Fixed Income
What you should always look out for in a Mutual Fund
In what seems to have become a custom, I received yet another email from one of my readers, asking me what money market fund I would recommend for a newbie.
In what seems to have become a custom, I received yet another email from one of my readers, asking me what money market fund I would recommend for a newbie. After reading the email which said “Thankx (sic) for the post pls which one do you recommend for newbies?”, I wished I had the magic wand to know and recommend which money market/mutual fund that will make investors the greatest amount of money.
Ever since Nostradamus died centuries ago, it has become increasingly difficult to see tomorrow from today. This is even more difficult in the stock market where beating the market has become a mirage. Be that as it may, there are a few analysts, both on the fundamental and technical sides, that have managed to pick up stocks or mutual funds that have turned out to beat the market.
The likes of Buffet or Soros have done it, not because they have magic wands in their pockets or because Nostradamus left his garment with them as Elijah left his with Elisha. Instead, they did that because they knew what to look for in a financial product, to discover under and/or overvaluations.
They know what to look for to uncover hidden alpha. Therefore, I may not be in a position to recommend any fund to you. However, I’ve chosen in this article to take you through what you need to look for in a mutual fund, be it money market fund, equity-oriented fund or bond/fixed income fund.
[Read Also: How to build a profitable Mutual Fund Portfolio]
Fund Objectives or Style: Mutual fund investments are not usually for the short term. So, when choosing a fund, be prepared for the long hall. Having said that, one of the things that should determine the fund of your choice should be the investment objective of the fund. Try to choose funds with objectives that align with yours.
If your objective is to generate income while preserving your capital, a money market fund will be more ideal. However, if you are investing for growth, then an equity fund will be better. For someone with an objective that falls in between those two extremes, it will be better served by a balanced fund that is a mixture of fixed income and equity funds.
Performance History: It is often said in the arena of investing that past performance does not guarantee future performance. Although this is true, it often helps to examine the past performances of funds that you are interested in investing in. The longer the performance period, the better. If the data are available, looking at 5 to 15-year performance history is recommended. Where possible, compare the performance of the fund you are investigating and interested in with the performance of its underlying index.
Fund Manager Experience and Track Record: A mutual fund is as good as the fund manager that manages the fund’s asset allocation and rebalancing. Therefore, find out about the fund manager’s experience, how long he has been managing the fund or similar funds, what his track record has been, how many years the fund has been up since he started managing the fund as well as his academic and professional qualifications. Is he CFA certified, is he a CAIA. The longer a fund manager has been on a fund the better, but if a new fund manager is bringing past experience gathered from managing a similar fund in the past or elsewhere, that is a plus.
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Fund Fee/Expense Ratio: I have already written exhaustively on mutual fund fees. In choosing a mutual fund, pay attention to the fees being charged on the fund. Different funds have different fees and no matter how small the difference, it adds up at the end of the day.
Investment Strategy: Take a look at the investment strategy of the fund paying attention to the sectors of the economy that the fund invests in. Depending on your objective and risk tolerance, you will uncover from such a look if the fund is concentrated in the financial sector, for example, or if diversified. In most cases, a diversified fund is better from a risk point of view.
A fund worth Looking Closely at: Though I said earlier in this article that I do not have any crystal ball or magic wand in my pocket as to know what fund to recommend and that I am not in the business of recommending funds for people, there is one fund that has caught my eye. I am not invested in this fund but if I have to invest in any Nigerian mutual fund, it will be this fund. That fund is Stanbic IBTC Absolute fund. Stanbic IBTC Absolute Fund has been one of, if not the most consistent mutual fund in Nigeria in terms of performance.
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Since January 2013 when analysts at Quantitative Financial Analytics started tracking the fund, Stanbic IBTC Absolute Fund has made positive returns month after month except in June 2013 when it recorded a forgivable 0.58% negative gain. The fund made a return of 10.01% in 2013, 12.61% in 2014 13.19% in 2015,11.50% in 2016, and 18.48% and 14.28% in 2017 and 2018 respectively, according to records by Quantitative Financial Analytics. That comes to a total return of 79.49% since 2013.
So far in 2019, the fund has made 4.70% putting it in a position to repeat its 2018 performance, all things being equal. Though the fund, like most funds in Nigeria charges a management fee and other fees, the consistent positive return could be enticing.
Disclosures
The author or anyone in Quantitative Financial Analytics has no investment in Stanbic IBTC Absolute Fund or any fund managed by Stanbic IBTC Asset Management. The Asset Management company did not pay for this piece.
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Coronavirus
How COVID-19 and low yield affect Nigeria’s pension funds
Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance, and the pension fund investors of blissful retirement.
Towards the end of 2019 it became evident, judging by the way interest rates were going, that pension fund managers might find it difficult to replicate prior years’ performances.
It even became more evident, when viewed against the realization that most of the assets under management by pension fund managers in Nigeria are invested in financial instruments that derive their benefits or even existence from the yield curve.
As if that was not enough challenge, and to add insult to injury, out of nowhere and without any notice, came coronavirus. Today, those two, Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance and the pension fund investors of their hope for a long-lasting and blissful retirement.
