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Funds Management

Q&A: Number of insurance companies currently making moves to raise capital from NSE

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Nigerian stock exchange - nairametrics

Question: How many insurance companies are currently making move to raise capital from Nigerian Stock Exchange (NSE)?


Answer: According to reports, there are 6 insurance companies currently making move to raise capital from NSE. Here is a breakdown

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  • WAPIC Insurance PLC plans to raise N10 billion
  • Sovereign Trust Insurance (STI) PLC plans to raise N2 billion
  • Consolidated Hallmark Insurance PLC plans to raise N2.5 billion additional capital
  • Royal Exchange PLC plans to raise N3 billion
  • Mutual Benefits Assurance PLC plans to raise additional capital of N2billion
  • Law Union and Rock Insurance PLC plans to raise N1,031,199,000 ordinary shares of N0.50 Kobo at N0.70 Kobo per share

However, there has been an indication that shareholders might shun shares of the above firms. Facts being that most of the listed underwriting firms have failed to declare meaningful dividend on bonus to their respective shareholders in the last five years.

 

 

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Patricia

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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How fund managers can help in period of low yield

With inflation holding steady, the low yields end up translating to negative returns.

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It is often said that he who must find gold, must dig deeper because such is not found on the surface. With the current trends in interest rate, yield has become like gold, and those that must find it, should dig deeper than they have done before. It is no longer news that yield in traditional asset classes is approaching historically low levels. Indeed, yields are so low that yielder hunters are literally stuck. In one of my last pieces, I noted that the low yield had driven pension funds to the point of abandoning treasury bills as an asset class. The picture gets scarier and disheartening when viewed in real terms. With inflation holding steady, the low yields end up translating to negative returns when discounted for inflation.

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Source: CBN

Now that Treasury bills seem to be out of the question due to sub-zero yields, what can investors turn to? Here are a few things that investors could think of doing;

Invest in Money Market Funds: Money market funds have been the darling asset class for most Nigerians, due to their conservative nature and the fact that money market funds seem to be much easier to understand. The present low yield in the World market is also affecting money market funds but they still remain much higher than what is obtainable from Treasury Bills.  Unfortunately, a great majority of fund managers do not have the yield of their money market funds on display when I visited their websites, below is a list of the prevailing money market yields in Nigeria for those that could be gleaned from the various website:

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It may pay to shop around for yield as different funds present with different yields, as can be seen from the table above.

READ ALSO: SEC’s new rules on collective investment schemes: A step in the right direction

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Fund Managers to the Rescue: One of the implications, if not the major implication of the ultra-low interest rate is that investors in yield driven asset classes, like money market funds, will either make minimal returns or no returns at all, especially when inflation is factored in. Unfortunately, most of these money market funds pay fees to the fund managers. To help the situation, it is time for fund managers to reduce or waive some of the fixed fees they charge investors like management fees. Investors should, therefore, ask fund managers for a renegotiation of the fee structure in such a way that the burden of low-interest rate is shared between the fund managers and the investors. Fund managers in places like the US are already doing this.

Loss Carryforward Provisions: Another way that investors can manage this situation is for them to ask fund managers to insert loss carry-forward provisions into the mutual fund agreement or prospectus. A loss carryforward provision is one which states that the fund manager does not get paid any incentive fee unless and until the fund attains its last known highest asset value. By having loss carryforward provisions, investors are afforded the time to recoup on losses before being charged further incentive fees.

Explore economic research data from Nairametrics on Nairalytics

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Look for High Dividend Yield Stocks: Though stock investment remains riskier than money market funds and fixed income fund investments, in a low yield environment, it may pay to look for and invest in high dividend stocks that have a history of regular and consistent dividend payments.

Warning: Nothing in this article should be taken as investment advice and the author should not be held liable for using it as such.

 

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Patricia
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Mutual Funds in Nigeria and how they rank in reporting and transparency

Even the fund manager stands to gain from transparency in reporting mutual fund activities.

