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Monday, 02 July 2012 11:55

Nigeria: Build Confidence, Provide Conducive Environment to Attract Investors

By Blessing Anaro

ABUJA, Nigeria, July 02, 2012 (Leadership) - Olumide Oyetan, Chief Executive Officer of Stanbic IBTC Asset Management Limited spoke with Blessing Anaro on the challenges and opportunities associated with investing in mutual funds in Nigeria.

There are recent moves to raise the limit placed on pension funds invested in equities.

 

Q:Do you think raising the bar will have any positive impact?

A:We believe that the low level of liquidity in the market has hindered its recovery. Pension funds have huge capital that if channeled towards the equity market would boost the liquidity of the market but generally, confidence has been fragile and most institutional investors have decided to be cautious in their investment approach. We also see the stock market in a self fulfilling cycle where most investors expect it to trend downwards and thereby delay or avoid investing altogether.

 

Q:In what ways do you think mutual funds can play a key role in bridging the funding gaps for Nigeria’s economic development?

A:Economic development arises as a result of growth in the capital market, infrastructure developments, etc. Mutual funds are dynamic financial institutions that provide a link between savings and investments by pooling funds together from savers and investing in the capital market. Some mutual funds such as Infrastructure funds and REITs are directly linked to growth of an economy as they serve as fund providers for major infrastructure, power and real estate development projects. Thus, mutual funds assist in the process of financial deepening and intermediation.

 

Q:What should the Federal Government and policymakers be doing to attract Foreign Direct Investment (FDI) and promote private sector-led infrastructure development in Nigeria?

A:We believe that the first step is to build confidence and provide a conducive environment for investors. Following the banking sector reforms, the Central Bank of Nigeria ("CBN"), SEC and the NSE have embarked on various measures towards ensuring that they improve transparency, reporting standards, corporate governance, accessibility and reliability of information provided by companies. I think these are steps in the right direction towards creating the environment for sustainable growth. We have also seen improvement in the quality of engagement between the capital market regulators (SEC and NSE) and the operators (stockbrokers, fund managers, trustees, etc.) which has significantly improved the degree of collaboration and I expect this to ultimately begin to reflect in innovative product offerings.

 

Q:What are your performance expectations for the medium term?

A:The ASI which closed the first quarter of 2012 at 20,652.47 appears relatively undervalued from a pure valuation basis. As such, we expect investors to start taking advantage of the depressed prices especially as investors' sentiments improve following early signs of recovery in global economic outlook. We also expect improved performance of companies especially in the banking sector where we believe all the statutory provisions for non-performing loans have been fully met. We think as soon as confidence returns to the capital market, average returns should be between 12 - 18 per cent in the next couple of years.

 

Q:What do you think are the three most important points an investor should consider when investing in a mutual fund?

A:I will state them in no particular order: I would list as track record and reputation of the fund manager of the mutual fund, understanding/assessment of the investor's risk tolerance and time horizon to undertake the investment. Investors usually invest in mutual funds because they offer an opportunity for steady growth in assets while reducing the attendant risk with investing in individual securities. Because mutual funds are managed by professional fund managers, it is important to consider a number of factors including years of experience, performance in comparison with its peers and benchmarks, the management team, research and IT capabilities, and the ownership or parentage of the firm.

 

Second, the investor's risk tolerance would determine whether he/she can bear both anticipated and unanticipated volatility in the value of their investment. The lower the risk tolerance, the lower the ability to participate in high volatile investment vehicles, and vice-versa. At Stanbic IBTC Asset Management, we offer mutual funds for investors with low risk appetite (e.g., our fixed income mutual funds) and those with high risk appetite (e.g., our equity mutual funds).

 

And third, the investor's liquidity requirement and time horizon would determine the type of mutual fund he chooses. For instance, an investor with a high liquidity requirement or short investment horizon would be better off in the Stanbic IBTC Money Market fund.

 

Q:With regard to the funds and fund manager, how is SIAML's approach different from others- what differentiates you from other fund managers?

A:In SIAML, we adopt a unique investment policy which ensures adequate balance is struck between delivery of competitive returns, liquidity and security of assets. SIAML's investment thesis emphasizes total returns and sustainable capital growth. Our approach to asset management, which differentiates us from other fund managers, underscores our ability to match our clients' needs with our in-depth understanding of markets and asset allocation.

