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Money Never Sleeps
Economy, Business And Markets

Money Never Sleeps

Mutual funds have historically offered safety and diversification, and they spare you the responsibility of picking individual stocks. In Tehran, there were a few money managers who picked stocks much better than others, beating the bear market which has reigned over equities for the past half year.
Over two thirds of the mutual funds listed in FIPiran database outperformed Tehran’s equity market. Based on data compiled by Financial Tribune, 27 mutual funds have beaten Tehran Stock Exchange and given better returns to their investors over the past six months.
The past six months were not the best of times for investors faced a bearish market, with the TEDPIX, the Tehran main equity index, falling 9.6 percent. The fall erased a large chunk of the returns it had given to investors in the first half of the year, which ended March 20, 2014. The TEDPIX now stands 20.3 percent higher compared to the start of the year.
Twenty-four of the funds that outperformed TSE gave negative returns. Pouya Fund, the oldest mutual fund in Iran, that has increased its investors’ fortunes eleven-fold since its inception six years ago, has negated its returns by 2.3 percent in the past six months.
The 1ST Saman Fund managed by Saman Brokerage, a subsidiary of Saman Financial Group, has gone down 7.8 percent, beating TSE by a 1.8 percent margin – not bad given the market’s current condition.
This is not surprising, given that investment laws in the country require at least 80 percent of mutual fund assets to remain in equities or fixed income securities. Unable to cash out and without short selling, fund managers cannot profit nor hedge themselves in a bearish market. “We’re stuck for the ride-down, the best we can do is to take less losses,” said one fund manager to Financial Tribune.
Not all fund managers were in the red. Ershad Kousheshi’s Firoozeh fund, owned by E.N.Bank  Securities, recorded big gains. It has made 9.5 percent for its investors in the past six months. E.N. Bank, also called Eghtesad Novin, is Iran’s first private bank which runs E.N.Bank Securities and, through it, the Firoozeh fund.
Roshde Saman, another mutual fund managed by Saman Brokrage Co. posted a 1.5 percent return for its investors. While Novnic, a mutual fund owned by Novin Investment Bank, was barely in the black with a 0.7 percent return
Mehdi Farivar’s Aseman Portfolio Management had one fund post positive and another negative returns. Their Aseman Yekom equity fund lost 11.4 percent – a blow it took in September, since it was 1.5 percent in the black by Aug. 17. Aseman Khavarmianeh Farivar’s bond and equity fund did much better with a 2.8 percent return; pointing to the better performance of debt securities compared to equities in the period.
Despite these performances anyone who left their money in their bank accounts did better than most of those who bet on stocks in the past six months. With interest rates for sight deposits revolving around 10 percent and interest on six month deposits going as high as 16 percent, even investors in Firouzeh fund are behind bank depositors on returns.
Some mutual funds barely followed the TSE index. Agah, the second biggest fund in the industry, which is worth 393 billion rials, posted a negative 9.9 percent return for the period, only 0.3 percent worse than the TEDPIX itself. Charisma, a fund known for its aggressive strategies, has gone down 10.5 percent.
There were also some appalling performers. The fund managed by Bank of Industry and Mine’s brokerage is the worst performer in the six month ending in September 17. Its total asset value has fallen by 32.1 percent. Adjusted for inflation, its investors have lost over half of their investments. Another fund, Noandishan lost 24.2 percent.

 Rigged Indices
The TSE indices have fallen day by day over the past six months. The TEDPIX has fallen over 7,000 points to 71,443. Its top 50 companies have lost nearly 10 percent of their value with their index going down from 3,300s to 3,000s. The TSE industrial index is trailing the Top 50 index, showing a 7.9 percent loss of value.
These falls come in spite of the inflated nature of Tehran’s equity indices, as the share price corrections after stock dividend payments are not taken into account by assuming the reinvestment of dividends. This is a mechanism similar to mutual fund NAV calculation, disregarding the fact that funds do reinvest stock dividends but share holders may not do so.
There is another pitfall in equity index calculation in TSE. Companies are given weight in the index based on their total capital and not their market cap as many of the largest companies listed in the exchange are still mostly government owned. This changes the dynamics of the TSE indices.
Taking the TSE index calculations into account shines a better light on mutual funds, showing that their performance is better than what it seems at first glance. Regardless, the growing financial services industry faces many challenges.

 Plight of Equities
Some like Iran’s minister of economic affairs and finance see the dip in equity markets as a correction and adjustment for the high stock returns at the beginning of the year. Forecasting a better future for equities, Ali Tayebnia said, “We expect the market to grow in the future, its correction is over.”
Other investors see the current market downturn as a general reaction to the uncertainty surrounding the outcome of Iran’s nuclear negotiations. “We’re hoping to get to a final deal. The chance of [the negotiations] falling apart is low, but if it happens we’ll be doomed,” said an analyst with Bourse24 to Financial Tribune, regarding market sentiment.
Iran’s economy is under duress owing to international sanctions placed by the US, EU and UN, in an attempt to curb the country’s nuclear energy program. Tehran is currently negotiating with the P5+1 – the five permanent members of the UN Security Council plus Germany – to lift the sanctions.
The P5+1 signed an interim agreement with Iran in November 2013, assenting to a limited easing of sanctions in exchange for Iran halting some aspects of its nuclear energy program. Market reaction to this news was mixed. Some investors became hopeful while most curbed their enthusiasm citing the gap between the negotiating parties over Iran’s uranium enrichment capacity and the timing for lifting of sanctions as reasons for doubt.
Finally, an over 600 percent increase in monetary liquidity resulting from horrendous mismanagement of government finances during the previous administration, has led to high inflation. To counter this, President Rouhani’s administration has kept interest rates at an annual 22 percent and introduced policies to bring the country’s finances in order.
Economic and political uncertainty, high interest rates and high inflation are hampering the equity market’s ability to draw in capital, at least in the short run. As for the future, fund managers say there is less downside risk and most seem to be expecting a more bullish market.

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