Already, the impacts of those two are being felt by pension funds, not only in Nigeria but the world over. My pension fund account is yet to recover from the 18% drop it suffered in March 2020. Although Nigerian pension funds recorded positive returns during the first 4 months of the year, such returns are nothing to write home about, when compared to prior years’ returns.
According to an analysis conducted by Quantitative Financial Analytics, the RSA category of Nigerian pension funds generated an average of 1.64% on a year to date basis, as at April 30th, 2020, while the Retiree fund category generated an average return of 2.96%. Compared to a similar period in 2019, RSA funds generated an average return of 3.46% while the Retire fund category had an average of 4.13%. For the year to date, April 30th, 2020, Pension fund manager, Veritas Glanvills (VG) recorded the highest return in both categories of 4.24% and 5.38% respectively and a couple of funds made losses.
READ MORE: Nigerian Pension Funds Continue to Gather Positive performance, though in Trickles
The grass is not greener on the other side
Although those numbers are not what pension fund investors expected or hoped for, they are quite impressive when compared with what is happening elsewhere in the World. According to the Financial Times Adviser (FT Adviser), “the average pension fund fell by 15% in the first quarter of this year” in the UK, which represents “the worst quarterly performance on record”. In the United States of America, the story is the same. According to the Washington Post which described COVID-19 pandemic as a meltdown, “This meltdown has exposed the fragility of public pension systems in the United States”. In the wake of the pandemic, “Moody’s Investors Service estimated that the stock market sell-off vaporized $1 trillion of value from public pension portfolios or about 21 percent of the assets that pay for the retirement plans of state and local employees”.
In another reportorial, the NJ Spotlight, (a New Jersey Newsletter in the US), noted on March 26th, 2020, that Covid-19 hammered public pension workers to the extent that the pension system shed $6 billion since January 1st. S&P Ratings also estimated that, in the first quarter of 2020, “U.S. public pension funds in aggregate lost a cool $855 billion”.
Those underscore the bleak future facing pension fund industries all over the World and the need for Nigerian pension fund investors to be thankful with the 1% average gain that Nigerian pension fund managers were able to generate. It is hoped that as the fight to curb or eradicate Covid-19 rages on successfully, that the performance will improve rather than get eroded.
(READ MORE: Analysis: Your pension fund is worth less)
Pension funds
With that said, here are the 5 best pension fund performers in Nigeria as at April 30th 2020:
Retirement Savings Account, RSA, category:
Best Performing Fund:
Name of Fund: Veritas Glanvills Pensions RSA Pension Fund 2
YTD Performance %: 4.24%
YTD Gain per unit: N0.13
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Second Best Performing Fund:
Name of Fund: AIICO Pensions RSA fund 2
YTD Performance %: 3.75%
YTD Gain per unit: N0.14
3rd Best Performing Fund:
Name of Fund: OAK Pensions RSA Fund 2
YTD Performance %: 3.31%
YTD Gain per unit: N0.10
4th Best Performing Fund:
Name of Fund: Premium Pensions RSA Fund 2
YTD Performance %: 2.89%
YTD Gain per unit: N0.14
5th Best Performing Fund:
Name of Fund: Anchor Pensions RSA Fund 2
YTD Performance %: 2.69%
YTD Gain per unit: N0.07
(READ MORE:Is the pension asset just another cookie jar?)
Retirement Savings Account, RSA, category
Best Performing Fund:
Name of Fund: Veritas Glanvills Pension Retiree Fund 4
YTD Performance %: 5.38%
YTD Gain per unit: N0.19
Second Best Performing Fund:
Name of Fund: Radix Pensions Retiree fund 4
YTD Performance %: 5.17%
YTD Gain per unit: N0.11
3rd Best Performing Fund:
Name of Fund: Fidelity Pensions Retiree Fund 4
YTD Performance %: 4.27%
YTD Gain per unit: N0.14
4th Best Performing Fund:
Name of Fund: ARM Pensions Retiree Fund 4
YTD Performance %: 4.21%
YTD Gain per unit: N0.16
5th Best Performing Fund:
Name of Fund: OAK Pensions Retiree Fund 4
YTD Performance %: 3.94%
YTD Gain per unit: N0.15
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
FEATURED
Pension Fund Managers dump Nigerian Treasury Bills
Pension fund managers redeemed treasury bills worth N512 million Naira in the two months combined but did not invest any additional kobo into treasury bills within the same period.
Analysis of the recently released summary of Pension Fund Asset data for the first two months of 2020 by the Pension Commission of Nigeria has shown that pension fund managers are no longer in love with Treasury Bills like they used to be in the past.
Time was when fund managers allocated much of their assets to treasury bills, but that seems to be waning as yields on treasury bills head towards subzero.
According to the analysis, pension fund managers redeemed treasury bills worth N512 million in the two months combined but did not invest any additional kobo into treasury bills within the same period.
READ ALSO: Nigeria’s pension contributors add N186.43 billion to pension asset
Prior to this event, the pension fund had invested a combined sum of N1.88 trillion into treasury bills, representing 18.4% of total pension fund assets.
