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Columnists
How to build a portfolio fit for 22nd Century
In a world of investment complexity, you need simplicity, frugality and impact. it’s simply too expensive and time-consuming to research all stocks and opportunities.
The world is truly a global village. Today, it is routine for a bank founded in Lagos, Nigeria, to raise capital in London by issuing Eurobonds and using those $ investment to buy ATMs with software designed in California, built in China and transported on a ship owned by the California Pension fund, licensed in Libera and captained by a Philippine crew.
If you walk to your fridge in Kano and open it, chances are you will find products from Coca Cola of America; if you go to your sitting room, the TV was assembled by Samsung of South Korea with content streaming via DSTV of South Africa. Your Apple iPhone was made in Vietnam, your generator by Honda of Japan, and your wallet has a Mastercard from the US. You are a global consumer of brands and services. You may buy your cocoa drink from Nestle Nigeria Plc; that cocoa is probably grown in Oyo by Nigerian farmers, but it is sold by a company majorly owned by a Swiss firm.
What about your investing?
Do you invest locally or globally? Why is it even important to invest globally? Let talk about two topics: Risk, and Asset Allocation.
Risk
Risk is volatility, i.e. a numerical expression of uncertainty. Risk in investing means you are not sure of investment outcomes including safety of invested capital. When you invest in the shares of a single company, you can lose 100% of that investment. What if you invest in two companies? Well, simplistic math says the probability of you losing all your capital falls to 50%. A portfolio of a basket of securities has lower volatility, i.e., less risk than a single holding. So, in investing, the maxim holds, don’t put all your shares in one basket.
[READ MORE: Global stocks tumble on “Corona” sell off)
What about asset allocation?
Asset allocation aims to build you a basket that matches your Age, Risk Profile and Investment Objectives. If you are a younger investor, best practices in asset allocations will propose a portfolio to you designed to be overweight in equities than bonds. If you have an aversion to risk, asset allocation will propose a portfolio selection based on fixed income securities.
The global investor can reduce his investment risk by expanding the available pool of investments to include globally issued securities, and this is done via buying Exchange Traded Funds (EFT), a class of investment securities that offers the diversification effects of Mutual Funds but allow trades to be made during trading hours, unlike Mutual Funds that trade at the end of day using Net Asset Values (NAV). The ETF chosen are all index ETF, meaning they track the performance of that identified index; being passively managed means less management fee.
How do we build the portfolio fit for the 22nd century for a global consumer and investor? In a world of investment complexity, you need simplicity, frugality and impact. it’s simply too expensive and time-consuming to research all stocks and opportunities. With ETFs, it’s now possible to invest in a targeted manner to take advantage of a specific demographic, sector or opportunity.
There are just two types of investment options, Fixed income like Bonds, where the returns are known in advance, and Variable income like Equity where the investment returns cannot be determined in advance. Below are my recommended ETFs for the global investor. Please note all yields are quoted in USD for uniformity.
Global X MSCI Nigeria ETF tracks the return on the Nigerian Stock Exchange’s most liquid 30 stocks. Expense ratio of 0.88% 5-year return of -16.40%.
VETIVA S & P Nigeria Sovereign Bond ETF, tracks the performance of local currency-denominated sovereign bonds in Nigeria. It has dividend yield of 5.78%.
Vanguard Total Stock Market ETF VTI tracks over 3,500 US stocks, the index aims to represent the entire US Equity market with an expense ratio of 0.03% 5-year return of 8.72%, with dividend yield of 2.35%.
Vanguard Total International Stock (VXUS) mirrors the investment return of stocks issued by companies located outside the United States. Total expense ratio is 0.09% with a 5-year return of 2.55%.
Vanguard Total World Stock ETF (VT) tracks well established and still-developing markets, both US and foreign stocks. It has an expense ratio of 0.09%, and 5-year return of 5.85%.
Vanguard Total Bond Market ETF (BND) tracks a wide spectrum of public investment grade securities in the US, with an expense Ratio of 0.04% and YTD return of 3.89%
Vanguard Total World Bond ETF (BNDW) Broad, diversified exposure to the global investment-grade bond market. Expense ratio of 0.06%, YTD return of 3.25%.
Next thing to do is simply select from our table and build a portfolio fit for investment purpose.
E.g., Ade, a 25-year-old seeking to invest for his retirement 30 years from today, can build a portfolio of 80% Variable Income and 20 % fixed Income.
