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.
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.
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.
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.
Mutual Funds in Nigeria and how they rank in reporting and transparency
Even the fund manager stands to gain from transparency in reporting mutual fund activities.
Mutual funds in Nigeria are growing both in number and asset value. Going by the latest NAV Summary Report from the Security and Exchange Commission, (SEC) for the week ending June 19th, 2020, there are 106 mutual funds in Nigeria with a total asset value of N1,337,044,839,679 the equivalent of $3,714,013,444. That is about the most that one can confidently and unequivocally say about Nigerian mutual funds. That underscores the extent of transparency, or lack thereof, in mutual fund reporting in Nigeria. One would expect that an industry that large, one whose net asset value represents 10% of Nigeria’s stock market capitalization, would not be shrouded in any form of opacity.
What is Transparency: The dictionary meaning of transparency is “the state of being easily detected or seen through, easily and readily understood”. When that definition is applied to mutual funds, transparency translates into the ability of the investor to look through his investment portfolio report or fact sheet and be able to see what the investment manager is doing with his money.
Why Transparency in Reporting Matters to the investor: Though mutual fund investors may largely be retail investors with not so much investment knowledge, they would like to monitor their investment performance, the risks involved as well as what their money is being invested in. In addition, investors would like to know how much they pay by way of fees. Transparency makes that information known. To the investor, more transparency translates to more information upon which investment decisions can be made. It also increases the level of comfort that investors have about the fund manager to whom they have given their money to manage.
Why Transparency Matters to the Fund Manager: Even the fund manager stands to gain from transparency in reporting mutual fund activities. Fund managers operate in a competitive market environment and transparency gives them a competitive advantage. A fund manager that discloses information readily, timely, and voluntarily stands to attract investment contributions from investors. It helps to make communication with investors clearer and timely.
Fund Managers Transparency Ranking: Having made known what and why transparency in mutual fund reporting is and should be the norm, I present below a transparency ranking of fund managers based on the availability of requisite information on their website or elsewhere, the frequency and availability of fact sheets as well as the content of such factsheets.
Stanbic IBTC Asset Management Company:
Daily Prices: Stanbic IBTC Asset Management Company has been at the forefront of mutual fund reporting transparency in Nigeria. It has daily fund prices for the 14 funds it manages updated daily on its website and sent to you upon request. Not only are the prices readily available daily, but they are also available on a historical (inception to date) basis.
Factsheets: Prior to 2019, Stanbic IBTC Asset Management Company used to have a monthly fact sheet for each of their funds, but that got changed to a consolidated quarterly report. The quarterly report is released on a timely basis. The beauty of that report is that it tells the investor the risk profile of each fund, the expense ratio, asset allocation by sector, top 3 stock holdings (which is grossly inadequate disclosure) as well as current fund performance juxtaposed with 3- and 5-year performance data. The fact sheet also shows the investor the performance of the benchmark index for each fund. Other information contained in the fact sheet includes fund size, NAV, initial and subsequent investments as well as fund objectives. The Q1 2020 factsheets are currently on the website.
Annual Financial Reports: In addition to the rendition of the fact sheets as noted above, Stanbic IBTC Asset Management publishes the audited financial statements of all the funds under its management. Although that of 2019 has not been published, that of 2018 has been published.
Vetiva Asset Management Company:
Daily Prices: Vetiva Asset Management Company is the second most transparent fund manager in Nigeria. The daily fund prices are readily available although some times it looks like only the dates change without the actual prices changing. This may have to do with the valuation frequency of the funds.
Factsheets: Vetiva Asset Management Company has a monthly factsheet for its funds. The fact sheet contains most of the information that investors require. It beats Stanbic IBTC as it reports the top 10 holdings, which is better than Stanbic’s 3 top holdings. Like Stanbic, Vetiva Asset Management Company reports the risk profile of its funds but not all, and also reports the gross expense ratio. In addition, it lets investors see the funds’ MTD, QTD, YTD, ITD performance in juxtaposition with the relevant benchmarks. The factsheets used to be timely but as at the time of writing, the latest available is for the end of March 2020, it is likely they fund manager may be changing to quarterly reporting like Stanbic IBTC. Other pertinent information on the fact sheet includes dividend history, NAV, Bloomberg identifier, and lots more.
