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Exclusives

Best performing Mutual Funds in 2020

According to data from the Security and Exchange Commission (SEC), 54.3% of the 116 registered funds recorded positive growth in 2020.

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Mutual Funds are a great form of investing especially for passive investors. They are designed to pool funds from various investors with the sole purpose of investing them in a portfolio of investments (shares, bonds, treasury bills etc).

The year 2020 was ravaged by the covid-19 outbreak in Nigeria, causing a decline in most economic activities. However, major mutual funds in Nigeria recorded double-figure growth in year, a reason for investors to smile despite the pandemic.

According to data from the Security and Exchange Commission (SEC), 54.3% of the registered funds recorded positive growth in the year, 37.1% remained unchanged while only 10 (15.9%) funds recorded negative growth in the period.

READ: Pension fund administrators pile up cash in anticipation of withdrawals

As of 31st December 2020, the Security and Exchange Commission (SEC) registered a total of 116 mutual funds with over N1.57 trillion net asset value cutting across several fund types.

Below is a breakdown of the fund types available to investors.

To determine the best performing Funds in 2020, we compared the Fund Prices as of 27th December 2019 with the Fund Prices as of the last day of December 2020 (31st December).

These were the top 5 performing mutual funds in 2020. 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: Nigeria’s mutual fund asset value hits N1 Trillion


AIICO Balanced Fund – AIICO Capital Limited (Mixed Funds)

AIICO Balanced Fund is an actively managed open-ended Fund. The Fund invests primarily in equities, government securities, fixed deposit, fixed income securities.

December 27th, 2019

Fund Price – N2.50

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December 31st, 2020

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Fund Price – N3.70

Return – 48.2%

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Ranking – Fifth

Commentary: This is a Mixed Fund by AIICO Capital Limited. The Fund grew by 48.2% in 2020. The net asset value stood at N171.60 million as of 31st December 2020, growing by 57.7% compared to N108.8 million recorded in 2019.

READ: Understanding how Mutual Funds and ETFs work in Nigeria

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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 27th, 2019

Fund Price – N8.39

December 31st, 2020  

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Fund Price – N12.73

Return – 51.7%

Ranking – Fourth

Commentary: This is an Exchange Traded Fund by Lotus Capital Limited, grew by 51.7% in the review period. The net asset value also stood at N613.59 million as of 31st December 2020, growing by 51.7% compared to the 2019 NAV of N404.4 million.

READ: Investors pump N7 billions into New Gold ETF


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

PACAM Equity Fund is a pure equity fund that invests funds predominantly in a portfolio of Nigerian companies, using a rigorous research-based system.

The fund provides long-term capital preservation by investing at least 75% of the fund’s assets 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 23% in short-term money market instruments.

December 27th, 2019

Fund Price – N1.02

December 31st, 2020

Fund Price – N1.59

Return – 55.6%

Ranking – Third

Commentary: This is an Equity-Based Fund by PAC Asset Management Limited. The Fund grew by 55.6% in 2020. The performance is impressive considering that it is purely focused on Equity, which is a reflection of the performance recorded in the equities market of the NSE in 2020. The net asset value grew by 41.1% from N204.9 million recorded in 2019 to N289.2 million in 2020.


New Gold ETF – New Gold Managers (Exchange Traded Fund)

The NewGold Exchange Traded Fund (NewGold) is an ETF listed on the Nigerian Stock Exchange in December 2011. NewGold 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.

The fund is managed by NewGold Managers Limited while the sponsoring broker is Vetiva Capital Management Limited.

December 27th, 2019

Fund Price – N5,220

December 31st, 2020

Fund Price – N9,100

Return – 74.3%

Ranking – Second

Commentary: Gold prices have been on the up since the Covid-19 pandemic took hold of the global economy, which has reflected on the performance recorded on the gold ETF fund. New Gold ETF grew by 74.3% in 2020 while the Net Asset Value recorded 1,621% increase to close at N13.2 billion as at 31st December 2020.

New Gold also got a major boost from investors who found dual-listed companies as a means of repatriating dollars out of the country. This is done by buying shares locally and then selling on a foreign stock exchange so as to get their money out.


