KARACHI - During the first two months of FY10, the income and money market funds earned an average annualised returns of 17.5 per cent and 7.8 per cent respectively. The income and money market fund managers had increased the exposures in the government securities. During the first half of July-09, when T-bills yields declined, the income and money market funds were enjoying the benefits of upward revisions of their asset prices. However, from the last week of July-09 onwards when T-bills yields direction reversed, the income and money market funds were being able to manage to earn only an average annualised return of 7.8 percent in Aug-09. BMACSF, PIF and PIEF managed to earn annualised returns of 24.1 percent, 20.9 percent and 17.7 percent for 2MFY10, outperforming the industrys average annualised return of 11.84 percent. On the flip side, RIF, POBOP and AKDIF remained the worst performers during the same period while earned annualised returns of 5.2 percent, 7.2 percent and 7.8 percent respectively. After a setback performance for FY09, during the 2MFY10, the KSE-100 Index performed well and earned a return of 7.8 percent and 13.7 percent MoM in July-09 and August-09 respectively. The equity funds category reaped average returns of 7.3 percent and 9.2 percent on MoM basis respectively. The funds with exposure tilted heavily towards equity, revealed better performance in 2MFY09. ASMF leads the equity funds category securing highest return of 21.5 percent on a YTD basis (till 31st Aug-09), followed by MCBDSF return of 21.4 percent as compared to benchmark KSE-100s return of 21.2 percent for the same period. POASF and NSF under-performed the market by huge margin with the returns of only 4.7 percent and 12.6 percent respectively. Comparing equity funds performance since KSE-100 touched its FY09 lowest level of 4,815 (26th Jan-09) and earned return of 80 percent till Aug-09, the equity funds category marked an average return of 49 percent with ASMF outperforming benchmark as well as industry category average return by marking a massive return of 107 percent, followed by MCBDSF and KSF earnings returns of 97 percent and 89 percent respectively during the same period. Although SBP reduced its policy rate by 100bps as per our expectation, however, rising concerns over inflation amid international oil, local electricity and other commodity prices coupled with liquidity issues in the system are expected to hinder SBP to continue with its monetary loosening stance. Therefore, income and money market funds may not perform well in the near future, especially if the interest rate trend reverses, expressed analyst Mazhar Sabir at InvestCap Research. Meanwhile, in July-09, the size of the mutual fund industry in Pakistan stood at Rs 214b, increasing by 5 percent from Jun-09 level of Rs 204b. Open-end fund size was increased by 4.6 percent on MoM basis to stand at Rs 184b whereas closed-end fund size grew by 7 percent to settle at Rs 30b from Rs 28b in Jun-09. On MoM basis, Habib Asset Management earned the highest growth in assets under management increasing by 21 percent to close at Rs 2.09b, followed by Atlas Asset Management with an open-ended fund size rising by 13 percent to close at Rs 3.5b. On the other side, BMA and Noman Abid Asset Managements funds under management declined by 7 percent and 0.1 percent to reach at Rs 1.07b and Rs 440m, respectively. On the other hand, some improvements on the economic and law and order front during the last two to three months coupled with recent country rating upgrades by the intl credit rating agencies have triggered the stock market significantly. Thus, if the stock market continues its current upward rally in the near future, the heavily equity exposure funds will also continue to perform better, Mazhar added.