M utual funds had their worst year since the first started working in 2008. That doesn’t say much for a seven-year-old industry, but the bear market that took over the Tehran Stock Exchange in the past year, has left its mark on an industry taking its baby steps.
Despite creating funds to increase liquidity, IPOs to spice up trading, and even efforts to jack up the index, the TSE lost around 20 percent of its value in the last fiscal year, which ended on March 20.
The index was mainly chocked by political uncertainty. TSE’s main concern was the economic sanctions emplaced to force Iran to restrain its nuclear energy program. Traders watched with disappointment as the Geneva interim deal in November 2013 reached between Iran and the six world powers – the United States, Britain, France, Germany, China and Russia – were extended twice.
The sanctions have battered Iran’s petroleum industry. Petrochemical producers and refiners were the main listed companies that were hit by them, in turn dragging the index down and exacerbating the glum mood in the equity markets.
Add to that, the banking industry’s dire state due to toxic debt and its cut-off from global markets, and its effect on the economy and on banking shares. Then paint the rest of the picture.
For most of the 200 mutual funds, currently active in Iran, the past fiscal year was one of shedding profits, but for those newly established, like the ETFs, the story was one of painful losses.
But in this market downturn and despite the absence of short selling and other financial instruments, some funds beat the market. These included a few equity funds and around 50 hybrid and bond funds. Beating the market is a rare feat, and hybrid and bond funds did it, as high interest rates boosted their returns. However, last year’s true stars of money management were just a handful equity funds. Not only did they beat the TSE, but also they made money for their investors.
But the sanctions are on course to become a relic of the past. Iran and the world powers earlier this month agreed to a framework for a final deal to solve the 12-year nuclear dispute. Though, hard work remains ahead of them, as they finalize the historic deal, before the end of June, equity markets have already reacted to the bright expected future, as the deal would lead to a removal of sanctions in due time.
The removal of financial sanctions would not lead to better regulations nor sort out bank balance sheets nor increase lending, but it would increase foreign investment, both direct and indirect. It would also, in time, reverse the effects of sanctions on the biggest names in the stock market’s board. Money managers are betting on a change in their luck.
So it was a stark year for stocks, but not so dreary for some money managers. Now, top money managers are positioning themselves for the expected trend change. Shares are at bargain prices and some companies have the mettle to produce value. It is a year for stock pickers and risk takers for Iran’s investment industry.
