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Funds Management

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.

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Nine funds that joined the league of mutual funds in 2019, Nigeria’s best performing mutual funds in 2019, SEC clarifies new rules for mutual funds, sets new deadline for compliance 

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.  

READ MORE: NSE’s Oscar Onyema urges market operators to explore opportunities in Finance Act

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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. 

 

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Funds Management

A closer look at the Retirement Savings Account (RSAs)

RSA return is an amount equal to the total pension contribution made, plus investment returns.

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A closer look at the Retirement Savings Account (RSAs)

Nigeria’s Pension Scheme reform is a success. Nigeria essentially went from a Pay As You Go scheme owing about N2 trillion in unfunded pension liabilities, to an occupational scheme with nine million individual contributors with Assets under Management of N10.7 trillion. Nigeria today operates a Defined Contributory scheme, where the contributions are defined but the end benefits are not, unlike the previous Defined Benefits where the final benefits could be calculated and established as a liability, irrespective of fund return or accumulation to meet that obligation.

The Pension Reform Act of 2004 (PRA) created individual accounts called Retirement Savings Account (RSA), Pension contributions are fully invested in the RSAs. When a contributor retires, the RSA return is an amount equal to the total pension contribution made, plus investment returns. To be clear, the PRA only has a minimum guaranteed payout. The PFAs have the responsibility to ensure each contributor gets a real risk-adjusted return from invested assets.

READ MORE: Q2 2019: Sacked employees withdraw N113.21bn pension fund

I took a look at the asset allocation of the RSA, which essentially is what the PFAs are investing in to repay contributors. Asset Allocation is basically allocating a portfolio to different assets to achieve the objective of a client. A client has N1m and says “I want to retire, I don’t want risk, invest for me”. The most important question the investment manager will ask is how old you are? Why? That sets the investment horizon and drives the assets to be selected. If the client is near retirement, it automatically tells the investment manager that fixed income securities must take preponderance over risker variable assets like equity.

What if the client is 25? Well that means he has a lot of compounding periods to invest and must seek to grow the principal because inflation has a longer time to deplete the contributions.

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What is the investment objective of the RSA? simple, Retirement Income. Whilst you work, you save into your RSA, when you retire, the RSA then pays you a “salary” called a Pension. Let’s look at the RSAs, how old is the client? According to data from PenCom 57% of RSA holders are aged below 40. If we consider that the usual retirement age is about 60, this is an incredibly young pool of contributors, to be clear only 12% of contributors were aged 51 years and above. Following best practice in asset allocation, such a pool of contributors have more years (thus more compounding periods), thus inflation risk is more prevalent, but that longer duration allows younger contributors more time to take and recover from risk, this means the bulk of their portfolios should naturally be in equities.

READ MORE: Why interest rates on treasury bills, bonds crashed

Based on the age of contributors the PFAs can accommodate more volatility which generates returns and grows the original principal so that the RSAs have sufficient after-inflation return. So what are PFAs doing? Let’s pick two years, 2007 and 2020

Figure 1. Asset Allocation of PFA

  2007% 2020 %
FGN Bonds 59 75
Money Market 21 13
Equities 15 5

READ ALSO: DMO offers N150 billion worth of FGN Bonds for subscription

In 2007. Almost 81% of the RSA assets are in securities that will yield income, NOT grow principal. There was also a mismatch in allocation as a younger population got less allocation to equities. The PFAs will counter by saying FGN bonds were safer and Pension are safety first.

As of May 2020, the picture is unchanged but now 75% of RSA assets are in FGN bonds (Income) with only 5.15% in Equities (Capital Appreciation). The mismatch chickens have now come home as returns on T-bills and Money market has fallen and Nigerian equity yields now look very attractive.

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My worry is that the PFAs return will not be “real” as inflation has now surpassed most fixed income instruments in Nigeria. PFAs were essentially chasing yields by buying short term Treasury bills which paid higher rates but with a shorter duration than equities and today, they are sitting on reinvestment risk.

We will do a deeper dive into the RSAs next time.

