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Funds Management

Understanding how Mutual Funds and ETFs work in Nigeria

This article sets to answer all your questions about Mutual Funds and Exchange Traded Funds.

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Nine Mutual 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 

Mutual Funds (MF) and Exchange Traded Funds (ETFs) are amongst the fastest growing asset classes in Nigeria. Broadly they are both classified as Collectives Schemes and are similar in many aspects yet are also different in operations.

Mutual Funds (MF) have been in existence for a long time. Mutual Funds are pools of funds created with the intent to pooling funds from various investors and buying assets. MF allows those investors to own the wide range of assets that the MF own, thus achieving diversification with a lower cost.

Dutch merchant, Adriaan van Ketwich is credited with the first investment trust in 1774 under the name “unity creates strength”. The first mutual fund to include bonds and shares was the Wellington Fund which was set up in 1929.

Nigeria’s oldest mutual fund, the Chapel Hill Denham Paramount Equity Fund has been in operation since 1991. The Security and Exchange Commission published the Nigerian Net Asset Valuation (NAV) Summary Report which found that there are 106 mutual funds in Nigeria with a total asset value of $3,714,013,444.

Exchange Traded Funds (ETFs) are a more recent asset class in Nigeria. (ETFs) are securities that track the performance of an index or basket of assets. There are about 12 listed ETFs on the Nigerian Stock Exchange

What are Mutual Funds and ETFs?

Think of mutual funds as a savings pot where you and your friends save excess cash and subsequently invest that entire savings in a specific way, maybe to buy a cow for Christmas. Imagine if your group of friends decided to allow everyone in your town to join your investing club and contribute to buying cows. The funds then become so larger that you employ an asset manager to oversee the administration of the cows, and you simply create a company that will also offer cows, goats, and lambs. Thus, contributors can join your club and receive goat, lamb, and cow meat without having to buy actual cows or goats.

This is exactly how mutual funds work. A company like Stanbic IBTC creates an investment fund just like those friends, but instead of cows, they invest in bonds, money markets, equity, and other financial instruments. By buying shares in just that StanbicIBTC fund, you own a part of whatever the fund owns. This is s cheaper way for you to participate in the broad market, without having to buy every single investment.

Are Mutual Funds similar to ETFs?

In similarities, both offer investors a low-cost way to diversify holdings by selecting specific sectors, geographical regions, or risk profiles. For example, both MF and ETFs allow investors to buy country-specific investments e.g., the Vertiva Griffin 30 EFT and the Global X MSCI Nigeria ETF that invests in only Nigerian equity.

How do they differ?

In terms of differences, MF cannot be traded during the trading, an investor must wait for the close of business to calculate the Net Asset Value of the mutual fund and then place an order to buy or sell. ETFs on the other hand allow trading during the day.

Why buy collective schemes, why not invest directly?

The collective investment schemes have been embraced by Nigerians because of their greater promise of yield and diversification. These funds have offered retail investors the ability to earn a higher return on mostly money market investment, much higher than placing funds in banks. This preference for collective schemes has also been highlighted by the fall in yields offered by the risk-free Federal Government binds.

About 69% percent of the total assets of mutual funds are invested in money market funds. 9% in Eurobond funds, 7% in bond funds. In simple terms, by investing with others in a fund, the individual investor can access investment management which increases his chances to gain superior returns.

The future for ETFs and Mutual Funds

These asset classes will continue to grow in AuM as investors become more sophisticated and price-conscious. ETFs, especially Index ETFs offer sales commissions at a fraction of the brokerage cost. Also, FinTech’s automation of the asset allocation process has allowed more fund options to match individual choices.

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Funds Management

Nigeria’s pension asset under management hits N12.3trillion in December 2020

Nigeria’s pension asset under management hits N12.3trillion in December 2020.

