Stanbic IBTC Asset Management Limited last year launched two financial instruments – the SIAML Pension Exchange Traded Fund 40 and Stanbic IBTC Dollar Fund – in another move aimed at deepening Nigeria’s capital market. Both instruments were finally listed on the Nigerian Stock Exchange last week. The chief executive of the firm, Mrs. Bunmi Dayo-Olagunju spoke to journalists on the products and other industry issues. Goddy Egene presents the excerpts:
Stanbic IBTC Asset Management Limited recently introduced two new financial instruments, the SIAML Pension ETF 40 and Stanbic IBTC Dollar Fund. What are the over-riding objectives for launching these products?
The SIAML Pension ETF 40 is an Exchange Traded Fund that has been designed to mirror the combined returns of the 40 most liquid public quoted companies on the Nigerian Stock Exchange(NSE), which meet the National Pension Commission (PenCom) requirements for investing pension assets. It would also be useful to add that PenCom is the regulatory agency that oversees pension administration in Nigeria and has developed investment guidelines to ensure the preservation and sustainability of pension assets, and the security of pension obligations when due.
With regards to the Stanbic IBTC Dollar Fund, it seeks to provide an alternative to locally available low yielding dollar-denominated investment opportunities. It primarily provides investors with the opportunity to achieve diversification via attractive dollar denominated securities with competitive yields that compensate adequately. As such, the overriding objective is to provide our clients and potential investors with competitive and attractive instruments for achieving their investment objectives of hedging themselves against a continuous Naira devaluation.
You described the SIAML Pension ETF 40 as an ETF that will mirror the Pension 40 Index (Pension Index) and replicate as closely as possible the total return of The NSE Pension 40 Index. What exactly does this mean to a potential investor?
To put it simply, it means that if an investor will like to achieve returns similar to that of the Pension Index, that is, top 40 permissible stocks for pension assets, he or she should purchase units of SIAML Pension ETF 40 as it is the easiest and most efficient way of achieving the desired returns of the Pension Index.
SIAML Pension ETF 40 is targeted at pension fund administrators, life assurance companies, institutional investors as well as foreign portfolio managers who are desirous of Nigerian exposure with minimal liquidity or exit risk. Does that suggest that retail investors are excluded from investing in this instrument?
No, the product is open to both retail and institutional investors. Retail investors who intend to diversify their investment along the most liquid publicly quoted/listed companies on the NSE that meet certain criteria of the National Pension Commission can meet this desired investment objective via the SIAML Pension ETF 40.
Experts believe that ETFs will help to open up cost-effective diversification opportunities for investors in Nigeria. To what extent has this postulation manifested in the Nigerian environment. What are your projections for the Nigerian ETF market in the next 10 years?
Investing in ETFs will undoubtedly reduce the complexities and associated statutory costs and risks of investing directly in the underlying shares that qualify for the Index tracked by such ETF. In addition, the investor is exposed to a wide array of quoted securities across the various sectors in the Nigerian economy. Thus, the investor enjoys the benefits of diversification as well as minimised transaction costs. According to data from the Securities & Exchange Commission (SEC), the ETF industry has witnessed significant growth with Net Asset Value (NAV) of N365 million as at May 2012 to N3.6 billion as at December 2016, representing a four-year compound annual growth rate of 77.22 per cent. Based on the above, the significant adoption on ETFs is driven by the products ability to meet investment needs at relatively cheaper costs. In addition, iShares also reported that ETFs reached more than $2 trillion in assets globally and attracted nearly $3 billion worth of new investments in 2015. Hence, reinforcing the growth of ETFs as one of the fastest growing asset classes and offering an attractive segment which institutional and retail investors can include in their portfolios in the Nigerian market.
What kind of risks should anyone interested in investing in SIAML Pension ETF 40 have in mind considering that investment in financial instruments entails some measure of risks?
Investors should consider market risk as the SIAML Pension ETF 40 would be subject to normal market fluctuations and risks associated with investing in equities in general or particular industries represented in the market. The value of any of the securities that make up the NSE Pension Index may decline due to any or a combination of the factors mentioned above or other events not specifically related to an issuer of a security. In addition, the performance of the securities in the NSE Pension Index may be affected by changes in economic environment, political developments or changes in government policies, growth rate and allocation of resources, changes in legislation and regulatory requirements.
Stanbic IBTC Asset Management Limited has in the past introduced other ETFs. Will you say your objectives for introducing the previous ETFs have been met?
Yes, The Stanbic IBTC ETF 30 has been successful in achieving the objectives for which the Fund was set up as the Fund has been able to replicate returns of the NSE 30 index with minimal tracking error and cost. The Stanbic IBTC ETF 30 has also been able to pass net income to unit holders of the Fund as it has paid out dividends three times to unit holders since its inception.