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Mutual funds in Nigeria are growing both in number and asset value. Going by the latest NAV Summary Report from the Security and Exchange Commission, (SEC) for the week ending June 19th, 2020, there are 106 mutual funds in Nigeria with a total asset value of N1,337,044,839,679 the equivalent of $3,714,013,444. That is about the most that one can confidently and unequivocally say about Nigerian mutual funds. That underscores the extent of transparency, or lack thereof, in mutual fund reporting in Nigeria. One would expect that an industry that large, one whose net asset value represents 10% of Nigeria’s stock market capitalization, would not be shrouded in any form of opacity.

What is Transparency: The dictionary meaning of transparency is “the state of being easily detected or seen through, easily and readily understood”. When that definition is applied to mutual funds, transparency translates into the ability of the investor to look through his investment portfolio report or fact sheet and be able to see what the investment manager is doing with his money.

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Why Transparency in Reporting Matters to the investor: Though mutual fund investors may largely be retail investors with not so much investment knowledge, they would like to monitor their investment performance, the risks involved as well as what their money is being invested in. In addition, investors would like to know how much they pay by way of fees. Transparency makes that information known. To the investor, more transparency translates to more information upon which investment decisions can be made. It also increases the level of comfort that investors have about the fund manager to whom they have given their money to manage.

READ ALSO: Top 10 high-yield money market funds that beat inflation in Nigeria

Why Transparency Matters to the Fund Manager: Even the fund manager stands to gain from transparency in reporting mutual fund activities.  Fund managers operate in a competitive market environment and transparency gives them a competitive advantage. A fund manager that discloses information readily, timely, and voluntarily stands to attract investment contributions from investors. It helps to make communication with investors clearer and timely.

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Fund Managers Transparency Ranking: Having made known what and why transparency in mutual fund reporting is and should be the norm, I present below a transparency ranking of fund managers based on the availability of requisite information on their website or elsewhere, the frequency and availability of fact sheets as well as the content of such factsheets.


Stanbic IBTC Asset Management Company:

Daily Prices: Stanbic IBTC Asset Management Company has been at the forefront of mutual fund reporting transparency in Nigeria. It has daily fund prices for the 14 funds it manages updated daily on its website and sent to you upon request. Not only are the prices readily available daily, but they are also available on a historical (inception to date) basis.

Factsheets: Prior to 2019, Stanbic IBTC Asset Management Company used to have a monthly fact sheet for each of their funds, but that got changed to a consolidated quarterly report. The quarterly report is released on a timely basis. The beauty of that report is that it tells the investor the risk profile of each fund, the expense ratio, asset allocation by sector, top 3 stock holdings (which is grossly inadequate disclosure) as well as current fund performance juxtaposed with 3- and 5-year performance data. The fact sheet also shows the investor the performance of the benchmark index for each fund.  Other information contained in the fact sheet includes fund size, NAV, initial and subsequent investments as well as fund objectives. The Q1 2020 factsheets are currently on the website.

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Annual Financial Reports: In addition to the rendition of the fact sheets as noted above, Stanbic IBTC Asset Management publishes the audited financial statements of all the funds under its management. Although that of 2019 has not been published, that of 2018 has been published.

READ ALSO: SEC DG, Mary Uduk, addresses impact of CBN’s policy on equities market


Vetiva Asset Management Company:

Daily Prices: Vetiva Asset Management Company is the second most transparent fund manager in Nigeria. The daily fund prices are readily available although some times it looks like only the dates change without the actual prices changing. This may have to do with the valuation frequency of the funds.

