DAR ES SALAAM: AS the curtains rise on the first half of 2024, the closed-end funds sector has taken centre stage, showcasing exceptional performances that have captured the attention of investors.
At the forefront of this impressive display are NICOL and Afriprise, two funds that have not only outpaced the market but have also set new benchmarks for growth.
NICOL has seen its share price double, marking a staggering 100 per cent increase year-to-date, while Afriprise has enjoyed a robust 53 per cent climb.
Over the past year, these closed-end funds have consistently outshone their peers on the Dar es Salaam Stock Exchange, establishing themselves as top contenders in the market.
In the following analysis, we delve into the financial performances of NICOL and Afriprise for the first half of 2024, exploring the factors behind their success and what this means for investors moving forward.
NICOL’s Robust Performance
NICOL reported a solid 25 per cent increase in total income for the first half of 2024, reaching 12.4bn/- compared to 9.93bn/- in the same period last year. This growth was driven primarily by a substantial 24 per cent increase in dividend income, largely stemming from its equity holdings, particularly in NMB, which alone contributed 52.5 per cent to its dividend income.
Despite the impressive top-line growth, NICOL faced a significant rise in operating expenses, which surged by 248 per cent to 3.04bn/-. This increase in costs tempered the overall profitability, resulting in a modest 5 per cent growth in profit after tax, which stood at 7.78bn/-.
NICOL’s current share price of 800/- is significantly lower than its Net Asset Value (NAV) per share of 2,612. This means the stock is trading at a big discount, with a price-to-book (P/B) ratio of just 0.30x. In simple terms, investors are able to buy NICOL shares for much less than the actual value of its assets.
Afriprise’s Stellar Growth
Afriprise, another prominent player in the closed-end funds market, has outpaced NICOL in terms of growth trajectory. The fund reported a 57 per cent increase in income to 2.90bn/- and a remarkable 63 per cent surge in operating profit, reaching 2.54bn/-. Profit for the period also skyrocketed by 74 per cent, totaling 2.535bn/-.
The market valuation of Afriprise, however, indicates a smaller discount compared to NICOL. With a current market price of 230/- and a NAV per share of 388/-, Afriprise’s P/B ratio stands at 0.59x.
Understanding the Economics of Closed-End Funds
Closed-end funds (CEFs) such as NICOL and Afriprise present a unique investment opportunity that stands apart from their open-ended counterparts, like the UTT funds (Liquid, Bond, Umoja, Wekeza, Watoto and Jikimu) or the Faida Fund under Watumishi and Timiza under Zan Securities.
The key difference between CEFs and open-ended funds lies in their structure.
CEFs raise a fixed amount of capital through an initial public offering (IPO) and subsequently list their shares on a stock exchange.
This fixed capital structure empowers fund managers to implement a longer-term investment strategy without the pressure of meeting redemption requests, which is a common challenge for open-ended funds.
ALSO READ: Afriprise upholds similar dividend as profit rises slightly
One of the most critical economic aspects of CEFs is how their shares trade on the secondary market. Unlike open-ended funds, where the unit price always aligns with the Net Asset Value (NAV), CEFs can trade at a premium or a discount to their NAV. This variance is influenced by market demand and supply, investor sentiment and the perceived value of the underlying assets.
The ability of CEFs to trade at a discount or premium adds a layer of complexity to their evaluation.
For instance, a discount, as observed with NICOL and Afriprise, might signal a market opportunity, allowing investors to acquire assets below their intrinsic value.
In the Tanzanian market, CEFs offer a distinct advantage for investors seeking indirect exposure to a diversified basket of equities. Unlike open-ended funds, which primarily focus on fixed-income securities, CEFs like NICOL and Afriprise remain heavily weighted towards equities.
This equity focus provides an appealing option for investors looking to capitalise on the growth potential of the stock market while benefiting from the strategic management of a closed-end fund.
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