VI ETF – Vetiva Fund Managers Limited (Exchange Traded Funds)

The Vetiva Industrial ETF “VETIND ETF” is an open-ended Exchange Traded Fund managed by Vetiva Fund Managers Limited. The VETIND ETF is designed to track the performance of the constituent companies of the NSE Industrial Index and replicate the price and yield performance of the Index.

The NSE Industrial Index comprises the top 10 companies in the Industrial 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.

December 27th, 2019

Fund Price – N10.49

December 31st, 2020

Fund Price – N20.52

Return – 95.6%

Ranking – First

Commentary: VI ETF is the first Fund on the list of best performing Mutual Funds in 2020. The fund price grew by 95.6% in the year under review. The net asset value also grew by 138.1% to close at N216 million as of 31st December 2020.


Bubbling under…

The following Funds make up the rest of the top 10 on our list in ascending order;

Lead Balanced Fund – Lead Asset Management Limited (Mixed Funds)
Return – 34.4%

Legacy Equity Fund – First City Asset Management Limited (Equity-Based Funds)
Return – 36.3%.

Stanbic IBTC Nigerian Equity – Stanbic IBTC Asset Management Limited (Equity-Based Fund)
Return – 36.6%.

VG 30 ETF – Vetiva Fund Managers Limited (Exchange Traded Fund)
Return – 38.6%.

Stanbic IBTC lmaan Fund – Stanbic IBTC Asset Management Limited (Ethical Fund)
Return – 41.9%.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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How does a bank make N19 billion a month?

The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers.

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How does a Financial Services Group make N19b a month, post a Profit After Tax figure of N230b in an environment where global commerce virtually ground to a halt in 2020?

The Zenith Bank Plc (Zenith) Year-end 2020 final results are a blockbuster, not just in the quantitative, but the qualitative as well. In all major headline numbers, Zenith posted growth on a Year-on-Year basis, specifically, Gross Earnings are up 5.2%, Net Interest Income up 12%, Customer deposits up 15.3%.

Somehow Zenith grew her loan book by 18% in a recession and reduced the volume of Non-Performing Loans in the same period. Zenith was also able to post a higher revenue number from non-interest income even as yields on fixed-income fell across Nigeria. I must stress, Zenith has posted these results by servicing her target segment of the high-end corporates in Nigeria.

So how did Zenith achieve this? I want to do a deep dive into how to make profits in a recession. However, it is important to start with a background on how banks make money which is basically in two ways;

  • Interest income: which is income generated from the bank gathering deposits from customers and investors and “renting” out these funds to individuals and corporates for a fee called interest. Interest Income is seen as the main business of banks. It is a measure of how well the bank has fine-tuned its people, process, and systems to generate returns from a commodity called cash.
  • Non-Interest Income: This is the income the bank generates from deploying its brands and people to juice revenues from activities that do not necessitate a transfer of cash. For Example, a bank asset management business leverages the bank’s skillsets to earn fees by providing investment advice to clients. Does a business want to expand? The bank can advise on the process to make that happen.

The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers. This allows the bank generate a spread between cost and revenue. The bank’s interest spread can be magnified by the number of quality loans it creates as Interest Income rests also on the quality of the loan book. Positive spread drives the funding of other banking services and is supported by the banks internal competencies to manage risk

So a bank makes profits by

  1. Attracting cheap deposits
  2. Earning positive spread
  3. Providing value addition for a fee
  4. Effective Risk Management

All these have to happen simultaneously. A bank that sources expensive deposits by paying higher rates generates a lower spread. Lower spread exposes the bank to cost overruns and will prove fatal to long-term growth.