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This portfolio makes Ade a shareholder in every large company in the world; he participates in equity dividends as well as coupons from the US and Nigerian governments. His average cost, if he invested $100, is about .027%.
Do note there are many asset allocation models and investment options also available to Ade. He can select ETFs that pay a dividend, that invest in SME, or even in a specific sector like biotech.
Columnists
Nigeria’s high recurrent costs, low revenue and escalating debt numbers
Nigeria continues to face issues of poor revenue generation and a lack of will to efficiently manage its expenditure.
In the recently released Q3 2020 debt report by the National Bureau of Statistics, the total public debt was N32.22trn as of 30 September 2020, with local debt making up 62.18% of the total public debt in the period while external debt made up 37.82%.
This is similar to the country’s debt structure in the same period of 2019 when domestic debt made up 68.45% of total public debt and external debt made up 31.55%. Whilst debt to GDP ratio remains within the acceptable threshold, we are increasingly concerned about the nation’s ballooning debt service to revenue ratio.
READ: U.S. budget suffers a deficit of $3.1 trillion in 2020, as pandemic slams the economy
Recall that the Federal Government of Nigeria following a series of revisions to the 2020 appropriation bill arrived at a fiscal deficit of N4.98trn. Based on the finance ministry data, an aggregation of debt monetization (N2.86trn) and New borrowings (N3.28trn) was used to finance the deficit.
READ: Heads of defaulting revenue generating agencies will be severely sanctioned – Buhari
The 2021 appropriation bill forecasts a budget deficit of N5.60tn which would be financed mainly by borrowings of N4.69tn, privatization proceeds of N205.15bn and project linked bilateral & multilateral loans of N709.69bn. The country’s financing structure is of concern when one considers that the budget is tilted more towards recurrent expenditure than capital expenditure and raises questions on the sustainability of the current fiscal practices.
READ: FG directs the suspension of NIMC staff involved in extortion of NIN applicants
The significantly higher recurrent component of the budget continues to drag the country’s economic growth, resulting in poor infrastructural development. Spending more on capital projects can promote industrialization, improve local purchasing power and help the federal government’s diversification drive.
READ: NEM Insurance CEO/MD purchases 4 million additional shares worth N9.2 million
Nigeria continues to face issues of poor revenue generation and lack of will to efficiently manage its expenditure. No significant cuts have been made to its overheads and statutory spending has continued to rise. Nigeria’s growing debt stock with little to show for it in terms of capital expenditure remains a major concern.
READ: Nigeria’s total public debt stock increased by N2.381 trillion in 3 months
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.
Columnists
How Africa’s youth contribute to the African society
The growth of technology has created an opportunity for several African youths to come up with new innovations.
Africa has been called a lot of names – dark continent, the savage, the continent of Safaris, third world, emerging market continent and more recently, Sh**hole, but it is hardly called the Continent of Youths.
It is not a secret that the youths are the future of the African continent. They are already emerging and will be the next thought leaders, creators and innovators that will help galvanize the African continent to greater heights.
According to the United Nations in 2015, Africa has 226 million youth aged 15-24 and one-fifth of the world’s youth population. This means that one out of every five youth on earth is from Africa. The African Youth population is forecasted to grow by 42% by 2030. There should be a new focus on the youth in Africa, as we examine how much they contribute currently to the continent.
One area where youth are thriving well in Africa is in the tech sector. The sector has become an interesting source of Foreign Direct Investments and in 2019 accounted for close to half a billion-dollar raked into the continent. In 2020, – the Paystack/Stripes deal brought in about 200 million dollars. The growth of technology has created an opportunity for several African youths to come up with new innovations, which are even more helpful in the current fledging economic and social climate affected by the pandemic.
There are several examples of many African youths using technology to start new ventures. Mike Endale, an Ethiopian American based in Washington, D.C, who is the principal at BLEN Corp, an information technology firm that leads the Ethiopia COVID-19 Emergency Tech Volunteer Task Team and assists Ethiopia’s Ministry of Health. During the pandemic, they have recruited over 1,700 software engineers and have even created an Africa COVID-19 response toolkit.
Temie Giwa-Tubosun, the founder of LifeBank in Nigeria, is another African youth making strides in the tech scene. Since its establishment in 2016, it helps to deliver 22,830 units of blood, according to Next Billion, to hospitals in Nigeria, which help connect donors to blood banks. Next Billion also stated that LifeBank conducts drive through COVID-19 testing and supply oxygen to health centers. The Lifebank recently expanded in East Africa. In December 20280, the US- Africa Business Center of the US Chamber in conjunction with the American Business Council Nigeria in recognition of the great impact of start-ups in the wake of the Pandemic, inaugurated a digital entrepreneurship competition.
