Connect with us
nairametrics
UBA ads

Editors Pick

The 4 mutual funds to count on for consistent returns

A consistent fund is one that delivers returns that are above its benchmark almost all the time. Consistency of returns is one of the things smart investors

Published

on

FBN Money Market Fund

A consistent fund is one that delivers returns that are above its benchmark almost all the time. Consistency of returns is one of the things smart investors pay attention to when evaluating and choosing investments. After all, of what use is it to invest in a fund that returns 100% in one year but looses 200% the next year.

Why should investors pay attention to performance consistency

Investors should pay attention to how consistent a fund is with regards to generating returns because consistent funds are reliable. In addition to being reliable, when you invest in a consistent fund, you do not worry about or run the risk that the fund will be unable to make up on past poor performances.
In most cases, consistently performing funds are known for slow and steady returns.

UBA ADS

They also have low volatility, and low beta and high alpha. It is not, however, easy to uncover such funds because of the difficulty of the calculation involved, but analysts at Quantitative Financial Analytics have identified 4 of such funds. The analysts found these funds by using an independent compilation of monthly returns of all mutual funds in Nigeria and choosing those that have consistently made positive returns over the past 5 years or so.

Here are the consistent funds:

Stanbic IBTC Absolute Fund

The Stanbic IBTC Absolute Fund is the most consistent fund in Nigeria. The fund is a balanced fund with the objective of providing liquidity whilst maintaining low to medium volatility of return over the long term. The Fund invests in fixed income securities.

GTBank 728 x 90

Quantitative Financial Analytics has been following this fund since 2013, and according to our analysis, the fund has only made a loss in just one month out of the 69 months from January 2013 to October 2018. If that is not being consistent, I do not know what is. In 2013, the fund generated 10.01%, 12.61% in 2014, 13.19% in 2015, 11.59% in 2016 and 18.48% in 2017. So far in 2018, the fund has gathered a YTD return of 12.33%. This means that the fund has generated a total of 78.12% return since 2013.

The fund has a beta of 0.02 and an alpha of 3.1, it has a risk return ratio of 0.3 to 13.99.

FSDH Coral Income Fund

The Coral Income Fund is another consistently performing fund in Nigeria. Launched in June 2006, the Fund is structured to permit a maximum investment of 30% in quoted equities, while the balance is invested in high-quality fixed-income securities and the money market.

The objective of the fund is primarily to achieve capital preservation over the long-term and provide investors with an investment outlet that provides stable but competitive returns in excess of inflation.

Unlike Stanbic IBTC Absolute fund which recorded a negative performance in just one month out of as many as 69 months, Coral Income fund recorded more monthly negative performances, but the fund has been able to maintain its consistency of returns at the end of each year since 2009.

app

Since 2009, the fund lost in 11 months out of 118 months generating a total of 102.41%. This means that if you had invested N100,000 in 2009, you would have more than doubled your investments by now. Like Stanbic IBTC Absolute fund, the Coral Income fund has a beta of 0.02 and Alpha of 2 as well as a risk return ratio of 1.91 to 11.53. The fund is also a low volatility fund as its volatility, measured with the standard deviation of prices is just 0.25.

devland

Nigeria International Debt Fund

The Nigeria International Debt Fund is yet another fund that has been resilient and consistent in its performance since 2012. The fund which was originally created as a closed ended fund in 1997 was restructured as an open-ended fund in 2010.

The Nigeria International Debt Fund invests in primarily in Federal and State government bonds with objective to reduce risk and offer investment safety while preserving investors’ capital.
Though the Nigeria International Debt Fund recorded 13 monthly negative returns out of 82 months since 2012, it has managed to record positive returns year in year out since then. Within that period, the fund rewarded its investors with a total of 74.39%.

The fund has an Alpha of 1.8, a beta of -0.09 as well as volatility measure of 2.34. the risk return profile of the fund indicates that it has a risk return ratio of 2.59 to 8.25.

Zenith Income Fund

The Zenith Income Fund has been consistent in its performance since 2012 although some of the returns were in single digits. Of the 82 months since 2012, the fund recorded negative returns in only 15, meaning that it generated positive returns 82% of the time.