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Factsheets: Vetiva Asset Management Company has a monthly factsheet for its funds. The fact sheet contains most of the information that investors require. It beats Stanbic IBTC as it reports the top 10 holdings, which is better than Stanbic’s 3 top holdings. Like Stanbic, Vetiva Asset Management Company reports the risk profile of its funds but not all, and also reports the gross expense ratio. In addition, it lets investors see the funds’ MTD, QTD, YTD, ITD performance in juxtaposition with the relevant benchmarks. The factsheets used to be timely but as at the time of writing, the latest available is for the end of March 2020, it is likely they fund manager may be changing to quarterly reporting like Stanbic IBTC. Other pertinent information on the fact sheet includes dividend history, NAV, Bloomberg identifier, and lots more.

READ ALSO: What You need to know about Stanbic IBTC’s Shari’ah Fixed Income Fund (“SFIF”)


Lotus Capital Asset Management Company:

Daily Prices: Lotus Capital Asset Management comes next in line on transparency in mutual fund reporting. The fund manager publishes daily mutual fund prices but unlike Stanbic and like Vetiva, historical prices are not readily available. In that case, the prices are available on a get it or lose it basis.

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Fact Sheets: Lotus Capital Asset Management publishes its factsheets on a quarterly basis and has published Q1 2020 edition for each of its funds. Though it does not show expense ratio, it shows the management and incentive fee percentages as well as a description of the risk profile of the fund. In terms of returns, the factsheet shows the QTD, YTD and ITD returns. It does show 5 top stock holdings as well as asset allocation by sector.

Annual Financial Reports: In addition to the fact sheets being available quarterly, Lotus Capital Asset Management publishes the audited financial statements of all the funds under its management. And the 2019 audited financial statement has been put on the platform.

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Quantum Zenith Asset Management Company:

Daily Prices: Quantum Zenith Asset management Company has made a lot of changes to its reporting and by so doing has become one of the most transparent in mutual fund reporting. Daily prices are readily available as well as historical prices in downloadable form.

Factsheets: Quantum Zenith Asset management Company has the funds’ factsheets tucked away on the website The fund manager will be better off making it easier for investors to find the factsheets as its presence is not very evident from the home page.  The fact sheet has most of the required information including top 5 holdings. The beauty of the performance presentation is that it shows whether the fund is out or under perfuming the relevant index and by how much. Information on expense ratio is not provided except the management fee rate.


United Capital Asset Management Company:

Daily Prices: United Capital Asset Management Company would probably have ranked the first or second fund manager if not for the lack of daily prices. On its web site, the last daily price is dated June 14th, 2019. However, I have been receiving the weekly prices upon request and investors can too.

Factsheets: United Capital Asset Mgt. Ltd publishes a monthly fact sheet, the latest being for the month of May 2020. The factsheet shows the risk profile of the fund, the total expense ratio, as well as MTD and YTD return numbers put side by side with that of the benchmark in addition to a 5-year performance summary.  Unfortunately, it does not contain information on what the funds are invested in but it shows the allocation by asset type.

READ MORE: Nigeria’s mutual fund asset value hits N1 Trillion


Others

FSDH is another fund manager that practices or is cognizant of the importance of transparency in fund reporting. The fund manager reports daily prices which can also be downloaded on a historical basis. It also publishes fact sheets. Regrettably, FSDH has been slacking on the timeliness of the fact sheets as the last published ones are for Q4 2019 

FCMB Asset Management is yet another reporting transparency conscious fund. The fund manager ensures that the fund prices are on their website daily. They used to let investors have the funds’ fact sheets but that has stopped as the last one posted was for December 2018

Other Fund Managers:  There are other fund managers that are transparent with regard to daily fund prices like ARM Asset Management, Afrinvest, Chapelhill, FBN, FCMB, and Meristem but the lack of factsheets pushed them out of contention.

Conclusion: The fund industry has come a long way in Nigeria and it continues to evolve, as the regulators tie all the loose ends and fund managers begin to leverage off of the advantages from transparency, my hope is that mutual fund reporting will improve and the investors will be the happier for it.

 

 

 

Patricia
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Mutual Fund Reporting: A call for standardization

Nigerian Mutual Funds do not make their financial reports public.