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Funds Management

Nigeria’s pension assets rise to N10.8 trillion in May 2020

PenCom’s Acting DG said pension fund managers have been very cautious about where they invest.

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Nigeria’s Pension Asset increased by N228 billion in October, PFAs increase investment in infrastructure to N40.52 billion   

Nigeria’s National Pension Commission (PenCom) disclosed that the country’s total pension assets increased to N10.8 trillion as of May 2020, up from N10.6 trillion in April this year.

The report, which was published Monday on PenCom’s website, also revealed that the total number of Retirement Savings Account (RSA) holders had increased from N8.8 million as it was last reported, to more than 9 million as of May this year.

READ ALSO: Pension funds are in trouble as inflation erodes asset values by 100%  

Further details

The report went further to break down the various asset classes in which the pension funds have been invested. For instance, a bulk of the funds (about N7.2 trillion representing 66.7%) was invested in Federal Government’s Securities. The table below contains the complete breakdown.

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READ ALSO: Is the pension asset just another cookie jar?

Meanwhile, PenCom’s Acting Director-General, Aisha Dahir-Umar, said pension fund managers have been very cautious about where they invest. She also offered further explanation, saying:

“Since the introduction of the Multi-Fund Structure that created four different funds, the investment of the funds has varied from one another. Fund 1 has a maximum limit of 30 percent, Fund II has a maximum of 25 percent and Fund IV allows maximum of five percent.

“The allowable exposures to variable income instruments have been designed such that Fund I has the highest allowable limit, followed by Fund II, III and IV. This reduces the risk and uncertainty of contributors in line with their ages.’’

READ MORE: Private Sector drives industry growth, as PenCom remits N7.4bn into RSA

Recall that a recent article by Nairametrics mentioned how the COVID-19 pandemic had caused a drastic reduction in the rate at which new Retirement Savings Accounts (RSA) is being opened. Apparently, many companies have been unable to recruit new employees since the pandemic hit Nigeria and wrought economic challenges on different sectors. Unfortunately, PFAs’ failure to open sign up new RSA accounts could affect the total pension assets in the long run.

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Funds Management

Best Mutual Funds in Nigeria

These are the best mutual funds in Nigeria to invest in based on performance.

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Best Mutual Funds in Nigeria

Mutual Funds are a great form of investing especially if you are a passive investor. According to data from the Security and Exchange Commission, Nigeria has about 107 Mutual Funds cut across several Fund Types. Here is a breakdown of the Fund Types available for investors according to SEC.

TYPES Number
BOND FUNDS 9
EQUITY BASED FUNDS 13
ETHICAL FUNDS 6
EXCHANGE TRADED FUNDS 10
FIXED INCOME FUNDS 21
INFRASTRUCTURE FUND 1
MIXED FUNDS 21
MONEY MARKET FUNDS 23
REAL ESTATE FUNDS 3
TOTAL 107

To determine the best performing Funds, we looked at the Fund Prices as of the last business day in December 2019 and compared to the fund prices as of the last trading day of June 2020. These are the top 5. We also included profiles of the funds as described in their websites.

Explore useful research data from Nairametrics on Nairalytics


New Gold ETF

Vetiva’s The NewGold Exchange Traded Fund (NewGold) is an Exchange Traded Fund that was listed on The Nigerian Stock Exchange (NSE) in December 2011. It tracks the price of gold and offers institutional and retail investors the opportunity to invest in a listed instrument (structured as a debenture) that is fully backed by gold bullion. Each NewGold security is equivalent to approximately 1/100 ounces of real gold bullion held in a secured stockpile of gold bullion. All gold is kept in the form of London Gold Delivery Bars and Good Delivery Standards are prescribed by LBMA.

December 27th

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Fund Price – N5,220

June 26th

Fund Price – N8,000

Return –  53.3%

Ranking – First

Commentary: Gold prices have been on the up since the Covid-19 pandemic took hold of the global economy. Investors are uncertain and as history shows gold prices are always up during market uncertainty. If you are looking for protective investment in times of uncertainty then this is the best performing fund so far.

