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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.

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22nd Century portfolio, Weekly update of the Global Market ending 13th March 2020, Nigeria’s Banking stocks hit by asteroids, Index down 0.39%

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.

22nd Century portfolio

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.

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[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.

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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.

22nd Century portfolio

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%.

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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%.

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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.

22nd Century portfolio

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[READ ALSO: Equities: A bullish run to start the year)

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%.

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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.

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Nigerian women need over 50% representation in government by 2023

In Nigeria, there is still a need for Nigerian women to have up to 50% representation in government.

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Women are taking part in the governance and nation-building of their countries. In October 2019, the global participation rate of women at the national level was 24.5% compared to 8% in 2013 which is quite reassuring. However, in Nigeria, there is still a need for Nigerian women to have up to 50% representation in government.

The reason more women are needed in governance is that they have the expertise to aid in achieving a stronger and vibrant democracy. According to Mr Ban Ki-moon, the former Secretary-General of the United Nation, “When we empower women, we empower communities and nations and the entire human communities.”

A good number of women in Nigeria have made a significant impact on governance and nation-building. Historically, once women come together, they can make things happen because they understand their issues and can articulate them from a point of succinct comprehension.

Mrs. Fumilayo Ramson-Kuti was an activist and a political campaigner – 30 years ago, when there was a tax levy on women in Egba land, she coordinated a women’s union group after a long tussle with the colonial administration and traditional rulers.

Dr. Ngozi Okonjo-Iweala is another prominent woman in the global space. She served as Nigeria’s Finance Minister and also as Nigeria’s Foreign Affairs Minister. Currently, she is on the verge of becoming the first female and the first African Director-General of the World Trade Organization (WTO).

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Asides from these two, a lot of women are making waves in society – not only in politics but also in managerial positions and businesses.

Factors that hinder women’s participation in politics

 In 2016, there was a study by McKinsey that revealed that only 5% of women are CEOs of companies, 22% cabinet members, while 24% are elected to official positions in Africa.

More so, in the last election 2019 in Nigeria, there were up to 3000 women candidates across all the parties. However, only 64 women were elected and appointed into political offices. Looking at the figures, there is a clear indication that it is very low and needs to be addressed as the 2023 election approaches.

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Here are the major challenges affecting women’s involvement in politics in Nigeria.

  • Godfathers: In politics, godfatherism is a very big role. For women who are not able to build that network, it becomes a very big issue for them. To avert that, women are advised to create their own network in politics – support one another and assist each other in climbing the ladder, especially for those who are already in government.
  • Raising funds: Election campaigns are very expensive to participate in.
  • Religious factor/Traditional factors: A lot of people still feel women should be seen and not heard, because they are under a man and should be submissive. Cultural & religious barriers still exists, and it prohibits women from fully contributing to governance. The emergence of women as leaders does not need to subjugate their cultural and religious identities. Men & Women need to understand that it is only through joint decision-making and cooperation, that the society can thrive.

Here are what women can do to thrive in politics

For women to have 50% representation in government, here are what is needed.

  • Those already elected must see themselves as a springboard and position themselves strategically, so they can increase the number of women in political offices. It is also important for women to leverage technology and use social media to enable them to build a community of women leaders/activists.
  • Having already announced the date for 2023 election, it is imperative that women start preparing themselves ahead of the election and strategize on how to get more women elected to the government.
  • Finally, having a skill is very crucial for women who want to be community leaders.

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Columnists

Trump or Biden? How the US Presidential election will impact the stock market

A Trump victory will see a stock market bump, as traders buy shares to cover their Put options.

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US stocks are falling and volatility is going to increase as the US election head to a close on November 3rd. However, this is a systematic fall, meaning every stock in every sector is falling. Every sector save for a few healthcare stocks is down – irrespective of earnings. Why would Amazon stocks fall, even as demand is up?  This is a big market “tell” that the market sell-off has nothing to do with fundamentals.

Image 1 shows the Standard & Poor 500 index stocks categorized by sectors and industries.

Another key indicator that shows the market’s hand is the “VIX” – the trading symbol for the CBOE Volatility Index – that measures the implied volatility of the S&P 500 index. The VIX is muted, it’s up slightly – but nowhere near the levels seen in March and July of this year. What this tells us is that the market is less fearful. In other words, this is a planned sale by institutional investors not driven really by COVID-19 or stimulus fears.

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Why are all sectors in the market falling? The answer is simple; Investors are hedging against a Joe Biden victory in November.

Joe Biden‘s tax plan calls for an across the board tax hike on income, including Capital Gains taxes. This means if you filed as a single, bought the US Stocks in 2016 by buying the Vanguard Total Stock Market Index Investor (VTSMX), your return in 2019 would have been 52.2%. This return would have triggered a capital gains tax of 20%, if your income exceeded $441.451 as a single filer.

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Donald Trump on the other hand will tax long-term capital gain at 39.6$% on income above $1m. The maths is simple, investors that have made money in the stock market under the Trump tax cuts have an incentive to sell their stocks today or buy a Put option – to take in cash today and wait.

If Biden wins, they pay Capital gains taxes at the lower 20%; if Trump wins, they already have banked on their cash.

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Can you see the opportunity?

If Trump wins, these investors have to buy back those shares. Thus, a Trump victory and the Republican Party retaining the Senate will see a stock market bump, as traders buy shares to cover their Put options.

This is a simple play – if you think Trump will win, buy the market and go bullish.

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Columnists

October PMI reveals rebound in economic activities

Manufacturing PMI has remained below 50 index points for the past six consecutive months.

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Manufacturing: Activity levels pick up albeit readings still below water

According to the Purchasing Managers Index (PMI) data released by the Central Bank of Nigeria (CBN) for the month of October, activity levels in the manufacturing and nonmanufacturing sectors strengthened even as readings remained below 50 index points. Specifically, the manufacturing PMI expanded to 49.4 in October from 46.9 in September, indicating slower contraction compared to the prior five months. Similarly, the nonmanufacturing PMI strengthened to 46.8 in October from 41.9 in September, halting two months of consecutive contraction in the index. That said, we note that Manufacturing PMI has remained below 50 index points for the past six consecutive months while NonManfacturing PMI has been below 50 index points for the past seven consecutive months.

Across the key indices in the manufacturing PMI, save for Supplier delivery time (-1.7) which recorded some deterioration, the remaining four indices in the manufacturing sector improved in October; Raw materials/WIP Inventory (+3.2), New orders (+4.8), Production level (+2.7) and Employment level (+1.9). We think the deterioration in Supplier delivery time reflects the impact of the nationwide unrest and peaceful protests on logistics and distribution channels of manufacturing firms. Furthermore, we note that while Employment
level and Raw material inventories improved in October, they remain below the 50-point mark which reflects weak labour employment and FX illiquidity challenges impacting ability to import critical raw materials. The data further revealed that, of the 14 surveyed subsectors in the manufacturing sector, six (compared to four in September) reported growth while 8 (compared to ten in September) contracted.

For non-manufacturing PMI, all four of the key metrics recorded improvement albeit they all remained below the 50-point mark. Across all the indices; Business Activity (+5.0), Level of new orders (+8.3), Employment level (+2.6) and Inventory level (+3.2) showed decent improvements. We think the decent recovery in Non-manufacturing PMI was driven by sustained recovery in activities of service-based organisations in the face of reduced covid19 restrictions.


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.

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