Mutual fund industry's darling stocks

The mutual fund industry in Bangladesh, with assets exceeding Tk16,000 crore, aims to generate long-term wealth for its investors through risk-adjusted strategies. It tends to concentrate its investments in a select number of investment-grade stocks.

At the forefront of this strategy is Renata, the descendant of Pfizer following its divestment in Bangladesh. Renata holds the trust of professional fund managers, as mutual funds worth Tk633 crore are invested in its pharmaceutical shares, as reported by EBL Securities in March.

Securing the second spot is Square Pharmaceuticals, the country's largest pharmaceutical company, which has attracted Tk447 crore in mutual fund assets.

Other stocks in the top five include Grameenphone, the leading telecom operator; British American Tobacco Bangladesh, a tobacco market leader; and Beximco Pharma.

The list continues with Marico Bangladesh, a leader in the hair care market; Bank Asia, a private sector commercial lender; Bata Shoe Bangladesh, a leader in the footwear market; and Brac Bank, a champion of SME lending. These stocks retain the trust of informed institutional investors who manage client funds.

Additionally, Dutch Bangla Bank, the state-owned internet infrastructure and bandwidth wholesale giant Bangladesh Submarine Cable Company, Premier Bank, Olympic Industries, the leader in the homegrown biscuit market; conglomerate ACI, and Summit Power, the largest private sector power producer, secure positions within the top 15 companies.

Each of these stocks boasts a strong track record of generating healthy long-term returns. However, they currently lack popularity among retail traders in the Dhaka and Chattogram bourses. This lack of popularity stems from limited trading opportunities due to the floor price regulations imposed by the securities regulator a year ago, in response to the economic challenges brought about by the Ukraine War.

Sector-wise Allocation

Mutual fund asset managers exhibit confidence in the growth of Bangladesh's pharmaceutical industry, as evidenced by 24% of their portfolios being invested in top-tier pharmaceutical stocks.

Banks, once abandoned by smart traders due to prolonged downtrends, continue to enjoy favor from asset managers. This favor is attributed to their attractively low stock prices in comparison to their disclosed asset values. Additionally, they often offer dividend yields surpassing deposit rates. Notably, 16% of mutual fund assets are invested in banking stocks.

In the third spot, we find fuel and power stocks, particularly private sector power producers benefiting from secured revenue and profits.

Furthermore, the telecommunication sector, food and allied industries, and engineering collectively account for 5% or more of mutual funds' assets under management.