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

Nigeria’s pension asset under management, as of December 2020, stands at N12.3trillion which represents a modest growth of 20% year-on-year and 0.003% month-on-month (no significant change), according to the monthly report by National Pension Commission (Pencom).

According to the report, total RSA funds increased by 20% year-on-year while the funds under both existing schemes and Closed Pension Fund Administrator (CPFA) as well, grew by 21% year-on-year.

Other Key highlights

  • As of December 2019, investments in FGN Securities accounted for 72% of the total pensions assets fund, out of which 73% was invested in Bonds and 26% in Treasury Bills.
  • As of December 2020, investments in FGN Securities accounted for 66% of the total pensions assets fund, out of which 84% was invested in Bonds and a paltry 8% in Treasury Bills, which is not unrelated to the subsisting very low yield of TB in the money market.
  • The investments in FG Bonds represent 56% of the total pension assets fund under management. The renewed and increased investments in FG Bonds can be attributed to the attractiveness of the yields of FG bonds over the Treasury Bills.
  • RSA Fund II and III accounted for 89% of the total RSA funds and 69% of the total pension assets under management as of December 2020, while others – Funds I, IV and V accounted for 31%
  • All the RSA funds, including existing scheme and CPFA recorded year-on-year growth as follows: Existing scheme (13%), CPFA(28%), Fund I (49%), Fund II(19%), Fund III(21%), Fund IV(18%).
  • As of December 2020, only N80.54million was invested under the newest RSA fund (Fund V) – specifically created for micro pensions.

What you should know

There are 4 pension fund types, with the newest recently introduced for the micro pension scheme.

The Multi-Fund structure is a framework that aims to align the age and risk profile of RSA holders, as follows:

  • Fund I – This is an optional fund. Contributors must write formally to opt for this Fund.
  • Fund II – This is the default fund for contributors aged 49 and below.
  • Fund III – This is the default fund for contributors aged 50 and above.
  • Fund IV – This is the Retiree Fund.

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Exclusives

Best performing Mutual Funds in January 2021

According to data from the SEC, 49.2% of the 118 registered funds recorded positive growth in January 2021

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Best Mutual Funds in Nigeria

Mutual funds are one of the fastest-growing asset classes in Nigeria, as data from the Security and Exchange Commission (SEC), shows that 49.2% of the 118 registered funds recorded positive growth in January 2021.

A mutual fund is a type of financial vehicle made up of a pool of money collected from various investors, with the aim of investing them in securities like stocks, bonds, money market instruments, and other assets.

According to SEC, a total of 118 mutual funds were registered as of January 29, 2021, with a net asset value of N1.57 trillion across several fund types.

Nairametrics tracked the performance of these mutual funds by comparing the fund prices as of 31st December, 2020 with the fund prices as of the last trading day of January 2021.

Below were the top-performing mutual funds in the month of January 2021. We also highlighted their performance in terms of changes in net asset value and included profiles of the funds as described on their websites.

READ: Investors pump N7 billions into New Gold ETF


Lotus Capital Halal ETF – Lotus Capital Limited (Exchange Traded Fund)

The Lotus Halal Equity Exchange Traded Fund “LHE ETF” is an open-ended fund that tracks the performance of the NSE-Lotus Islamic Index (NSELII). It is designed to enable investors obtain market exposure to the securities of the constituent companies of the NSE-Lotus Islamic Index and to replicate the price and yield performance of the index.

December 31st, 2020

Fund Price – N12.73

January 29th, 2021

Fund Price – N13.66

Return – 7.31%

Ranking – Fifth

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Commentary: This is an Exchange Traded Fund by Lotus Capital Limited, which grew by 7.31% in the month of January. The fund also grew significantly by 51.7% in the year 2020, indicating that the fund is a delight to its investors. Also, the net asset value stood at N655.04 million as of 29th January, 2021, indicating 6.76% growth compared to N613.59 million recorded as of 31st December, 2020.