 

Q:Despite the plethora of mutual funds in the market, there seems to be limited knowledge of their availability particularly by the generality of the people. Do you think operators in this market are doing enough to create awareness?

A:You are absolutely right in pointing out that there is limited knowledge of the availability of mutual funds in the public space. Among the forty-three (43) Securities and Exchange Commission (SEC) Nigeria approved funds from twenty-three (23) fund managers, we have less than 250,000 unit holders.

 

There is a lot of work to be done with respect to creating awareness especially coming from a near-stock market collapse and a period of Ponzi-schemes, also known as wonder-banks, that have eroded investor confidence and developed a negative mindset to anything tagged 'an investment'. We can however at this stage speak for ourselves by saying that we have dedicated the manpower and necessary resources by offering wealth management and financial investment advisory to individuals and groups alike.

 

We can categorically state the apex regulator of the Nigerian capital market, has put in a lot of effort to sanitize the market and create more awareness. Another area we must commend SEC is on the issue of transparency. You can find current information on Collective Investment schemes; another name for mutual funds on their website.

 

Q:Still talking about awareness, you have six mutual funds under management, but only Stanbic IBTC Nigerian Equity Fund is well known whereas very little is known about the others. Will this be a reason underlining your current enlightenment campaign? Can you provide some insight about the other funds that you manage?

A:You are right by stating that the Stanbic IBTC Nigerian Equity Fund (SINEF) is well-known as it is our oldest mutual fund and currently in its 14th year of operation. Its primary objective is capital growth and thus it has at least 75 per cent of its assets invested in stocks of blue chip companies quoted on the Nigerian Stock Exchange at any time. It is thereby aggressive in nature and only suitable for those investors comfortable with volatility and willing to invest monies over the long-term.

 

We do want to spread awareness and also educate the general populace on the advantages of investing together. As it is in soccer, business, marriage, or religion, the fact remains that doing something as part of a team or group beats doing it alone as an individual. This principle is what makes mutual funds such an attractive investment vehicle. On the other hand we have an array of mutual funds for an investor to choose from no matter his or her risk appetite or investment objective.

 

Going back to our offerings, another mutual fund designed to meet the need of the aggressive investor is the Stanbic IBTC Ethical Fund (SIEF). This fund was however established to meet the needs of our numerous aggressive investors who want to invest in the equity markets but at the same time, want to maintain their socially responsible preferences. So for instance, some investors may choose not to invest in the brewery or tobacco sectors because the products of companies in those sectors may be perceived to be non-socially responsible or may be in conflict with their religious beliefs.

 

Our most recent fund to be publicly registered, the Stanbic IBTC Balanced Fund, holds a pool of securities with a broadly diversified risk/return for its clients and also invests in short term money market securities in order to reduce the volatility of the fund and provide liquidity to accommodate withdrawals. SIBAL as it is fondly called provides a balanced exposure to both the vagaries of the capital markets and the relative safety of the fixed income markets making it a good instrument for those first time investors who are yet to categorically decide whether they can handle the ups and downs of the capital markets. The fund's objectives are achieved by investing a maximum of 60 per cent of the portfolio in equities and a minimum of 40 per cent in fixed income securities. It aims to maximise capital appreciation and generate income, ensure security of assets and sustainable returns on one's investment over the long-term.

 

For the conservative investor, we offer a choice of three: The Stanbic IBTC Guaranteed Investment Fund which, despite its limited exposure to the stock market, guarantees your principal investment after a period of three months should the stock market trend southwards like we have witnessed in recent times. The Stanbic IBTC Money Market Fund is a unique tool for those investors who like to invest in fixed deposits, commercial papers and treasury bills.

 

This fund invests 100 per cent of its assets in the money markets applying the "strength in numbers" principle to earn attractive "institutional" fixed deposit rates from the money markets, and thereafter passing this advantage over to everyday people like you and me. So if you invest a N100,000 only in the fund for instance, you could be earning interest on your N100,000 as if it were N100 million you had taken to the bank. The last of our conservative funds is the Stanbic IBTC Bond Fund. This fund invests at least 65 per cent of its assets in federal, state and corporate bonds and the balance in the money markets making this an appropriate instrument for those investors more concerned with receiving a stable and consistent income from their investments as against capital growth.

 

All investment instruments come with their various advantages and limitations. It is generally said that equities and real estate are the only investment instruments that can adequately outperform inflation but they both come with the risk of capital diminution and in the particular case of real estate, illiquidity. (END)

 

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