saga. In just a few years, the Abidjan-based Regional Stock Exchange (BRVM) has managed to connect the sub-region to global finance.

In 1993, the Council of Ministers of the West African Economic and Monetary Union (WAEMU) decided to create a Regional Stock Exchange (BRVM) common to the eight member countries: Benin, Côte d'Ivoire, Senegal, Togo, Guinea-Bissau, Burkina Faso, Mali and Niger. The process of setting up the Regional Stock Exchange took place in several stages and culminated in the start of its activities in 1998. It has national branches at the level of each member country. Its main missions are to organize the stock market, the listing and trading of securities, the dissemination of stock market information, the promotion and development of the market.

The Director General of the BRVM, Kossi Edoh Amenove (right), has been an important player in the influence of the regional stock exchange. He is here next to Beninese President Patrice Talon during his visit in January 2017.

© ISSOUF SANOGO / AFP

 Our research on this topic is motivated by the fact that, despite the multitude of empirical studies on the performance of mutual funds (Ippolito, 1989; Grinblatt and Titman, 1994; Brown and Goetzmann, 1995; Malkiel, 2007), no scientific study has really looked at the investment strategies and decisions applied by the managers of these funds in the WAEMU, let alone their performance, hence the need to fill this gap. The objective of the proposal is twofold: (1) To make a judgment on the performance of mutual funds and the justification for their raison d'être; (2) Detect the best mutual funds through a ranking according to their risk-adjusted performance.

The organisation of collective management of securities

In order to facilitate investment in shares and bonds, and to stimulate a stronger market development dynamic, the WAEMU securities market regulatory authorities have put in place a regulatory framework allowing the emergence and development of mutual funds via companies. management. Within WAEMU, mutual funds are portfolios of securities held collectively by institutional investors - or individuals who delegate their management to a collective investment management company. These mutual funds were set up at the BRVM by Instruction No 21/99 of 2 July 1999 on the classification of undertakings for collective investment in transferable securities. This instruction states in its first article: "The collective management of transferable securities is carried out within undertakings for collective investment in transferable securities (UCITS). The main advantages of mutual funds for clients (retail, institutional investors) are investment security (due to the diversity of investments), flexibility (thanks to the liquidity available to the funds) and simplicity of operation (the management of mutual fund assets is delegated to a manager).

The following graph shows the distribution of assets managed by UCITS: Distribution of assets managed by WAEMU UCITS as at 31 December 2015. © DR

We note that WAEMU mutual funds invest primarily in the bond category, with more than 40% of outstanding assets, which is perhaps an indication that a good part of investors want to take less risk. 

Spectacular development

The collective management of the savings of economic agents invested in securities by professionals through mutual funds has experienced a spectacular development in recent years on the regional stock exchange. The first two mutual funds were established on 26 June 2000; since then, this form of asset management has continued to grow. The number of funds created has increased remarkably: at the end of 2016, there were 57 mutual funds on the market, including 1 diversified open-ended investment company (sicav), 3 short-term bond mutual funds (FCPs), 13 medium- and long-term bond mutual funds, 9 equity mutual funds and 31 diversified mutual funds (including 5 corporate mutual funds, CIPF).

Number of UCITS managed by SGO at brvm on 31 December 2016. © DR

In recent years, very large investment flows have been directed to mutual investment undertakings in securities. The amount of assets managed by management companies has experienced an extraordinary expansion and amounted in 2016 to 665.38 billion FCFA against 279.66 billion in 2015, an increase of 57.97% per year. This dynamism is undoubtedly explained by a multiplication of the offer, with the creation of new management companies. 

The good performance of mutual funds

The study of the performance of mutual funds on a sample of 13 BRVM mutual funds in the bond, equity and diversified categories, over the period from September 2, 2013 to December 16, 2016, through three risk-adjusted performance indicators - the modified Sharpe ratio, the information ratio and the Treynor-Mazuy ratio show that BRVM mutual funds are on average performing better than the BRVM Composite index. This represents the average value of all shares listed on the stock exchange.

In addition, the mutual fund managers at the BRVM have real capabilities in terms of selectivity and market anticipation. Such results justify the interest in investing in these types of financial investments. Finally, the category ranking indicates that the best performing mutual funds are equity mutual funds, followed by diversified mutual funds. Bond mutual funds are the worst performers.