READ: Understanding how Mutual Funds and ETFs work in Nigeria

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Stanbic IBTC Aggressive Fund – Stanbic IBTC Asset Mgt. Limited (Equity Based Funds)

The Stanbic IBTC Aggressive Fund (SIAF), which was launched in June 2012, is an open-ended fund that invests a minimum of 60% of its portfolio in equities of companies listed on the Nigerian Stock Exchange (NSE) and a maximum of 40% in fixed income securities. Notably, the expense ratio for the fund is 1.5%.

December 31st, 2020

Fund Price – N2,525.55

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January 29th, 2021

Fund Price – N2,713.93

Return – 7.46%

Ranking – Fourth

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Commentary: Stanbic IBTC Aggressive Fund is the second-best performing Equity-Based fund in the month of January, growing by 7.46% to stand at N2,713.93 as of 29th of January, 2021. The net asset value also grew by 7.43% to close at N340.8 million.

READ: DV Balanced Fund to become a Money Market Fund


FSDH Dollar Fund – FSDH Asset Management Ltd. (Fixed Income Funds)

This is an open-ended mutual fund that invests in US Dollar denominated Fixed Income Securities issued by Nigerian Sovereign and Corporate Entities. The objective of the fund is to provide customers with the opportunity to invest in dollar-denominated instruments. Meanwhile, the minimum amount required to invest in the fund is $1,000.

December 31st, 2020

Fund Price – N415.1

January 29th, 2021

Fund Price – N447.7

Return – 7.85%

Ranking – Third

Commentary: The fixed income fund managed by FSDH Asset Management, recorded growth of 7.85% in January from N415.1 recorded as of the end of 2020 to stand at N447.7 at the end of January. The net asset value grew by 18.41% to close at N1.002 billion.


Paramount Equity Fund – Chapel Hill Denham Mgt. Limited (Equity-based Fund)

Paramount Equity Fund is Nigeria’s oldest mutual fund, which invests in a broad range of high-quality equities and fixed income securities. The fund aims to provide an investment vehicle that will enable unit holders to achieve consistent capital appreciation over a medium-to-long term.

December 31st, 2020

Fund Price – N16.27

January 29th, 2021

Fund Price – N17.56

Return – 7.93%

Ranking – Second

Commentary: This is an Equity Based Fund managed by Chapel Hill Denham Management, which grew by 7.93% in the month of January 2021 to stand at N17.56 as of 29th of January 2021, while the net asset value grew by 8.22% to stand at N598.19 million.


Vantage Dollar Fund – Investment One Funds Management (Fixed Income Fund)

Vantage Dollar Fund is an open-ended Unit Trust Scheme by Investment One Funds. The Fund seeks to provide investors with a bias for Dollar denominated securities an access to such securities, which ordinarily would be inaccessible to them by virtue of the minimum amount typically required to make such investments.

December 31st, 2020

Fund Price – N559.87

January 29th, 2021

Fund Price – N502.9

Return – 11.33%

Ranking – First

Commentary: This is the best performing mutual fund in the month of January 2021 and the only fund with a double-figure yield in the month under review. Vantage Dollar Fund grew by 11.33% to stand at N502.9 as of 29th of January 2021 while the net asset value also grew by 10.93%. This is quite an impressive performance as the fund primarily invests in Corporate and Sovereign Eurobonds.


 

Bubbling under……

The following funds make up the rest of the top 10 our list in ascending order:

AXA Mansard Equity Income Fund – AXA Mansard Investments Limited (Equity Based Fund)

Return – 6.69%

VETBANK ETF – Vetiva Fund Managers Limited (Exchange Traded Fund)

Return – 6.82%

PACAM Equity Fund – PAC Asset Management Limited (Equity Based Fund)

Return – 6.86%

Legacy Equity Fund – First City Asset Management (Equity Based Fund)

Return – 7.14%

VCG ETF – Vetiva Fund Managers Limited (Exchange Traded Fund)

Return – 7.16%

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