With this in mind, let’s review Zenith FY 2020 Performance

  • Attracting Cheap Deposits: In 2019, Zenith’s total interest expense, which represents how much it paid to get deposits was N148b, that figure dropped in 2020 to N121b. this means the bank was able to grow deposits by 25% but at a lower cost. How? Zenith changed her deposit mix, reducing borrowed funds/leases and time deposits by 41% and 38% respectfully and increasing the share of current accounts by 155%. By swapping the deposit mix, the bank’s cost of funds ratio fell by 18mn%.
  • Earning Higher Spread: Zenith grew Net Interest Income by 12.2% in 2020. This figure represents income earned from the deposits and investments of the banking group. Again, this was achieved by asset mix reorganization. In the face of falling rates especially on shorter-dated FGN instruments, Zenith shifted allocation from Treasury bills to longer-dated FGN bonds which paid a higher yield. Zenith’s Non-interest Income also grew to N275b a 5% jump from 2019. This is driven largely by extraordinary items including foreign currency revaluation gain, which is the gain realized from the revaluation of foreign currency-denominated assets. I must highlight this. Zenith was able to post a gain of about N43b which is a 256% gain from FY 2019 based on the Naira being devalued to the US Dollar.
  • Providing Value Addition: Value addition will include all non-core banking services Zenith Group provides to the public including subsidiaries like the Zenith Penson Custodians which has N4t in assets under custody. Commission on agency and collection was a big contributor to Zenith’s non-core banking revenue.
  • Risk Management: Zenith was efficient in deploying its internal competencies to minimize and avoid risk and impairments from the ordinary and extraordinary course of business. Zenith like other financial institutions saw a pullback in commercial activities from her clients. Take the Commerce subsector, the Non-Performing Loan share in that sector grew from 9% to 24%. Zenith, booked an increase in the number of NPLs by volume to N125m in FY 2020 but the bank was able to keep the NPL ratio down to 4.29%. An extraordinary feat.

Overall, the bank was able to navigate a difficult year and post a good return and a handsome dividend of N3 to investors. Zenith was able to achieve all this while increasing the staff strength by 4.6% to 7555 employees.

However, there are red flags as well:

  • Net Interest Margin was down in FY 2020 as yields declined. If yield continues to stay muted, can Zenith keep finding profitable avenues to invest that N5.34 deposit base?
  • Interest income positive in FY 2020 at 420b but when compared to 2017, interest income is falling.
  • If you ignore the revaluation gain, then Non-Interest income will be considerably muted, possibly negative in FY 2020
  • Fees on electronic products fell 36% in an environment where online banking has been not just sound business practice, but life-saving as well.

Overall, in an environment with months of local and international shutdowns, Zenith has posted good numbers and demonstrated it is possible to eke out gains from a hard environment. When one looks at the dividend yield, P.E. Ratio of the bank, for me, this is a Buy.

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Exclusives

Unemployment, underemployment needs to be addressed with urgency in Nigeria – Jobberman

Femi Balogun of Jobberman Nigeria has highlighted some of the challenges employers and job seekers are currently facing in Nigeria.

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Unemployment has been a bane of many countries, especially in Nigeria, as there are projections that the nation’s unemployment rate will reach an all-time high of 31.4% in 2021.

In this interview with Nairametrics, the Head, Research, Evaluation and learning efforts at Jobberman Nigeria, an online career portal, Femi Balogun, explained that not enough jobs are being created. In 2018, he said Nigeria only created about 450,000 new jobs while over 5 million people joined the labour force.

To him, limited interaction between employers and job seekers as well as policy and cultural constraints are at the core of the employment challenges the nation currently is facing. Excerpts: 

How would you assess unemployment in Nigeria, especially with the second wave of Covid-19?

Unemployment has been a critical issue for the country and this has deepened due to the COVID-19 pandemic. According to the National Bureau of Statistics (NBS), between Q3 2018 and Q2 2020, Nigeria’s unemployment rate rose from 23.1% to 27.1%, while the underemployment rate rose from 20.1% to 28.6%. Recent projections also suggest that, in 2021, Nigeria’s unemployment rate will reach an all-time high of 31.4%.

A number of factors contribute to this. Firstly, is that not enough jobs are being created – in 2018 for instance, Nigeria only created about 450,000 new jobs while over 5 million people joined the labour force. Furthermore, gaps within our education system also contribute to this challenge as World Bank data suggests that 18 – 20% of tertiary graduates will require training interventions for about 1 – 4 years to become employable. At the same time, limited interaction between employers and job seekers as well as policy and cultural constraints are that core of the employment challenge we are currently faced with.

The issues that mitigate such high levels of unemployment and underemployment needs to be addressed with urgency.

If Nigeria is home to about half of West Africa’s young people, what size of the population are jobless?

With a population of 200 million, young people make up half of the country’s population. According to PWC unemployment is highest amongst youth between 15-34 years (41% amongst 15-24-year-olds and 31% amongst 25 – 34-year-olds), and this group constitutes 35% of the country’s population – one of the largest in the world.

Data from the Nigerian Bureau of Statistics has also shown that the number of unemployed 24-year-olds [40% of the youth labour force] in the country has almost tripled to 14 million since 2014.