READ ALSO: FOCUS: These companies aren’t generating wealth for shareholders


FBN Nigeria Smart Beta Equity Fund

FBNH owned The FBN Nigeria Smart Beta Equity Fund is a pure equity fund that invests money predominantly in a portfolio of Nigerian companies, using a rigorous, research-based and tested evaluation system.

The fund provides long-term capital preservation by investing at least 75% of the fund’s assets (excluding cash and cash equivalents) in a diversified portfolio of high-quality companies listed on the Nigerian Stock Exchange. In order to manage liquidity, the fund may also invest up to 25% in short-term money market instruments and deposits with financial institutions.

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December 27th

Fund Price – N129.17

June 26th

Fund Price – N197.29

Return –  52.7%

Ranking – Second

Commentary: For a fund that is predominantly focused on equities, this a pretty much impressive performance by all standards. For example, the NSE All-Share Index is down 9.8% year to date. If you are worried about investing in stocks and don’t have the heart for it and you are looking for a mutual fund, then this is the best performing fund out there.

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READ ALSO: How to build a portfolio fit for 22nd Century


Vantage Balanced Fund

Investment One’s Vantage Balance Fund (launched in 2002) is a fund focused on long term capital appreciation, which is achieved by maintaining a flexible diversified portfolio of equities, fixed income, money market, and real estate investments. Assets are high-quality equity instruments quoted on The NSE while the bond issuers have an investment-grade rating from a credit rating agency registered by SEC.

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December 27th

Fund Price – N2.21

June 26th

Fund Price – N2.87

Return –  29.9%

Ranking – Third

Commentary: This is a Mixed fund as it invests in a diverse pool of assets. Interesting to note that the managers of this fund also have an Equity-Based Fund, a Dollar Fund, and a Fixed Income Fund. But none of them come close to the Balanced Fund. If you are looking for a portfolio with a good mix of investment assets then this is the best performing as of June 2020.

READ ALSO: Why interest rates on treasury bills, bonds crashed


Legacy USD Bond Fund

FCMB Asset Management Owned Legacy USD Bond Fund (launched in 2018) is a SEC-registered US Dollar-denominated Collective Investment Scheme, structured as a high-yield mutual fund. The Fund seeks to generate stable income over the long-term. Legacy USD Bond Fund invests in credit-rated US Dollar-denominated fixed income securities issued by the Nigerian Government, Supranational bodies, and Corporate entities.

December 27th

Fund Price – N306.5

June 26th

Fund Price – N360.5

Return –  24.4%

Ranking – Fourth

Commentary: The Legacy Bond Fund is the best performing mutual fund if you are looking for dollar-denominated fixed-income debt securities like Eurobonds. At 24.4% they seem to be holding bonds with good yields and market values respectively. Apart from the Bond Fund, managers of the Legacy Bond Fund also manage a Fixed Income Fund, a Money Market Fund and an Equity Fund. If you are looking to invest in Eurobonds then this mutual fund is the best performing.


Vantage Dollar Fund

Investment One’s Vantage Dollar Fund (launched in 2018) is a SEC registered open-ended Unit Trust Scheme in Nigeria. The Fund seeks to provide investors with a bias for Dollar-denominated securities access to such securities, which ordinarily would be inaccessible to them by virtue of the minimum amount typically required to make such investments. It will invest primarily in Corporate and Sovereign Eurobonds.

December 27th

Fund Price – N401.02

June 26th

Fund Price – N469.2

Return –  17.0%

Ranking – Fifth

Commentary: This is the second dollar mutual fund on the list and the second from Investment One to make the list of best 5. It appears they have a hang on fund management. Dollar Mutual funds are a great source of investments and it is great to see another in the top 5. Thus, if you want another option, then this is one you can also go for. 


Bubbling Under: The following funds make up the rest of the top 5 on our list and in descending order.

6. AIICO Balanced Fund
7. VI ETF
8. Coronation Fixed Income Fund
9. CEAT Fixed Income Fund
10. United Capital Euro Bond Fund

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