What These Funds Have in Common

One thing these consistent funds have in common is that they are almost all fixed income funds, they invest predominantly in government securities and money market instruments. Another common feature is that they have low volatility and low to near negative correlation to the broad stock market index. They all have low beta and positive alpha.

app

What is Beta

Beta is a numeric value that measures the changes in the prices of mutual funds to changes in the overall stock market. It helps investors select between funds with varying risk characteristics. Funds with negative beta or beta that is below one are said to be less risky while those that with beta of above one are riskier. For example, a fund with a beta of 1.5 indicates that the fund is 50% more volatile than the overall stock market. Therefore, given the low beta of these consistently performing funds, they may be ideal for the risk averse.

What is Alpha

Alpha is a measure of the performance of an investment, a mutual fund, in comparison with the benchmark. A positive alpha indicates that the fund or investment outperforms the benchmark. The higher the alpha in positive terms, the more the outperformance. On the other hand, a fund with negative alpha is said to underperform the benchmark index.

Using Alpha and Beta for Investment Decisions

Alpha and beta are potent instruments for investment decision making. Investors generally use alpha and beta measures to judge asset managers’ or individual stocks’ performance. Most investors prefer stocks or mutual funds with higher alpha and low beta stocks.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Editors Pick

DEVALUATION: CBN updates website to official rate of N360/$1

The central bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1.

Published

on

CBN website states oil price is still $61, Naira under pressure as Nigeria records poor export earnings, 4 key sectors the CBN plans to pump money into

Just as Nairametrics reported, the Central Bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1. The apex bank has now reflected this change on its website signaling a confirmation. The bank is yet to issue a press release to this effect.

The CBN has now officially devalued by 15% moving from N307/$1 to N360/$1. Depreciation at the “market-determined” I&E window is 5% having moved from N360/$1 to N380/$1

UBA ADS

Devaluation: Nairametrics reported yesterday that the Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1 in a move signifying a devaluation of the currency. Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday, March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

The CBN has updated its website with the official exchange rate.

Nairametrics also got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

GTBank 728 x 90

Single Exchange Rate: A report yesterday also suggested that the CBN also planned to move to a single exchange rate policy for determining the price of the dollar. A senior central bank official who does not want to be identified, said, ‘Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments.’

The central bank has now made an apparent u-turn after it had initially that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue.

Falling oil price: Oil prices fell to under $20 on Friday before climbing back up to settle at $23 per barrel. Nigeria’s Bonny light trades at $26 while the benchmark Brent crude trades at $29 per barrel. In response to the crash in oil price, Nigeria’s announced a cut to its 2020 budget by N1.5 trillion as it faced the reality of a potential drop in its revenues. Nairametrics also has information that state governments are getting jittery about their ability to sustain salary payments as a reduction in their federal allocation “FAAC” is anticipated.

app
Continue Reading

Career tips

Investment options for salary earners

Investment options for the salary earners
#Investing #Entrepreneurs #Investment #Salary #Wages

Published

on

Investment options for salary earners - bank loan

Recently, one of the readers of my articles asked to know what investment options are open to salary earners. A salaried individual is like everyone else except that he or she has a fixed monthly income. This implies that their investments and expenses have to be managed strictly according to their fixed monthly income.

Since salary is assumed to be the only source of income for the salaried, it is advisable that such an individual fortify himself financially before investing so that adverse investment performance will not have untold effect on him and his family. Therefore, if you are a salaried prospective investor, you need to:

UBA ADS

Get life insurance

Most families in Nigeria are single income families so much such that if anything bad happens to the income earner, the family gets shattered, at least financially. Again, given the risks inherent in capital market investments, it is only prudent to have a life insurance as a first step in one’s investment journey. It is very baffling to see many investors very deep into the market, yet they do not have life insurance.

[Read Also: Understanding the risks in bond investing]

Life insurance is and should be a basic part of any financial plan. Life insurance is a protection for loved ones against financial hardship arising from the death of a breadwinner. This is even more important today than ever before with high cost of funeral expenses, college education and medical bills. So, the first investment option for a salaried individual is to get a life insurance.