How would you assess skill gaps in Nigeria and what sectors are most affected?

Our evaluation of the jobs market shows high competency in digital skills at entry-level positions but as the skills required advance, there is a dramatic fall in qualified candidates and applications made.  For instance, there is an overwhelming skills gap in three subsectors – Software Development, Digital Analysis and Network & Cybersecurity.

Within the Software Development cluster, our findings indicate that 73% of job seekers rate their proficiency at a beginners level across skills such as computer programming, cloud infrastructure, UI/UX, web design, mobile development and design thinking. Likewise for Digital Analysis and Network & Cybersecurity clusters.

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This creates a demand gap for positions such as Security Engineering, Data Science, Cyber Security and Security Architecture with a demand scale ranging between 10% and 45%.

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Within the Digital Marketing sub-sector, data suggests growing competencies in social media management and content development with proficiency ratings above 40% at advanced levels. Identifying a skills gap in Sales, Marketing Campaigns and Search Engine Optimisation with proficiency levels as low as 8.13% and no higher than 16.92%.

Based on your experience and available data, what are the factors responsible for this gap?

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Although young people are described as digital natives, there is a digital literacy gap which excludes young people from harnessing the opportunities that the digital economy presents. This can be attributed to challenges such as insufficient access to the internet, dated curriculum and lack of career development courses.

This challenge can, in part, be linked to gaps within the education system that prevents young people from developing skills (technical and soft skills) and gain the required confidence to be employable.

This gap in human capital optimisation is at the core of the inefficiency in Nigeria’s labour market as Nigeria captures only 49% of its full human capital potential, compared to a continental average of 55%, ranging from 67% in Mauritius to 44% in Chad

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What role do you think the government can play in addressing these issues?

The improved performance of the digital sector is, in part, derived from improvements in reforms and governance. In order to take advantage of emerging opportunities within the digital sector, the Federal Ministry of Communications and Digital Economy launched the National Digital Economic Policy and Strategy (NDEPS). This has helped to forge partnerships towards advancing an inclusive digital economy.

To achieve the goal of lowering the access barrier to digital tools for the citizens, the government has set a benchmark of 95% digital literacy rates to be achieved in the next ten years (2030) through States and LGAs support.

It is expected that through the policy, young people will be equipped with the necessary skills to acquire decent jobs while transforming Nigeria into a leading digital economy.

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What precisely do you suggest government should do?

There are a number of things the government can do: One is to invest in Human Capital Development. The government can do well by strengthening education institutions and supporting reforms in education to develop industry-relevant curriculum for improved skills, while also galvanising support for digital skills and soft skills training especially for women and marginalised communities.

Another is to Create an Enabling Environment. A friendly regulatory environment is imperative for the digital economy to grow. Similarly, investing in infrastructure that enables ICT adoption (such as broadband internet and electricity) are crucial.

Support the Innovation Ecosystem: Courting public-private partnerships to stimulate and sustain the demand for the use of digital platforms as well as advancing policies that improve business climate will be useful in boosting investment opportunities.

What are the most sought after roles businesses are looking out for in the employment market based on the data from the Jobberman site?

We have seen an increase in roles in the technology sector since April 2020, when we ran our “Unity in Adversity” campaign. Technology had most of the new jobs with 18.79%, followed by banking, finance and insurance with 9.27% and education and training with 6.78%.

What can we do differently in our educational system to better prepare our graduates for the jobs out there?

A transparent jobs market which gathers live data about the various sectors, job demands and skills required will help to strengthen educational institutions and support reforms in education, as well as develop industry-relevant curriculum.  Jobberman is striving for a 100% transparent market which will only be achieved when all jobs are posted online.

We are on the cusp of the Fourth Industrial Revolution, children in primary school need to be developing IT skills so they can make the transition from school to work.

What are the challenges you go through gathering data?

I think it’s mostly the availability of accurate information. Data capture and storage is becoming increasingly important on the continent but we are just starting to build. We had to go through extra effort to make sure that all the information we provided in the report was true and up to date.

COVID-19 has made it even more difficult to collect data both quantitative and qualitative. Now we have to conduct interviews and focus group discussions online. The pandemic has also helped us to realise that online data collection is a growing culture with a wide gap to cover.

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