Lotus Capital Asset Management Company:
Daily Prices: Lotus Capital Asset Management comes next in line on transparency in mutual fund reporting. The fund manager publishes daily mutual fund prices but unlike Stanbic and like Vetiva, historical prices are not readily available. In that case, the prices are available on a get it or lose it basis.
Fact Sheets: Lotus Capital Asset Management publishes its factsheets on a quarterly basis and has published Q1 2020 edition for each of its funds. Though it does not show expense ratio, it shows the management and incentive fee percentages as well as a description of the risk profile of the fund. In terms of returns, the factsheet shows the QTD, YTD and ITD returns. It does show 5 top stock holdings as well as asset allocation by sector.
Annual Financial Reports: In addition to the fact sheets being available quarterly, Lotus Capital Asset Management publishes the audited financial statements of all the funds under its management. And the 2019 audited financial statement has been put on the platform.
Quantum Zenith Asset Management Company:
Daily Prices: Quantum Zenith Asset management Company has made a lot of changes to its reporting and by so doing has become one of the most transparent in mutual fund reporting. Daily prices are readily available as well as historical prices in downloadable form.
Factsheets: Quantum Zenith Asset management Company has the funds’ factsheets tucked away on the website The fund manager will be better off making it easier for investors to find the factsheets as its presence is not very evident from the home page. The fact sheet has most of the required information including top 5 holdings. The beauty of the performance presentation is that it shows whether the fund is out or under perfuming the relevant index and by how much. Information on expense ratio is not provided except the management fee rate.
United Capital Asset Management Company:
Daily Prices: United Capital Asset Management Company would probably have ranked the first or second fund manager if not for the lack of daily prices. On its web site, the last daily price is dated June 14th, 2019. However, I have been receiving the weekly prices upon request and investors can too.
Factsheets: United Capital Asset Mgt. Ltd publishes a monthly fact sheet, the latest being for the month of May 2020. The factsheet shows the risk profile of the fund, the total expense ratio, as well as MTD and YTD return numbers put side by side with that of the benchmark in addition to a 5-year performance summary. Unfortunately, it does not contain information on what the funds are invested in but it shows the allocation by asset type.
FSDH is another fund manager that practices or is cognizant of the importance of transparency in fund reporting. The fund manager reports daily prices which can also be downloaded on a historical basis. It also publishes fact sheets. Regrettably, FSDH has been slacking on the timeliness of the fact sheets as the last published ones are for Q4 2019
FCMB Asset Management is yet another reporting transparency conscious fund. The fund manager ensures that the fund prices are on their website daily. They used to let investors have the funds’ fact sheets but that has stopped as the last one posted was for December 2018
Other Fund Managers: There are other fund managers that are transparent with regard to daily fund prices like ARM Asset Management, Afrinvest, Chapelhill, FBN, FCMB, and Meristem but the lack of factsheets pushed them out of contention.
Conclusion: The fund industry has come a long way in Nigeria and it continues to evolve, as the regulators tie all the loose ends and fund managers begin to leverage off of the advantages from transparency, my hope is that mutual fund reporting will improve and the investors will be the happier for it.
Mutual Fund Reporting: A call for standardization
Nigerian Mutual Funds do not make their financial reports public.
One of the banes of mutual funds in Nigeria is the lack of proper reporting. In some cases, the reports are either not available at all, or lacking in timeliness. Most importantly, when available, the reports lack uniformity. This lack of uniformity makes it difficult for investors to compare among mutual funds.
Why Mutual fund reports are important: The importance of timely and standardized mutual fund reporting to investors cannot be overemphasized. Mutual fund reports are a means by which fund managers provide periodic information to their investors. Such reports act as a vehicle by which financial and other relevant information is provided or communicated to shareholders. The reports allow investors the ability to make better-informed investment decisions. It allows investors to compare among funds prior to and/or during investing.
