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Funds Management

Mutual Fund Reporting: A call for standardization

Nigerian Mutual Funds do not make their financial reports public.

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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 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:

READ MORE: Nigeria’s mutual funds generate over N529billion in new investments in 2019

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.

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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.

READ ALSO: Understanding Mutual Fund Fees: Incentive or Performance Fee

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.

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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.

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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Funds Management

Report any employer without Group Life Insurance for employees – PenCom

PenCom has ordered that employers without Group Life Insurance policy for their employees be reported to the agency.

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PenCom, unremitted pensions, Lagos State Pension Commission, LASPEC, Pension Fund Assets, PFAs make N1.69 trillion ROI  

The National Pension Commission says any employer not remitting pension contributions or does not have a Group Life Insurance policy should be reported to the Pension Commission.

This was announced in a statement by the National Pension Commission this week.

The statement said any citizens can report anonymously to the Commission, through a letter of complaint stating the name and address of the employer and also the months outstanding, which would enable PenCom recovery agents go after the employer.

PenCom also urged all employees working in organizations that have implemented the Contributory Pension Scheme, that it is their right under Section 4(5) of the PRA 2014 to have Life Insurance Policy taken on their behalf by their employers for an insured amount of no less than 3 times their annual emolument.

Nairametrics reported in February that PenCom announced effective from March 2020, companies, with no insurance covers for their staff, would no longer be allowed to do any government business.

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According to PenCom’s annual report on the submission of group life insurance certificates for the year 2018, only 172 employers obtained the group life insurance policy for a total of 39,946 employees in compliance with the Pension Reform Act 2014.

It noted that the deadline was issued because of the low number of companies that have insurance covers for their staff. PenCom noted that the new regulation was to ensure that the companies open appropriate pension accounts for the workers.

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Funds Management

Best Mutual Funds in August, judging by their performance 

Nairametrics reviews the best Mutual Funds in August, judging by their performance.

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Nigeria’s Fund Industry Remain Resilient Amid COVID 19 Concerns

Mutual Funds are professionally managed investment schemes controlled by an Asset Management Company (AMC), that gives investors opportunity to invest in bonds, stocks, and securities. They are especially great for passive investors. 

According to data from the Security and Exchange Commission (SEC), Nigeria currently has about 110 Mutual Funds, cut across several Fund Types. Here is a breakdown of the Fund Types available for investors according to SEC. 

Explore the Nairametrics Research Website for Economic and Financial Data

 

FUND TYPE  Number 
MONEY MARKET FUNDS  23 
FIXED INCOME FUNDS  22 
MIXED FUNDS  21 
EQUITY BASED FUNDS  13 
BOND FUNDS  11 
EXCHANGE TRADED FUNDS  10 
ETHICAL FUNDS  6 
REAL ESTATE FUNDS  3 
INFRASTRUCTURE FUND  1 
TOTAL  110 

 

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

These are the best mutual funds in Nigeria to invest in, based on their performances in August. 

READ: Nigerian Senate to review investment laws in supporting Nigeria’s capital market

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Valualliance Value Fund 

The Valualliance Value Fund (Value Fund), is a closed-end collective investment scheme, registered and regulated by the Securities and Exchange Commission, whose units are listed on the main board of the Nigerian Stock Exchange (NSE). The Value Fund commenced operations on the 30th of June 2011, raising the sum of N3.2bn through an Initial Public Offer. It was formerly known as “SIM Capital Alliance Value Fund” 

 July 29th 

Fund Price – N103.2 

August 28th  

Fund Price – N115.05 

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Return – 11.48% 

Ranking – First 

Commentary: Valualliance value fund, by ValuAlliance Asset Managers, is the best performing fund in the month of August. The mixed fund grew by 11.48%, from N103.2 to N115.1, as at the end of August 2020, while the net value asset stood at N4.73 billion. 

READ: Okomu Oil Plc announces close period ahead of Q3 2019 results   


 Cordros Milestone Fund 2028 & 2023 

The Cordros Milestone Fund 2028 and 2023, are target-date mutual funds which start out investing in a mix of securities (asset allocation), that seeks capital growth (e.g. stocks), and gradually shifts to those that seek capital preservation (e.g. money market)as the target dates (2028 & 2023draws near. 

Target date funds, which are also called lifecycle funds, are designed to offer a convenient way to invest through a portfolio of assets. The funds are open-ended funds, constituted under a Trust Deed and the units shall then be continuously offered. Cordros Milestone Fund 2028 and 2023, grew by 9.28% and 7.27% respectively. 

July 29th (Cordros Milestone Fund 2028) 

Fund Price – N100.21 

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August 28th  

Fund Price – N109.51 

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Return – 9.28% 

Ranking – Second 

READ: Best Mutual Funds in Nigeria


 

July 29th (Cordros Milestone Fund 2023) 

Fund Price – N98.35 

August 28th  

Fund Price – N105.50 

Return – 7.27% 

Ranking – Third 

Commentary: This is a mixed fund owned by Cordros Asset Management. The minimum initial investment is 35 units, while additional investments thereafter shall be 10 units. The managers only operate four funds, which also includes money market fund and dollar fund. 


Cordros Dollar Fund  

 The Cordros Dollar Fund, is a mutual fund that allows you to conveniently invest and earn returns in US Dollars. The fund invests in US Dollar-denominated securities like Sovereign Eurobonds, Corporate Eurobonds, Money Market instruments, and other quoted Corporate Eurobonds. The objective is to offer you competitive returns than is obtainable from an average domiciliary bank account. 

July 29th  

Fund Price – N36,498.27 

August 28th  

Fund Price – N38,986.04 

Return – 6.82% 

Ranking – Fourth 

Commentary: The Cordros Dollar Fund, is the best performing mutual fund, if you are looking for dollar-denominated fixed-income debt securities, such as EurobondsCordros Dollar fund is the third fund from the managers that made it to the best funds in the month of August. 


VCG ETF 

The Vetiva Consumer ETF VETGOODS ETF, launched in 2015, is an open-ended Exchange Traded Fund managed by Vetiva Fund Managers Limited. The VETGOODS ETF, is designed to track the performance of the constituent companies of the NSE Consumer Goods Index, and to replicate the price and yield performance of the Index. 

The NSE Consumer Goods Index comprises of the top 15 companies in the Food/Beverages and Tobacco sector listed on the Nigerian Stock Exchange (NSE), in terms of market capitalization and liquidity, and is a price index weighted by adjusted market capitalization.  

July 29th  

Fund Price – N4.02 

August 28th  

Fund Price – N4.27 

Return – 6.22% 

Ranking – Fifth 

Commentary: This is one of Vetiva’s productsand the best Exchange traded fund, growing by 6.22%. Vetiva have a number of ETF funds, three of which recorded positive growth, while the remaining two declined in the month. Hence, if you are interested in an exchange traded fund, this is the best performing in the month of August. 


 

Bubbling Under: The following funds make up the rest of the top 10 on our list, presented in descending order. 

  1. PACAM EquityFund (5.45%)
    7. Legacy USD Bond Fund (5.27%)
    8. Vantage Equity Income Fund (5.15%)
    9. VETBANK ETF (5.02%)
    10. Legacy Equity Fund (4.5%) 

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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

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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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