GTBank 728 x 90

Prepare for financial emergencies

Life is full of surprises, emergencies do happen, jobs are lost without notices, and even good investment opportunities emerge sometimes suddenly. There is, therefore, the need for a cash reserve to help weather the financial storms and emergencies when they come calling.

Cash reserves do not only provide for emergencies, they also help to ensure that investments are not liquidated prematurely or at inopportune times to cover unexpected expenses. There are no hard and fast rules on what the exact amount of the required cash reserve should be, but most financial experts and planners will advise that an amount that equals about six months of living expenses be set aside.

So, as a salaried person, your next investment should be to have a cash reserve. A cash reserve should not necessarily be in a savings account or under the mattress; it could be in an interest-bearing money market account, money market mutual funds with low to zero luck-up period or another form of very liquid investment that is readily convertible to cash without loss of value.

[Read Also: Understanding the risks in bond investing]

Know your risk appetite

As a salaried and fixed income individual, your risk appetite is most likely going to be low as well as your risk tolerance, although your extended family profile could change all that. You need to know or understand your risk tolerance before you engage in any capital market investment.

app

Your risk tolerance will and should drive the type of investments you go into. Your risk tolerance depends on your psychological makeup, your current insurance coverage, presence or absence of cash reserve, family situation, and your age among others.

devland

Talking about family situation, it is reasonable to think that a married individual whose children are still in school will be more risk averse than an unmarried person. On the other hand, older people have shorter investment time horizon within which to make up for any losses. the reason for this is because the older you get the less time you have to work to recoup on losses.

In that case the risk tolerance of an older man will be less than those for younger folks. Again, the more cash reserve and insurance coverage you have, the more your propensity to take risk. Now having known your risk tolerance based on the underlying factors, you can then define your investment objectives

[Read Also: Important tips on how to profit in a bearish market]

Set your Investment objectives/goals

Having met those essentials above, you are now ready for a serious investment plan or program. A good investment plan starts with investment objectives. Investment objectives are the force that determines what you invest in. Investment objectives range from capital preservation, to capital appreciation and constant income generation.

Capital preservation as an investment objective implies that you, the investor, aim at minimising the risk of loss by maintaining the purchasing power of your investment. So, if you are risk averse or you will need money from your investment soon for children’s education or for building a house or you are nearing retirement, this should be your objective.

app

Investors whose aims are to see their investment portfolios increase in real terms over a period of time are better suited for capital appreciation as an objective. This is better for investors that are more risk tolerant and those with more potential to recoup on losses along the way.

If you are already retired or nearing retirement, and therefore depend on your retirement plan supplemented by investment income, you need an investment that generates income rather than capital gains. In that case, your investment objective should be current income generation. It is always good to have investment goals stated in terms of risk and returns.

[Read Also: I-Invest generates over N2 billion transaction in less than 6 months]

Decide on asset allocation

Armed with the knowledge of your risk appetite and investment objective, you are now ready to decide on what to invest in, and how much to invest in any asset class. This takes you to asset allocation decisions. Asset allocation involves dividing an investment portfolio among different asset classes based on an investor’s financial requirements, investment objectives and risk tolerance.

A right mix of asset classes in a portfolio provides an investor with the highest probability of meeting his/her investment objectives. Asset allocation is the most important investment decision an investor can make in a portfolio because it demonstrates an investor’s understanding of his or her risk preferences and return expectations.

It is good to strive for a diversified portfolio. Unfortunately, the Nigerian market does not provide a lot of asset classes for optimal diversification, but diversification can be achieved across sectors or industries within the few asset classes in the Nigerian stock market.

Decide on how to invest

There are different ways to invest in the capital market. You can invest directly by making the stock selections by yourself, thanks to the online stock trading platforms that abound the world over. This implies that you have what it takes to conduct the required research and analysis of the companies whose shares or stocks you wish to buy.

[Read Also: How I Would Invest My Mother’s Retirement Funds]

It also implies that you have what it takes to know when to sell or add to existing positions. Another method is to have someone “do the heavy lifting” for you. In this case, that someone, often times called fund manager or portfolio manager, does the research and analysis and selects shares that suit your investment preferences, investment objectives, risk tolerance and appetite as well as your investment time horizon.