What should be disclosed; Because there are many information relating to mutual funds, not all of them call for disclosure but the most important ones should be disclosed with respect to each fund in a way that makes it easy for investors to find and understand. Here are the important things that should be disclosed in a standardized form:
Fund Fees: One important consideration for a mutual fund investor is the expenses that he or she has to bear by investing in a mutual fund. Mutual funds typically disclose information about their fees in their prospectus; however, it is important that those fees also be disclosed in the monthly reports and fact sheets to remind and keep investors abreast of the fees. Some funds do this, as at the moment, but many do not either issue fact sheets or do not disclose fees in them.
Portfolio Position Holdings: Mutual funds invest in other securities and investors should be made to know what their funds are invested in. Unfortunately, most mutual funds in Nigeria do not disclose this information. At best, they show the industry or sector classifications of what they invest in. Though it may not be easy to disclose all the holdings, especially with a large fund, but fund managers should be able and required to disclose any investment that is more than a given percentage of the fund’s net asset value, like 10%. At the barest minimum, fund managers should be required to disclose the largest 10 investments in the fund.
Disclosure of position holdings helps investors to know the extent to which they are exposed to concentration risk, the extent of diversification in a fund, and the extent of correlation between funds, for investors investing in multiple funds. In other words, disclosing position holdings will enable investors to know the extent to which their funds overlap and also form the basis of making informed asset allocation decisions. A disclosure of position holdings will help investors know when a fund manager engages in style drift, an indication of when a fund manager deviates from the investment objectives of a fund. When fund managers disclose position holdings, it places investors in a better position to evaluate the fund’s risk profile and investment strategy.
Fund Performance: Even though past performance does not guarantee future performance, fund managers should disclose fund performance in a consistent and similar manner in their reports. Such reports should show month to date, quarter to date as well as year to date returns. It should even show inception to date returns, and if possible, shown as a cluster of monthly returns. This will help investors know whether a fund manager is consistent in his/her performance or if the fund performs well in up markets or in down markets or in both.
Structure of Reports: It is not only the information that requires disclosure that should be standardized, the structure of the reports should be as well. A situation where one fund shows the performance of the fund on the first page and another fund hides it as a fine print, does not make comparison easy. Therefore, funds should locate similar information on the same spot across fund reports so that investors can easily find them in one report based on their experience with another report.
Conclusion: Mutual funds in Nigeria have come a long way and they have come to stay. It is time for the regulators of mutual funds to come up with guidelines on reporting standards and frequencies in order to make understanding and using of such reports easy for investors. By so doing, there will be a level playing field for all funds. As it stands, the regulation of mutual funds in Nigeria seem to be lacking in certain areas. Such standardization, while increasing investors’ understanding will also help in getting more prospective investors interested in the mutual fund industry, and invariably lead to the growth of the industry.
SEC clarifies new rules for mutual funds, sets new deadline for compliance
SEC stated that all the fund managers of collective investment schemes are to comply with the new rules.
The Security and Exchange Commission (SEC) has sought to clarify the new rules and guidelines for Collective Investment Schemes (CIS) otherwise known as mutual funds. This is the sequel to an earlier publication of new rules relating to the collective investment schemes in December 2019.
In the new rule, SEC stated that all the fund managers of collective investment schemes are required to comply with the provisions of the new rules and file evidence of compliance on or before September 30, 2020.
This was contained in a circular that was released by the Security and Exchange Commission to the investing public on June 22.
The apex capital market regulator also pointed out that the application of the new total expense ratio and incentive fee computation takes effect from the beginning of the third quarter of 2020, which is by July 2020.
According to the circular from SEC, ‘’Sequel to the publication of new Rules relating Collective Investment Schemes in December 2019, the Commission hereby issues the following clarifications to facilitate effective compliance with the new CIS Rules.’’
‘’All Fund Managers of Collective Investment Schemes are required to comply with the provisions of the new Rules and file evidence of compliance on or before September 30 2020;
‘’The application of the new total expense ratio and incentive fee computation takes effect from the beginning of Q3,2020, i.e. July 2020;
‘’ Incentive fees should not be factored into total expense ratio computation and shall be assessable and payable on an annual basis;
‘’The Fund Managers Association of Nigeria (FMAN) shall submit acceptable benchmarks for Money Market Funds, Balanced Funds and Ethical Funds at the beginning of each year commencing Q3. 2020.’’
Mutual funds usually refer to a financial vehicle made up of a pool of funds collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.