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Mutual Funds, Mutual Fund gone bad: Nigerian investor discloses his 10 years investment that nosedived , Nigeria’s mutual fund asset value reaches N1 Trillion

One of the banes of mutual funds in Nigeria is the lack of proper reporting. In some cases, the reports are either not available at all, or lacking in timeliness. Most importantly, when available, the reports lack uniformity.  This lack of uniformity makes it difficult for investors to compare among mutual funds.

Why Mutual fund reports are important: The importance of timely and standardized mutual fund reporting to investors cannot be overemphasized. Mutual fund reports are a means by which fund managers provide periodic information to their investors. Such reports act as a vehicle by which financial and other relevant information is provided or communicated to shareholders. The reports allow investors the ability to make better-informed investment decisions. It allows investors to compare among funds prior to and/or during investing.

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What should be disclosed; Because there are many information relating to mutual funds, not all of them call for disclosure but the most important ones should be disclosed with respect to each fund in a way that makes it easy for investors to find and understand. Here are the important things that should be disclosed in a standardized form:

READ MORE: Nigeria’s mutual funds generate over N529billion in new investments in 2019

Fund Fees: One important consideration for a mutual fund investor is the expenses that he or she has to bear by investing in a mutual fund. Mutual funds typically disclose information about their fees in their prospectus; however, it is important that those fees also be disclosed in the monthly reports and fact sheets to remind and keep investors abreast of the fees. Some funds do this, as at the moment, but many do not either issue fact sheets or do not disclose fees in them.

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Portfolio Position Holdings: Mutual funds invest in other securities and investors should be made to know what their funds are invested in. Unfortunately, most mutual funds in Nigeria do not disclose this information. At best, they show the industry or sector classifications of what they invest in. Though it may not be easy to disclose all the holdings, especially with a large fund, but fund managers should be able and required to disclose any investment that is more than a given percentage of the fund’s net asset value, like 10%. At the barest minimum, fund managers should be required to disclose the largest 10 investments in the fund.

READ ALSO: Understanding Mutual Fund Fees: Incentive or Performance Fee

Disclosure of position holdings helps investors to know the extent to which they are exposed to concentration risk, the extent of diversification in a fund, and the extent of correlation between funds, for investors investing in multiple funds. In other words, disclosing position holdings will enable investors to know the extent to which their funds overlap and also form the basis of making informed asset allocation decisions. A disclosure of position holdings will help investors know when a fund manager engages in style drift, an indication of when a fund manager deviates from the investment objectives of a fund. When fund managers disclose position holdings, it places investors in a better position to evaluate the fund’s risk profile and investment strategy.

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Fund Performance: Even though past performance does not guarantee future performance, fund managers should disclose fund performance in a consistent and similar manner in their reports. Such reports should show month to date, quarter to date as well as year to date returns. It should even show inception to date returns, and if possible, shown as a cluster of monthly returns. This will help investors know whether a fund manager is consistent in his/her performance or if the fund performs well in up markets or in down markets or in both.

Structure of Reports: It is not only the information that requires disclosure that should be standardized, the structure of the reports should be as well. A situation where one fund shows the performance of the fund on the first page and another fund hides it as a fine print, does not make comparison easy.  Therefore, funds should locate similar information on the same spot across fund reports so that investors can easily find them in one report based on their experience with another report.

Conclusion: Mutual funds in Nigeria have come a long way and they have come to stay. It is time for the regulators of mutual funds to come up with guidelines on reporting standards and frequencies in order to make understanding and using of such reports easy for investors. By so doing, there will be a level playing field for all funds. As it stands, the regulation of mutual funds in Nigeria seem to be lacking in certain areas. Such standardization, while increasing investors’ understanding will also help in getting more prospective investors interested in the mutual fund industry, and invariably lead to the growth of the industry.

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Patricia
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