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Business News

Common Mistakes Mutual Fund Investors Make

Buying mutual funds of similar characteristics, is a major reasons that people invest in mutual funds is diversification.

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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 books I remember reading while growing up is a book called, “Common Mistakes in English”, by T J Fitikides. That book so helped my mastery of the English language that I often recommended it to my friends and enemies alike. When my kids became of school age, it was one of the books that I bought for them, although they have refused to read it as religiously as I did then.

In those good old days, while reading this book, I had thought that it was only in English language that common mistakes were likely to be made. But coming almost full circle in life, I have come to realize that there are common mistakes made in every sphere of life. One area that common mistakes are found is in the area of investing, so in this article, I have chosen one tiny bit of that investing ecosystem to talk about the common mistakes made there. That area is mutual fund investing.

Mistake Number One: Buying Past Performance: One of the mistakes mutual fund investors make, in an attempt to make profits, is to buy those funds with highest returns. This is called chasing performance. It is, however, quite intuitive, and I have made that mistake in this past— a mistake that I am still paying for. But why is this a mistake? The main reason why buying a fund because it is ranked highest in the list of performers, is that past performance does not predict or guarantee future performance.

[READ ALSO: President Buhari assigns portfolios to all 43 ministers [Full-List]

For this reason, most mutual fund performance data providers warn those using the data that “past performance does not guarantee future performance.” Fund performance depends on such factors as economic conditions like interest rates. A fund that is up this year may be up next year or vice versa. While performance, as a decision variable, is good, it should not be the sole reason for choosing to invest in a particular fund.

Choosing a fund should be based on a combination of factors like performance, fund manager’s credibility, management style and the fund’s strategy. Rather than buying into the past performance of high-ranking funds, it may be better to buy into conservative but consistent funds. Another reason is that, as is known in investing, the higher the rate of return, the higher the risk— “High risk, high return,” they would say. Because of the higher risks that go with higher returns, buying into high return funds based on past performance, may not align your risk tolerance and risk appetite to such funds.

Mistake number 2: Buying Mutual Funds of Similar Characteristics: One of the reasons that people invest in mutual funds is diversification. Because mutual funds are a pool or a basket of financial assets, by investing in one fund, you get proportional exposure to all the financial assets contained in the basket. However, if you invest into multiple mutual funds with similar strategies or characteristics, you may run foul of diversification.

This is even more so in the Nigerian market space where there are not a lot of securities, so a lot of mutual funds end up holding similar or even the same securities. The danger of this is that by investing in multiple funds holding the same securities, albeit in varying degrees, you encounter concentration risk. One way to avoid this mistake is to find out the correlation between the funds you are interested in. Correlation is a measure of the degree to which two things move together.

If you are interested in two funds that are highly positively correlated, chances are that they invest in the same securities. Therefore, by investing in both, you will not only not achieve diversification, you will also be exposed to concentration risk.

Mistake number 3: Comparing Funds purely on their face value: Selecting which fund to invest in requires research and analysis. However, as noted already, many fund investors select funds without a deep perusal into what the funds invest in. It is possible to get a feel of the future performance or outlook of a fund by looking at its holdings. After all, a mutual fund is as good as the securities it holds.

[READ ALSO: Mobile money war: Telecoms threaten banks’ future in Nigeria]

 

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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.

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Tech News

Spotify podcast listeners set to surpass Apple podcast for the first time in 2021

Spotify’s investments have empowered podcast creators and advertisers through its proprietary hosting, creation, and monetization tools.

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The number of Spotify’s podcast listeners will surpass Apple’s listeners this year. According to a report by eMarketer, 28.2 million U.S. users will listen to podcasts on Spotify at least monthly, compared with 28.0 million via Apple Podcasts. This shift will come on the heels of the expected 41.3% in 2021.

Apple was the de facto destination for podcasts for a long time, but in recent years, it has not kept up with Spotify’s pace of investment and innovation in podcast content and technology.