The Nigerian economy is currently experiencing some turbulence due to developments in the global oil market. A remarkable effect on the capital market is the noticeable decline in the number of public offerings and a general lack of enthusiasm towards IPOs. What are the possible benefits derivable from investing in SIAML Pension ETF 40 and Stanbic IBTC Dollar Fund that would over-ride these concerns?
In spite of the current economic challenges, we have witnessed increased interest from potential investors who have idle dollar cash and are eagerly seeking to take advantage of investment vehicles that would provide them with competitive returns on their investments. The Stanbic IBTC Dollar Fund would provide such investors with bias for dollar denominated securities access to such securities which ordinarily would be inaccessible to them by virtue of the high amount typically required to make such investments. Similarly, the SIAML Pension ETF 40 would also provide investors an opportunity to diversify their portfolio to minimise the exposure and risks associated with an individual stock.
Return on investment in Nigeria used to be one of the highest in the world, a unique selling point (USP)that hitherto helped in attracting significant foreign investment into the country. What would you consider to be Nigeria’s USP now as far as the investment environment is concerned?
The Nigerian equities market is currently trading at a discount as it has a relatively low price per earnings (P/E) ratio of 14.52 times that is a measure of how much an investor is paying in the current price in relation to the net income being earned by the business per index compared to emerging markets with a PE of 15.26 times. Nigeria also prides itself as the country with both the largest population and the biggest economy in Africa. Additionally, the infrastructure deficit as well as the opportunities to diversify the revenue stream of the nation provides various investment inlets for foreign investments.
Stanbic IBTC Asset Management Limited has about eight mutual funds under management, including the Stanbic IBTC Nigerian Equity Fund, Nigeria’s largest equity mutual fund. Despite the plethora of mutual funds in the market, there seems to be limited knowledge of their availability, which in turn affects patronage. How do you think mutual funds could be demystified. Do you think operators in this market are doing enough to create the desired level of awareness?
Despite this array of mutual funds and others in the market, there are close to 250,000 unit holders in Nigeria, an insignificant proportion when juxtaposed with the country’s population of more than 170 million people. In essence, all capital market operators duly registered with the SEC as well as the regulator itself have a collective responsibility of embarking on financial literacy campaigns that would particularly enlighten the millions of Nigerians presently affected by the low savings and investment culture. Such initiatives would go a long way in sanitising the market and further improve public awareness for mutual funds. Also, publicizing the unique benefits of mutual funds would equally help demystify the erroneous impression that investments of this nature is reserved for the rich and well heeled. In Nigeria, you need as low as N5,000.00 to invest in mutual funds. In addition, capital market operators also require the support of the regulatory authorities to crack down on the prevalence of unregistered and unregulated ‘fund managers’, including wonder banks as they have been seen to be major contributors to low penetration of mutual funds in the market.
The Stanbic IBTC Group is well known for its outstanding leadership role in organising public forums through which accurate information on the Nigerian economy are made available to enable investors and other stakeholders take informed decisions. To what extent have these forums been useful in influencing investment decisions on Nigeria?
We organise forums that cater for various categories of investors, some of which are aimed at encouraging retirement planning among workers and employers. Participants have gained valuable tips from experts and regulators on the imperative of putting in place effective plans to ensure a smooth transition to retirement. Additionally, our forums have provided major investors with a platform wherein they can access vital information on macroeconomic issues and the direction of the market as provided by key note speakers and captains of industry to help them make informed decisions on the Nigerian economy.
Capital markets thrive on investor interest in the investment opportunities that the market has to offer. Will you say that the steps taken so far by the capital market regulators as well as the government have been effective in restoring confidence in the market. Do you consider the market fundamentals strong enough to stimulate a recovery?
Quite correctly, the concerted efforts of the capital market operators and the regulators have contributed immensely towards restoring investor confidence in the market. The federal governments’ stance on zero tolerance for corruption, coupled with increased regulatory oversight from authorities instituted by government, has, to a large extent, helped to restore confidence in the market.
Asides the market fundamentals, other critical factors that would be expected to stimulate an economy would be hinged on how swiftly the federal government enacts policies and reforms that would lift the economy out of recession. In addition, the ability of the government to increase foreign exchange inflows via any or a combination of factors such as sustained increase in daily crude oil production, external borrowing from development finance institutions/investors and sale of certain assets to finance capital projects, stimulate aggregate demand and shore up foreign reserves would undoubtedly go a long way in resuscitating the ailing health of the economy.
