Why ETFs are unattractive for PFAs, insurance companies

Stakeholders in the nation’s capital market are seeking for ways to deepen Equity Traded Funds (ETFs) by making it attractive to institutional investors like insurance companies, pension fund administrators and asset managers.
Experts who spoke at an Exchange Traded Products Conference for 2018 organized by the Nigerian Stock Exchange (NSE) with the theme “ETF: Evolving Investment themes, accessing new markets and enhancing portfolio Alpaha” held in Lagos, said ETFs are veritable instruments for retail and institution investors.
They said that lack of investor education accounts for why Nigeria’s ETF has remained undeveloped with only 9 issues to date, and valued at $15 million, compared to their South Africa counterparts with very large portfolios.
At a panel discussion chaired by Damilola Ajayi, executive director, Vetiva Capital Management, the panelists agreed that there is need for investor education, which should be simple and connect to the target audience, and innovation driven by value creation.
Sulaiman Adedokun, managing director, Meristem Wealth Management Limited said there should be an industry wide platform for distribution, stating that this will help achieve economies of scale and reduced cost.
Besides, he said the driver of ETFs should be returns on investment, which will require that there is a rebalance in index for proper spread.
“To develop ETF, means developing an index that mirrors strategy and philosophy, beyond returns on investment to enable it attract required interest,” Adedokun said.
Shuaib Audu, executive director, Stanbic IBTC asset management said there is need to create market framework to help drive ETF, calling for regulatory framework to make EFF open to insurance companies and PFAs.
He also suggested that securitized lending should be extended to ETFs, to ignite activities in that space.
Dayo Obisan, managing director, Greenwich Asset Management who agreed with others on the need for investor education, emphasized on the need to create products that meet the needs of investors.
Obisan who is also the president of Fund Managers Association of Nigeria identified the need for low cost products.
Ndako Minjidad, head investment & research at Lotus Capital in his remark said investor education should take a different perspective, if possible the message should be passed in local languages.
He also said that investor education should be independent, calling on the regulator to take up the role and drive the awareness about ETFs.
“There should be sponsored researches, more conferences and strategic engagement with institutional investors, all of these he said were critical to deepening penetration,” Minjidad stated.

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