By putting podcasts and music in one app, Spotify became the convenient one-stop-shop for everything digital audio. Unlike Apple that has a different app for podcasts instead of offering a well-integrated experience with music and podcasts in one app.

This shift made more people stick to Spotify for the sheer experience of streaming music and also listening to a podcast on the same platform. Other music streaming services like Amazon, Pandora, etc. also have the seamless experience of enjoying podcasts and music on the same App.

According to the report, Spotify’s investments have empowered podcast creators and advertisers through its proprietary hosting, creation, and monetization tools.

Overall, there will be 117.8 million overall monthly podcast listeners in 2021, a 10.1% year-over-year (YoY) increase. This year, podcast listeners will represent 53.9% of monthly digital audio listeners, surpassing 50% for the first time.

We anticipate that more audio listeners will start listening to podcasts monthly, leading to a 60.9% share by 2024.

This year, $1.28 billion will be spent on podcast advertising, surpassing $1 billion for the first time, representing a 41.0% YoY increase. Podcast advertising is continuing to gain a share of total digital audio ad spending, representing 24.0% in 2021.

What you should know

  • Last week, Spotify announced that it will be expanding its service to 85 new markets including Nigeria.
  • This new expansion came with other upcoming features and products like the paid podcast subscriptions that will allow creators to publish paid podcast content aimed at their most dedicated fans.
  • Spotify is also partnering with WordPress to add a new integration to its platform similar to Clubhouse. This integration will make it easier for bloggers to turn their posts into podcasts, either by reading the blog posts themselves or leveraging third-party text-to-speech technology

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Coronavirus

Peter Obi urges FG to beg manufacturers, rich nations for COVID-19 vaccines

Obi urged the FG to consider appealing to rich nations, drug manufacturers for vaccines instead of spending billions of nairas to procure them.

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Katsina Abduction, Recession: Economy should be redirected from wasteful-consumption to productivity — Peter Obi

Former governor of Anambra State, Peter Obi has appealed to the Federal Government to take a second look at their stipulated Covid-19 budget and rather, consider begging drug manufacturers and rich nations for the vaccines.

The former Vice Presidential candidate while speaking in an interview on Channels Television, lamented on what he felt was an over-the-top and ludicrous budget for the Covid-19 vaccines and advised that the FG should instead, appeal to manufacturers for the vaccine.

Obi, speaking on the FG Procurement Budget for the Covid-19 vaccine explained that it makes little sense for Nigeria to apportion 80% of its health budget for the procurement of Covid-19 only. He also stated that sufficient Covid-19 vaccine for the country can be purchased for a price way below the figure being put forward by the FG.

They said they need N400bn. Our Budget for health this year is N547bn and you are saying that you need 80% of that for vaccine procurement. Assuming that’s what we are going to use the money for. I have checked the vaccine we need to have 70% which WHO has stipulated that if they receive it is okay. The quantity we need cannot cost us more than N150bn. It might be less because there are people who are willing to give vaccines for free,” Obi said.

Mr. Obi took it a step further by advising the FG on how to go about the quest to get Covid-19 vaccines at a much cheaper rate. He believes the country should own up to its poor status and demand for help unashamedly. This, he said, will reduce the amount the FG will pay for the Covid-19 vaccines.

Why don’t we beg manufacturers to donate, saying to them that we don’t have anything. We can go kneel and beg them saying please give us the vaccines. We are from a poor country. Give us a discount. There is nothing wrong with saying that you are poor. It is not a crime. Because you are poor,” Obi added.

Since pharmaceutical companies and drug manufacturers began discovering and manufacturing vaccines against the novel Covid-19, there have been concerns that the poorer nations might be left far behind in the race to acquire the vaccines.

In case you missed it

  • Nigeria received its first batch of Covid 19 vaccines from India today. The first batch of Oxford AstraZeneca COVID-19 vaccines from India landed in the Nigerian capital Abuja on Tuesday.
  • About 3.94 million doses of the vaccines arrived at Nnamdi Azikiwe International Airport Abuja via an Emirates flight.

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