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Despite extreme volatility in the equity market during January-March (Q3) of FY25, many close-ended mutual funds (MFs) have reported positive earnings for the period-a turnaround from losses in the same quarter a year ago.
For example, ICB AMCL Sonali Bank Ltd. 1st Mutual Fund, managed by ICB Asset Management Company Ltd. (ICBAMCL), posted earnings per unit (EPU) of Tk 0.10 in Q3 FY25, compared to a loss of Tk 1.21 per unit in Q3 FY24.
A good number of funds also managed to reduce their losses during the quarter compared to the corresponding period last year.
Prudent investment strategies and diligent provisioning played a supportive role in the improvement, sources say.
Ali Imam, Chief Executive Officer of EDGE Asset Management, said good fund managers mainly invest in blue-chip stocks that do not experience significant erosion.
"Factors such as the withdrawal of the lending cap and good dividends distributed by multinational companies supported fund earnings in Q3 FY25," he added.
A majority of the close-ended MFs with investments in listed securities reported losses in Q3 FY24, as stocks endured sharp erosion during the quarter.
Other factors that reduced the funds' earnings in Q3 FY24 included the then-active lending cap, artificially managed Treasury rates, and lower dividends declared by good companies, especially multinational ones.
Due to the dollar crisis, many multinational companies faced hurdles in repatriating dividends to foreign investors in FY24.
The DSEX, the broad index of the Dhaka bourse, declined by 6.61 per cent or 413 points in Q3 FY24, leading to significant price erosion in the portfolios of close-ended funds.
On the other hand, the DSEX closed at 5,219 points on March 27 this year, gaining just 1 point since January 1.
However, the market experienced frequent ups and downs, with daily turnovers below Tk 4 billion in most trading sessions during the period.
Nevertheless, many funds experienced positive earnings in Q3 FY25, as they changed investment strategies.
"We reshuffled portfolios, taking positions in government securities that ensured positive earnings in the third quarter," said Mahmuda Akhter, CEO of ICBAMCL.
She also said the provisioning done in FY24 reduced the burden in FY25.
Echoing Ms Akhter, Shahidul Islam, CEO of VIPB Asset Management, said provisioning played a supportive role in boosting a fund's earnings.
For example, if a fund manager purchased a stock at Tk 10 on October 1, 2024, and its price declined to Tk 7 by December 31, the resulting loss of Tk 3 would be provisioned. If the stock then rose to Tk 8, the reversal of Tk 1 would be added to the fund's profit, Mr. Islam explained.
Apart from funds managed by the state-run ICBAMCL, many private funds also experienced positive earnings in Q3 FY25.
These include PHP First Mutual Fund, Vanguard AML BD Finance Mutual Fund One, and IFIL Islamic Mutual Fund-1.
Sanjib Kumar Roy, a senior official of Vanguard AML, said they had absorbed losses through provisioning at the end of FY24. They also offloaded some stocks despite incurring losses to prevent further price erosion.
"Those stocks could have squeezed our portfolios further unless offloaded at the right time," Mr Roy said.
Another fund manager, preferring anonymity, said they had offloaded stocks of companies with political ties to the previous government, fearing further losses.
The decision helped them avoid additional declines in those stocks, he added.
Funds such as EBL First Mutual Fund and CAPM IBBL Islamic Mutual Fund were also able to reduce losses in Q3 FY25 compared to the same quarter the previous year.
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