This route is most suitable for investors that lack the knowledge and time for the required research and analysis. If you decide to go this route, mutual funds are the best bet for you.

Continue Reading

Business News

Atiku kicks as Buhari spends $3.7 billion in foreign debt service since 2015

Published

on

Budget: FG completes just 31.7% of constituency projects, Nigerians react to President Buhari's signing of Finance Bill 

The Buhari led government has spent about $3.7 billion in foreign debt service since 2015, one of the highest from any democratically elected government. The highest single-year foreign debt service was in 2006 at $1.79 billion.

About 68% of Nigeria’s foreign-denominated debt servicing is in commercial Eurobonds issues over the last two years. The loans range between 5.1% and 9.2% per annum. Nigeria’s external debt stock stood at $27 billion in June 2019.

UBA ADS

Rising debt service: The Buhari administration has so far spent about $1.1 billion in foreign debt service this year. In 2018, the government spent about $1.4 billion in debt service, more than 3 times the $444 million it spent servicing foreign debts in 2017. The rising cost of debt service is a direct attribute of the government’s reliance on foreign loans as a means of funding government expenditure.

Debt service since 2003. Source: CBN. Nairametrics Research (C)

Foreign Loans: Nigeria’s fallen revenue following the crash in oil price has allowed President Buhari to rely mainly on foreign loans to fund government expenditure. As of June 2015, Nigeria’s foreign loans were about $10.5 billion mostly made up of multilateral and bilateral loans.

GTBank 728 x 90

However, by June 2019, total foreign-denominated loans were $27 billion with $10.8 billion made up of Eurobonds. Commercial loans which include Eurobonds and Diaspora bonds make now make up about 42% of total foreign borrowings.

[READ ALSO: Babatunde Fowler attributes FIRS success to technological innovation (Opens in a new browser tab)]

Critics of the government have complained about the government penchant for debts believing that it could put the future of younger Nigerians in jeopardy. Supporters of the government, however, believe the borrowing was necessary to invest in critical sectors of the economy particularly infrastructure.

Recently, Director-General of MAN, Segun Ajayi-Kadir expressed worry about Nigeria’s rising debt.

“….the rising debt profile of Nigeria continues to be a cause for concern, especially the capacity of government to effectively service it and, at the same time, meet the bursting needs and aspiration of the citizenry going forward.” 

app

“Already, our budget projections for 2020 anticipates a debt service sum of 2.45trillion, an amount higher than the 2.14 trillion earmarked for capital expenditure. 

devland

“And even though our debt-to-Gross Domestic Product (GDP) ratio, which currently stands at 28 percent, is still below the average in Africa, our revenue-to-GDP ratio remains low.”

The Finance Minister Zainab Ahmed however, believes the current debt profile is sustainable, comparing it to our GDP.

“Currently, Nigeria’s debt is at N25 trillion; that is about $83 billion. And at $83 billion, we are just at 18.99%…so 19% debt to GDP. I hear people say Nigeria has a debt problem. We don’t have a debt problem. What we have is a revenue challenge and the whole of this government is currently working on how to enhance our revenues, to ensure that we meet our obligation to service government as well as to service debt.”

[READ ALSO: Babatunde Fowler attributes FIRS success to technological innovation (Opens in a new browser tab)]

Former Vice President and defeated PDP Presidential aspirant, Atiku Abubakar during the week piled criticism on the government’s borrowing.

app

“I have said it time and again. The business of government is too serious to be left in the hands of politicians. We must all ask questions because if they throw away the future, it is not going to be their future they are throwing away, it will be all our futures.

“The fact that Nigeria currently budgets more money for debt servicing (N2.7 trillion), than we do on capital expenditure (N2.4 trillion) is already an indicator that we have borrowed more money than we can afford to borrow. And the thing is that debt servicing is not debt repayment. Debt servicing just means that we are paying the barest minimum allowable by our creditors.

What this means: Nigeria’s rising foreign debt profile should be a worry to investors and businesses and must be watched closely. The country’s ability to repay these loans will continue to be harder as it increases especially now that it is costing about 9%. The immediate risk for investors is the exchange rate which could be the first to suffer should the government struggle to repay its loans.

Continue Reading