With that development, pension fund managers allocation to treasury bills now stands at 13%. This is about the first time, in over 5 years that PFM’s are shying away from treasury bills.
The love seems to have shifted to bank placements which attracted additional investment if N420 million from pension fund managers. FGN Bonds continue their camaraderie with pension fund managers as they pumped additional N352 million into FGN bonds in January and February, combined. This seeming reallocation to bank placements is indicative of pension fund managers’ desire to hold on to their cash, while waiting and hoping that yields will trend up anytime soon.
READ MORE: Pension fund multi fund structure performance
Yield Analysis: Fund managers who are out to seek ways to generate positive alpha or returns for their investors are running away because of the low treasury bill yields. The last Treasury Bill option that was conducted on May 13th, 2020, had stop rates of 2.5%, 2.85% and 3.84% for 91-day, 182-day and 364-day treasury bills respectively. Those rates were not enticing enough for the fund managers.
Strong Market Demand: This does not mean that Nigerian Treasury Bills are no longer in demand because, according to the NTB Auction Results sheet of May 13th, 2020, all the three tenors of treasury bills were oversubscribed.
While the 91-day Treasury Bill had N4,384,80,000 on offer, it attracted a total subscription of N22,334,588,000, the 182-day tenor which had N12,920,900,000 on offer saw N41,194,993,000 being subscribed for, while investors bid N102,030,671,000 for the 364-day tenor which had N16,536,720,000 on offer.
READ ALSO: Pension contributions from Nigerians under 30 dwindling at an alarming rate
Pension Fund Asset Allocation: All said and done, FGN bonds continue to be the asset type with the highest allocation from pension managers. Out of the N10.5 trillion total pension fund asset value as at February, 29th 2020, N5.6 trillion sits with FGN Bonds, while bank placements come second with an allocation of N1.48 trillion leaving Treasury Bills in the third position with an asset allocation of N1.37 trillion.
Fixed Income
MTN Nigeria begins N100 billion commercial paper issuance today
MTN Nigeria Communications Plc proposed Commercial Paper Issuance Offer begins today and is scheduled to close on Thursday, June 4, 2020.
MTN Nigeria Communications Plc has commenced its Commercial Paper (CP) Issuance (Series 1 & 2 of N50 billion each) under its N100 billion CP issuance programme on Thursday.
In a statement issued by the company and seen by Nairametrics, the telco explained that the issuance has a tenor of 180 days (CP 1) and 270 days (CP 2) with a discount rate of 4.6890% – 4.8797% (CP1) and 5.8500% – 6.000% (CP2).
Nairametrics had reported a few days ago when the telecommunication company notified the Nigerian Stock Exchange about the issuance.
Why it matters: The issuance is important to the telco, as it intends using the proceeds to its working capital and general corporate purposes in Nigeria. This issuance under the CP Programme represents MTN Nigeria’s debut in the domestic debt capital market.
READ ALSO: Bond: Lagos to raise N100 billion for infrastructural development
Details: Issuer; MTN Nigeria Communications Plc.
Arranger: Chapel Hill Denham Advisory Limited.
Tenor: 180 days (commercial paper 1) 270days (commercial paper 2).
Discount Rate: 4.6890% – 4.8797% (commercial paper 1) 5.6078% – 5.7455% (commercial paper 2).
Implied Yield: 4.8000% – 5.0000% (commercial paper 1) 5.8500% – 6.0000% (commercial paper 2).
Offer Open Date: Thursday, May 28, 2020.
Offer Close Date: Thursday, June 4, 2020.
READ MORE: Nigerian Breweries set to raise N15bn through CP issuance
Settlement Date: Friday, June 5, 2020.
Minimum subscription: N1 million.
Issuance size: N100 billion (series 1 & 2 commercial paper issuance N50billion each).
Issuer Rating: Aa+ (Augusto); AA (GCR).
Tax consideration: Free and clear of withholding Taxes.
(READ MORE: Economy: Local corporates taking advantage of the low yield environment )
MTNN is the leading telecommunications operator in the largest telecoms market in Africa. The company is the largest mobile operator and undisputed market leader in Nigeria, as measured by total mobile subscribers (c. 70 million), active data users (c. 26.8 million), revenue (almost 50% of industry), and profit pool.
MTNN is well-positioned for the long term, with its unmatched investments in its infrastructure – most expansive 2G, 3G, and 4G network, largest fibre network (c. 29,000km) that spans across Nigeria, largest physical and digital distribution platform, and wide range of spectrum holdings – and the exciting market opportunity Nigeria brings.
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MTNN is rated Aa+ by Agusto & Co. which reflects the company’s history of strong financial performance – record revenue in excess of N1 trillion (largest revs by a listed corporate), stable and healthy operating profit metrics (+53% EBITDA margin), comfortably low leverage (0.4x Net Debt/EBITDA, 10.8x interest coverage) that is predominantly local currency, and strong free cash flow.
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Samuel olugola
May 21, 2019 at 3:07 pm
Very educative,teachable analysis.
Hias
August 22, 2019 at 5:31 pm
Hasn’t Stanbicibtc Money Market Fund recorded far above performance in the same periods quoted?