‘Public awareness for Mutual Funds is a collective responsibility of operators and regulators’
Despite this array of mutual funds and others in the market, there are close to 250,000 unit holders in Nigeria, an insignificant proportion when juxtaposed with the country’s population of more than 170 million people. In essence, all capital market operators duly registered with the Securities and Exchange Commission as well as the regulator itself have a collective responsibility of embarking on financial literacy campaigns that would particularly enlighten the millions of Nigerians currently affected by the low savings and investment culture. Such initiatives would go a long way in sanitizing the market and further improve public awareness for mutual funds. Also, publicizing the unique benefits of mutual funds would equally help demystify the erroneous impression that investments of this nature are reserved for the rich and well heeled. In Nigeria, you need as low as N5,000.00 to invest in mutual funds. In addition, capital market operators also require the support of the regulatory authorities to crack down on the prevalence of unregistered and unregulated ‘fund managers’, including wonder banks, as they have been seen to be major contributors to low penetration of mutual funds in the market.
What is the total size of the assets under management for various funds of Stanbic IBTC Asset Management Limited?
The total fund under management is in excess of N195bn.
Stanbic IBTC Asset Management Limited recently introduced two new financial instruments, the SIAML Pension ETF 40 and Stanbic IBTC Dollar Fund. What are the over-riding objectives for launching these products?
The SIAML Pension ETF 40 is an Exchange Traded Fund that has been designed to mirror the combined returns of the 40 most liquid public quoted companies on the Nigerian Stock Exchange which meet the National Pension Commission (PenCom) requirements for investing pension assets. It would be useful to add that PenCom is the regulatory agency that oversees pension administration in Nigeria and has developed investment guidelines to ensure the preservation and sustainability of pension assets, and the security of pension obligations when due. With regard to the Stanbic IBTC Dollar Fund, it seeks to provide an alternative to locally available low yielding dollar-denominated investment opportunities. It primarily provides investors with the opportunity to achieve diversification via attractive dollar denominated securities with competitive yields that compensate adequately. As such, the overriding objective is to provide our clients and potential investors with competitive and attractive instruments for achieving their investment objectives of hedging themselves against currency weaknesses that may arise from time to time.
You described the SIAML Pension ETF 40 as an Exchange Traded Fund that will mirror the Pension 40 Index (Pension Index) and replicate as closely as possible the total return of The NSE Pension 40 Index. What exactly does this mean to a potential investor?
To put it simply, it means that if an investor will like to achieve returns similar to that of the Pension Index (that is, top 40 permissible stocks for pension assets), he or she should purchase units of SIAML Pension ETF 40 as it is the easiest and most efficient way of achieving the desired returns of the Pension Index.
SIAML Pension ETF 40 is targeted at Pension Fund Administrators, Life Assurance companies, institutional investors as well as foreign portfolio managers who are desirous of Nigerian exposure with minimal liquidity or exit risk. Does that suggest that retail investors are excluded from investing in this instrument?
No. The product is open to both retail and institutional investors. Retail investors who intend to diversify their investment portfolios along the most liquid publicly quoted/listed companies on the Nigerian Stock Exchange that meet certain criteria of PenCom can meet this desired investment objective through the SIAML Pension ETF 40.
Experts believe that ETFs will help to open up cost-effective diversification opportunities for investors in Nigeria. To what extent has this postulation manifested in the Nigerian environment? What are your projections for the Nigerian ETF market in the next 10 years?
Investing in ETFs will undoubtedly reduce the complexities, associated statutory costs, and risks of investing directly in the underlying shares that qualify for the index tracked by such an ETF. In addition, the investor is exposed to a wide array of quoted securities across the various sectors of the Nigerian economy. Thus, the investor enjoys the benefits of diversification and minimized transaction costs. There has been significant appetite for ETFs, driven by the products’ ability to meet investment needs at relatively cheaper costs. On a global scale, iShares also reported that ETFs reached more than $2 trillion in assets globally and attracted nearly $3 billion worth of new investments in 2015, confirming ETFs as one of the fastest growing asset classes. ETFs is an attractive segment which institutional and retail investors can include in their portfolios in the Nigerian market.
What kind of risks should anyone interested in investing in SIAML Pension ETF 40 have in mind considering that investment in financial instruments entails some measure of risks?
Investors should consider market risks as the SIAML Pension ETF 40 would be subject to normal market fluctuations and risks associated with investing in equities in general or particular industries represented in the market. The value of any of the securities that make up the NSE Pension Index may decline due to any or a combination of the factors mentioned above or other events not specifically related to an issuer of a security. In addition, the performance of the securities in the NSE Pension Index may be affected by changes in economic environment, political developments or changes in government policies, growth rate and allocation of resources, changes in legislation and regulatory requirements.
