Fixed Income

Stanbic IBTC Asset Management Limited is offering 10 million units of the Stanbic IBTC Shari’ah Fixed Income Fund (SFIF) through an Initial Public Offer (“IPO”) at a par value of N100 per unit. The offer opened on Wednesday, 15 May 2019 and closes on Wednesday, 26 June 2019. Minimum subscription amount is N5,000.00 only for 50 units at a subscription price of N100 per unit.

Knowing that not everyone interested in this fund will read the prospectus, analysts at Quantitative Financial Analytics have isolated a few of the important ingredients of the fund, which are presented here on a need-to-know basis.

Fund Type and Objectives: The SFIF is an open-end unit trust scheme that will invest in Shari’ah-compliant fixed income securities and products. “The Fund aims to provide investors with liquidity and competitive returns over short, medium and long terms, by investing in fixed income securities that are compliant with Islamic principles. The Fund is ideal for ethically minded investors with low-risk appetites, and a bias for Shari’ah compliant investments”.

Asset Allocation: As the name implies, the fund manager will invest between 30 – 100% of the subscription money realized from the IPO in Sukuk Bonds issued by the Federal Government of Nigeria, Nigerian State Governments, and other Shari’ah-compliant bonds issued by corporate organizations. About 0-70% of the money will be invested in Shari’ah-compliant fixed-term investments, while 0-50% will be invested in “Other Shari’ah income contracts as defined by Islamic principles”. The fund’s cash, if available, will be maintained in Shari’ah-compliant institutions and non-interest bank accounts. This fund offers an opportunity for those who wish to invest in FGN Sukuk bonds but cannot do so directly for any reason.

Fees and Expenses: The fund will charge an annual management fee of 1.5%, annual custodian fee of 0.05%, trustee fee of 0.0375%, and other charges totaling about 0.2% bringing its annual expense ratio to about 1.8%. There is no indication that the fund will charge a performance or incentive fee.

Front Load Charges: The fund is a load fund, in that investors subscribing to the fund will pay some fees upfront. In page 9 of the 64 page prospectus, under the caption, “offer charges”, “the costs, charges and expenses of and incidental to the offer including fees payable to the Securities & Exchange Commission and professional parties, brokerage, printing and distribution expenses, estimated at about N21,830,750.00 (2.18% of the Offer size), will be borne by Unitholders and will be offset from the offer proceeds”. What this means is that out of the N1 billion that is expected to be realized from the IPO, N21.8 million will be used to defray IPO expenses with the remaining N978.2 million being invested for the subscribers. This makes the fund, a front load fund.

What is a load fund? In mutual fund investment parlance, a load is a sales commission or charge that investors pay when they buy or sell mutual funds. Some funds charge the fees upfront, at the point of entry or buying, others charge at the point of exit or sales. Yet some funds charge sales commission on a constant basis, usually at monthly intervals. Most mutual funds in Nigeria are front-load funds and the Stanbic IBTC Shari’ah Fixed Income fund is not an exception. As noted above, the front load on this fund is 2.18%. In a layman’s language, if you invest the required minimum of N5,000, 2.18% of that or N109 will be removed immediately and used to pay expenses while N4,891 will be invested for you. If this was a back-load fund, where such fees are charged at the point of exit, your entire N5,000 will be invested for you and the commission will be taken out whenever you redeem or withdraw your money.

Liquidity Gates: The fund does not seem to have any restriction on redemptions, as long as a notice of redemption is filed with the fund manager. Such requests are to be processed within 5 business days following receipt. However, in the case of partial redemptions, the remaining investment must meet the minimum requirement of N5,000, otherwise, the redemption will be considered a full redemption.

Fund Manager: The investment manager to oversee the fund is Lanre Mohammed. “Mr. Mohammed is an Investment Manager and the Head of Alternative Investments at Stanbic IBTC Asset Management Limited. He has over 10 years’ experience in portfolio/investment management. Prior to joining SIAML, he was a Fund manager at Stanbic IBTC Pension Managers Limited where he was responsible for overseeing the Stanbic IBTC RSA Fund with assets under management of circa N2,000,000,000,000. His responsibilities included investing the fund’s assets in equities, fixed income securities as well as alternative assets such as Private Equity and Infrastructure Funds. He holds a Bachelor’s degree in Economics from Bowen University (2006) and a Master of Science in Business and Management from the University of Essex, United Kingdom (2015).”

Coronation Research

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