Belgore: Investing in Mutual Funds Reduces Risks

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MONDAY INTERVIEW

Managing Director, Afrinvest Asset Management Limited, Mr. Ola Belgore, in this interview, spoke about the importance of investing in mutual funds. Obinna Chima presents the excerpts:

What investment opportunities do you think exists in the market?
Of course, there are lots of opportunities. Nigeria is very blessed, both in human and mineral resources. So, definitely there are opportunities. And you know a challenging period is when savvy investors actually make their money. They take advantage of the opportunities. And we are confident that 2017 would be a better year. In terms of equities, most of the blue chip stocks are priced well below their fair value. So, that presents great opportunities, especially for people with long-term horizon. Naturally, one would hope that things would not go on this way. So, if you take advantage of the low stock prices by buying low now and you wait. Also, in the area of real estate, there is huge opportunity and prices are depressing. Of course, a lot of our clients now are looking at Eurobond investments because that helps them to find a way around the forex policy and all that. That is because with Eurobond investment, they can get their returns in same currency, especially for those who have school fees to pay abroad or other business to fund. So, these are some of the opportunities in the market.

What level of attraction have you seen in the Eurobond investment space?

Like I said, I am sure it is not limited to Afrinvest. A lot of clients are making enquiries or making investments in Eurobond. So, in 2016, about two investment houses floated some kind of Eurobond investments, which wasn’t something you will find in this clime before then. We are hopeful that we are going to be doing one in 2017. And we know that there are other asset management firms that would be thinking along this line. So, public listed mutual fund or private investments in Eurobond or even in house funds are all growing arms of the asset management business. So, we are going to be floating an Eurobond-based mutual funds sometimes in 2017.
Can you shed more light about the planned Eurobond investment instrument?
Basically, as you know, we have two listed mutual funds at Afrinvest. We have the Nigeria International Debt Fund, which has been around for about 19 years and it has been the most consistent in terms of dividend payment. But this was originally priced in dollar because it was tracking the debt of Nigeria before the Paris Club debt forgiveness. We also have the AEF, which is the equity fund. In spite of the fact that the market in 2016 was negative by 6.2 per cent, we did 16.9 per cent. Of course, there is a law that say you cannot compare  two mutual funds, but looking at the industry, I think we had the most impressive return on equity funds in the market. So, based on the skills, expertise and in response to clients’ demand, we are looking at floating an Eurobond mutual fund. We actually have a money market fund coming on board, but that is going to be priced in naira. We have gone far on that. We are just waiting for the approval of the Securities and Exchange Commission. But the Eurobond is still work in progress and hopefully, before the end of the year we would get the neccesary permission.
So, don’t you think the issue of forex would affect the Eurobond as well?

It does in a way because there are regulations that state that for you to invest in Eurobond, the source of the fund must be genuine. So, you can’t do cash deposit. For instance, if I do my money market fund, the petty trader out there can go and deposit maybe N20,000 into the fund. But for Eurobond instrument, you can’t do such because everything can be tracked. You have to do a fund transfer from a genuine account. So, as it is, it is going to be for the high networth individuals. That is people who have genuine businesses that have Eurobond cited in their accounts. Maybe some of those that had monies in their accounts that have been idle. For domiciliary accounts in Nigeria, I am not sure you will get anything and even if you get anything at all, I am not sure you will get up to one per cent. But with this, you can get real return from your money, with an average yield of about six per cent. So as against leaving your cash idle, you would be getting something on top because you invested. And the fund is going to be structured along the line of the bond. So, there is likely going to be two dividends in the year to be distributed to investors.
But how has the present economic recession affected the asset management business in Nigeria?

Well, recession has really affected asset management in the country because the growth rate has slowed down a bit. In 2016, I am sure there was only one new asset management firm that got approved as against previous years whereby we had a proliferation of asset management businesses. One of the challenges is that our potential clients out there are constrained because they are cash-strapped. They have done businesses for government, private sector and even for us as investment services firm, there are advisory services we had given, and cash are trapped. Of course, that directly affects us in terms of new flows. But in terms of performance, you have to be ingenious to take advantage of all the opportunities in the market. Of course recession comes with its challenges. One other way is that as against now, whereby most asset management firms would just focus on equities for their clients, we have to think of additional ways to bring value to our clients. There is no point you giving me your money if I am not going to add value to it. So, you now have to restructure portfolios to meet clients’ investment objectives.
Mutual funds appear to be getting more popular in the country, what do you think is responsible for that and what can be done to encourage more retail investors to key into this form of investment?
Mutual fund is becoming popular because a lot of people were badly beaten in the market as far back as in 2008. This is because back then, the market was so good that you could close your eyes, point to any stock and invest your money in it without looking at it. And you will probably make money. Back then, we saw a situation whereby we had companies that were still listed on the Exchange, but had shut down their businesses. And you saw investors buying their shares and they made money from it. Then, it was not about fundamental, it was just because everything was moving.  But then, there was a market correction and people were badly beaten. So, that then made the case for professionals. You cannot just buy anything without seeking the advice of professionals. For most asset managers, you charge a token for managing the investment so that it is worth your time. Now, not so many people can afford to pay that. So, what they now do is to find another way of getting that professional advice and that is what mutual funds give to you. So mutual funds are a pool of investment. The guy who invest N10, gets the same returns on investment that you are giving to the guy who has N1 billion in the mutual fund. In our experience in managing mutual funds, we realised that when you have so many people that invested in the fund, it reduces concentration risk. So, that has made mutual fund quite popular. It is not surprising. That is the trend world-wide because of the entry barriers and sophistication that has to do with investments. There is lot of campaign and there is going to be more around the fact that if you think things are bad now, what happens if you don’t have that source of income? So, the campaign is that no matter what you have, save something; even if it is 10 per cent of every income that you get. As a body, the Fund Managers Association is doing something regarding that, SEC had also done several road shows trying to encourage investors. We all know things are tough, but the advice is that every individual should have at least three to six months savings of their monthly pay saved, in case there is a loss of job. The trend has always been that when one losses his or job, it takes a minimum of three to six months to get another one, no matter how good you are. So, in terms of the economy and how it affects disposable income, I think people have realised that they have to put some money aside.