Stanbic IBTC Asset Management Limited has in the past introduced other ETFs. Will you say your objectives for introducing the previous ETFs have been met?
Yes. The Stanbic IBTC ETF 30 has been successful in achieving the objectives for which the Fund was set up as the Fund has been able to replicate returns of the NSE 30 index with minimal tracking error and cost. The Stanbic IBTC ETF 30 has also been able to pass net income to unit holders of the Fund as it has paid out dividends on a periodic basis to unit holders since its inception.
The Nigerian economy is currently experiencing some turbulence due to developments in the global oil market. A remarkable effect on the capital market is the noticeable decline in the number of public offerings and a general lack of enthusiasm towards IPOs. What are the possible benefits derivable from investing in SIAML Pension ETF 40 and Stanbic IBTC Dollar Fund that would over-ride these concerns?
In spite of the current economic challenges, we have witnessed increased interest from potential investors who have dollar balances and cash and are eagerly seeking to take advantage of investment vehicles that would provide them with competitive returns on their investments. The Stanbic IBTC Dollar Fund would provide such investors with bias for dollar denominated securities access to such securities, which ordinarily would be inaccessible to them by virtue of the high amount typically required to make such investments. Similarly, the SIAML Pension ETF 40 would also provide investors an opportunity to diversify their portfolio to minimize the exposure and risks associated with an individual stock.
Given the current economic situation in Nigeria and the volatile nature of the capital market that have affected investors’ confidence, what plans do you have in the event of oversubscription or under-subscription of the two offers you placed in the market?
In the event of oversubscription, additional units of the funds will be registered with SEC. On the other hand, in the unlikely event of an undersubscription the funds will be listed based on their level of subscription. The minimum subscription level allowed by SEC is 50%. However, we can confirm that the Funds have received inflows above the minimum subscription level.
Return on investment in Nigeria used to be one of the highest globally, a unique selling point that attracted significant foreign investment into the country. What would you consider to be Nigeria’s attraction now regarding the investment environment?
The Nigerian equity market is currently trading at a discount as it has a relatively low price to earnings (P/E) ratio of 14.52 times. This is a measure of how much an investor is paying for a unit of net income being earned by the business per index. Compared to emerging markets with a PE of 15.26 times, this is cheap. Additionally, the infrastructure deficit and the opportunities to diversify the revenue base of the nation provide various investment inlets for foreign investments.
The Stanbic IBTC Group is well known for its outstanding leadership role in organizing public forums through which accurate pieces of information on the Nigerian economy are made available to investors and other stakeholders to help them make informed decisions. To what extent have these forums been useful in influencing investment decisions in Nigeria?
We organise forums that cater for various categories of investors. Some of which are aimed at encouraging retirement planning among workers and employers. Participants have gained valuable tips from experts and regulators on the imperative of putting in place effective plans to ensure a smooth transition to retirement. Additionally, our forums have provided major investors with platforms to get vital information on macroeconomic issues and the direction of the market, which key note speakers and captains of industry provide. These help the investors make informed decisions on the Nigerian economy.
Capital markets thrive on investor interest in the investment opportunities in the market. Can you say that the steps taken so far by the capital market regulators as well as the government have been effective in restoring confidence in the market? Do you consider the market fundamentals strong enough to stimulate a recovery?
Quite correctly, the concerted efforts of the Capital Market Operators and the regulators have contributed immensely towards restoring investor confidence in the market. The federal government’s stance on zero tolerance for corruption coupled with increased regulatory oversight from authorities instituted by government has to a large extent helped to restore confidence in the market.
What is the management style of your mutual funds? Do you adopt passive or active management for your funds?
We adopt both active and passive management strategies for our funds. We adopt the active management strategy for all our mutual funds and other privately managed portfolios. In this instance, the fund manager makes specific investment bets with the goal of outperforming an investment benchmark index. In addition, the fund manager would be required to periodically change the weighting of the fund/portfolio components depending on the outlook for the market and changes in industry, sector and securities. On the other hand, we adopt passive management for our exchange traded funds and smart beta fund. With this strategy, the views of the fund manager are usually the same as the market views. As such, the fund manager ensures that the ETF closely replicates the investment weighting and returns of the benchmark index. Unlike the active management strategy, the passive management strategy does not make specific security bets as the fund manager simply aligns himself with the market.
What has been your experience thus far in terms of realised returns on your mutual funds relative to their benchmarks, where applicable?
Over the years, we have garnered a proven track record of outperforming our funds’ relative benchmarks and delivering optimal returns to the clients most times.
What is the expense ratio of your various funds?
The expense ratio of our funds lies within the range of 1% – 5% of the Fund’s Net Asset Value per annum.