shoe, Tk 209 crore in Beximco Pharma, and Tk 153 crore Marico Bangladesh.

This data indicates that asset managers have significant interest in the pharmaceutical and chemical firms (around 24 per cent of total investment) due to potential growth prospects and stability.

Telecommunication companies also feature prominently in the investment portfolios, with GrameenPhone holding Tk 427 crore, while Bangladesh Submarine Cable Company Limited (BSCCL) holds a significant position.

This signifies that asset management firms see a potential of the telecommunications sector, likely due to its pivotal role in the digital economy and increasing demand for communication services.

The banking sector is also well represented, with companies like Bank Asia, Brac Bank, and Dutch-Bangla Bank securing positions among the top 10 holdings. This indicates a preference for financial institutions, which could be attributed to their stable revenue streams and essential role in the economy, market insiders said.

Huge potential but still underutilised:

Currently, Bangladesh’s Mutual Fund (MF) Assets to gross domestic product (GDP) is only 0.24 per cent, which is the lowest among the neighboring countries, implying that the sector has huge potential to grow.

A top official of a DSE stockbroker told the Business Post, in developed countries, mutual funds are one of the most popular investment vehicles. In the USA, the size of the industry is bigger than the economy itself.

But Bangladesh is lagging well behind its neighboring countries, such as India, in terms of the size of the mutual fund industry, he said.

The mutual fund assets to GDP ratio in Bangladesh is only 0.24 per cent. But this ratio is 16.2 per cent in India, followed by 54 per cent in Malaysia, 1.3 per cent in Pakistan, 28.3 per cent in Thailand, 6.6 per cent in Vietnam, 195.7 per cent in the USA, and 180.8 per cent in Canada.

According to the Association of Asset Management Companies and Mutual Funds (AAMCMF), there are currently 58 registered asset management companies in Bangladesh. Of them, 38 companies manage a total of 36 closed-end and 88 open-end mutual funds in the country. In the closed-end funds category, there are 28 general funds, 4 Shariah funds, 2 growth funds, and 1 fixed-income and balanced fund.

As on FY22, the total Assets under Management (AUM) stood at Tk 11,807 crore. Of this, the AUM of closed-end funds was approximately Tk 6,199 crore, while the AUM for open-end mutual funds was Tk 5,607 crore, according to EBL Securities.

​Why MFs remain unpopular:

Market insiders identified six reasons behind the low popularity of mutual funds in Bangladesh compared to that in other countries. 

The reasons are low financial literacy, no easy way to buy and sell mutual fund units, a lack of fixed income-focused funds, rigid investment constraints for asset and sectoral allocation, and a lack of promotion and investable companies.

Market insiders said that the volatility in the market from the very beginning of FY22 also affected the profit-making ability of the MFs, mainly by declining earnings and announcing lower dividends for unitholders in the year compared to the previous year.

A fund manager needs to restore investor confidence by ensuring transparency in managing funds professionally and offering healthy returns, said stock market expert Abu Ahmed.

“The regulator should regulate the industry painstakingly as anomalies related to fund management have already been detected,” he said.

“As the country’s mutual fund AUM to GDP ratio remains significantly low at 0.4 per cent, as compared to its peers; it has enough room to grow.”