African youths are also thriving in the entertainment sector, particularly in the music business. The Afrobeats genre continues to rule the music world and the likes of Burna Boy, Davido, Mr. Eazi and Omah Lay, who are still in their 20’s, spearhead and remain the face of the genre. The international recognition of Afrobeats has given artists more visibility on the global forefront. This was the case for Davido, Mr. Eazi and Tiwa Savage, who were featured on the cover of the Billboard magazine. Music remains of significant importance and the youths are a big factor to the success of the industry.
In Nigeria, the music revenue grew from $26 million in 2014 to $34 million dollars in 2018, according to Statista. The music revenue in Nigeria is expected to increase to $44 million by 2023 as reported by Statista.
Africa’s youth are also flying high in the area of sports, particularly in soccer. Wilfred Ndidi and Kelechi Ihenacho of Nigeria (both players at Leicester City in the English Premier League) come to mind. Also, Percy Tau, a South African soccer player, who was with R.S.C Anderlecht in Belgium, will now be returning to his parent club, Brighton & Hove Albion in the premier league. Tau plays in a forward position and he is expected to make his debut for the seagulls (Brighton & Hove Albion) in the 2020-21 season of the premier league.
Lastly, youths in Africa have also been influential on the activism forefront, especially in the last couple of years. This was evident in October of 2020, when several Nigerian youths took to the streets to fight against police brutality in the End SARS protests. In Uganda, Musicians like Bobi Wine’s foray into Politics first as a parliamentarian and presidential candidate is attracting more youth to get into politics.
Other youths like Christelle Kwizera, founder of Water Access Rwanda, have been involved in helping communities with access to water. According to Global Citizen, Kwizera’s plan is to eradicate water scarcity and to provide clean water for people in local communities. Currently, her organization has supplied 70,000 people in Rwanda with clean water. Kwizera’s efforts earned her the Cisco Youth Leadership Award at the 2020 Global Citizen Prize.
African youths definitely have a lot to offer in several sectors and this would be vital to the growth of the continent. African governments need to understand this and invest meaningfully and in a sustainable way on the youth population to reduce the migration drain.
The enthusiasm, the work rate, and efforts are why the current children of Africa have an opportunity to be wonderful leaders of tomorrow. With the right nurturing environment in place, Africa’s future is in safe hands.
Written by Paul Olele
Columnists
World Bank’s global outlook amid COVID-19 surge
The World Bank’s projection for Sub-Saharan Africa (SSA) is expected to grow by 2.7%, while the expected growth for Nigeria is set at 1.1% in 2021.
Recently, the World Bank published its January 2021 global economic prospects. The bank expects global growth to expand by 4% in 2021 from an estimated 4.3% contraction in 2020.
In the report, the World Bank expressed concerns about the recovery phase of many economies, especially the emerging and developing economies except policymakers can put in place robust and comprehensive policy framework to improve the existing frail business and economic environment caused by the unprecedented coronavirus pandemic.
The bank’s growth projection for advanced economies (AEs) and emerging & developing economies (EMDEs) including China was 3.3% and 5.0% in 2021 respectively. Sub-Saharan Africa (SSA) is expected to grow by 2.7%, while the expected growth for Nigeria is set at 1.1% in 2021.
The World Bank appears less optimistic about the growth prospects across the globe including Nigeria as many countries are enfeebled as a result of the ripple effect of the pandemic causing elevated debt levels, rising unemployment and with the new strain of Covid-19 in many countries resulting in renewed lockdowns and restrictions, growth estimates may not be met. The bank stresses that quicker vaccination process across the world would aid faster economic growth which could step up to 5%, while a possible delay in rollout of vaccines amid rising infections could hamper growth expansion to 1.6% in 2021.
The prospect of quick vaccination appears a little bleak to us at this time. To give perspective, according to the Center for Disease Control (CDC) a few days ago, only 6.7 million Americans had received at least the first dose of the vaccine and that is roughly 2% of America’s population in 2 months.
The bank extended its weakened optimism to Nigeria as the country faces severe pressures from dwindling oil revenues, weak private investments, eroding consumer spending power and declining foreign investor participation.
In our opinion, restoring the economy to the path of sustainable growth requires government’s conscious efforts in addressing structural challenges impeding growth in the economy.
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.
