As an aftermath of the global financial contraption that saw the stock market hitting an all-time low of N4.6 trillion, the tune in the market now is for investors to leverage on Collective Investment Schemes to safeguard their portfolios as a buffer against any further  crisis in the market. Chief Executive Officer, Stanbic IBTC Asset Management Limited (SIAML), Mr. Olumide Oyetan, in this interview, explains the pros and cons of the schemes, and how best to sustain the equities market. FRIDAY EKEOBA brings excepts.

Portfolio diversification has often been hedged as a defensive mechanism in investment planning. But this pre-supposes the availability of resources and risk profile of the investor. How do you assess the typical Nigerian investor as far as portfolio diversification goes?

Our investment policy statements for investors clearly place each investor along their risk spectrum. The investment selection and diversification decision is an offshoot of the Investment Policy Statement. Without proper diversification, investors are exposed to huge non-systematic (that is diversifiable) risk which might negatively affect the invested capital. Prior to 2008, most investors were focused on obtaining the highest return possible in the market at the expense of diversification and risk profile. However, in the last three years, we have seen a dramatic improvement in that regard as investors now have a better appreciation of the need for diversification and risk profiling.

Nigerians are used to different forms of collective investment schemes, but somehow there seems to be limited knowledge of mutual funds and their availability, particularly by the generality of the people. What further steps do you think, should be taken to raise awareness about mutual funds?

I believe that there should be a broad based collective investment schemes awareness campaign conducted jointly across all segments of the industry with greater industry collaboration among the various key stakeholders and we think the SEC and NSE are well placed to coordinate these efforts in conjunction with the private sector. We also believe the Government and specifically the tax authority, needs to improve some of our tax laws in order to reduce the tax burden and to further improve the efficiency of mutual fund operations which in turn, should improve returns and consequently awareness and participation in mutual fund investment.

Your mutual funds seem to be what people know when it comes to Stanbic IBTC Asset Management. What investments activities outside mutual funds do you engage in?

Stanbic IBTC Asset Management Limited currently manages seven registered funds regulated by the Securities and Exchange Commission (SEC), which cater for investors with varying risk profiles and investment goals. Our mutual funds include the Stanbic IBTC Nigerian Equity Fund, the Stanbic IBTC Ethical Fund, the Stanbic IBTC Balanced Fund, the Stanbic IBTC Guaranteed Investment Fund, the Stanbic IBTC Money Market Fund, the Stanbic IBTC Bond Fund and the Stanbic IBTC Umbrella Fund. At over N38 billion as at March 2013, our funds constitute 34 per cent of the total assets of the Collective Investment Schemes (CIS) industry and we have been able to generate sustainable long-term returns for our investors in line with their investment objectives, which explain the popularity of our mutual funds. In addition, we also offer portfolio management and investment advisory services. We manage bespoke portfolios for multi-nationals, corporates, Non-Government Organisations and high net worth individuals in excess of N100 billion. We also offer investment and financial advisory services to large institutional investors with assets under management in excess of N50 billion, in order to help optimize the returns on their portfolios.

The major reason for investing in mutual funds is the opportunity for steady growth in assets while reducing the risk associated with investing in individual securities. Given this backdrop, it may be argued that mutual funds are for investors with significant resources and high risk tolerance. Also the return on investment is small when compared to ordinary equities. Why should people in the lower economic bracket bother about mutual funds?

The main objective of collective investment schemes is pooling funds from various investors in order to achieve diversification and cost reductions while obtaining competitive returns relative to direct investment. As such, on the contrary, mutual funds are ideal for retail investors with low risk tolerance as the minimum investment is usually as low as N50,000 and the units of the mutual funds give access to a well-diversified professionally managed portfolio with a lower risk profile compared to investing directly. Furthermore, the retail investor may not possess the requisite market knowledge, information, expertise and do not generally have the funds to employ the services of a professional Fund Manager. Hence, investing in a mutual fund helps reduce the cost associated with the services of professional management and fund administration. For instance, funds such as the Stanbic IBTC Money Market Fund and the Stanbic IBTC Bond Fund enable retail investors to achieve Fixed Income yields that would otherwise accrue to High Net-worth Individuals (HNI) by investing in a pool of high quality bonds and money market securities that retail investors would ordinarily not have qualified for. Therefore, mutual funds can be used as an effective tool for wealth creation by people in lower economic brackets. On the assertion that the returns of equity market are small when compared to direct investment in shares, we believe that the returns usually outperforms majority of listed equities of underperforming companies.

Stanbic IBTC Asset Management offers mutual funds to investors with both low risk and high risk appetites. How does this work?  What differentiates you from other fund managers?

Understanding the risk profile of your client is an important aspect of the investment management process as failure to manage a portfolio in line with the risk appetite of the investor will certainly lead to unmet expectations. At Stanbic IBTC Asset Management, we have provided multiple platforms through our various mutual funds to ensure that investors across the risk spectrum are catered for.  We understand the link between risk and returns and the role of behavioral finance. Thus, we ensure that we actively engage our clients to get a clear sense of their investment objectives and tolerance for risk which serves as the basis of our recommendation of suitable products. Also, we differentiate ourselves by focusing on a disciplined fundamental approach to investing and paying attention to the key economic value drivers, layering the core of the portfolio with industry leaders and ensuring that we invest in only fundamentally sound securities which we aim to acquire at substantial discount in order to earn attractive returns. We also employ a combination of strategic and tactical asset allocations, sector plus asset class weighting and sector rotation. Our team of passionate and dynamic people with a deep understanding of the Nigerian market is another key differentiator and we have a strong parentage in Standard Bank (which is the largest bank in Africa in terms of assets and profitability) and has presence in 18 African countries and 12 countries outside Africa. This enhances our ability to adapt global issues to our local market.

 A few years ago, your company introduced two additional mutual funds, the Stanbic IBTC Money Market Fund and the Stanbic IBTC Bond Fund. How have these funds performed in the last three years?

After the market downturn in 2008/2009, there was a significant increase in investors’ risk aversion which necessitated the introduction of lower risk investment vehicles. Hence we launched the fixed income biased funds Stanbic IBTC Money Market Fund (SIMM) and the Stanbic IBTC bond Fund (SIBOND). The Stanbic IBTC Money Market Fund seeks to achieve the objective of delivering fairly competitive returns by investing 100% of its assets in low risk short-term securities such as Treasury Bills, Commercial Papers, Bankers Acceptances, and Certificates of Deposit with institutions that are rated not less than “A” by at least one recognized local rating agency registered with the Securities and Exchange Commission. The effective yield as at the end of 2010, 2011 and 2012 was 8.57 per cent, 15.44 per cent and 13.12 per cent respectively compared to the fund’s benchmark of 91-day weighted average treasury bills rate of 3.58 per cent, 9.48 per cent, 13.72 per cent respectively. We also manage the largest Money Market fund in Nigeria which is currently in excess of N14 billion.

One the other hand, the primary objective of the Stanbic IBTC Bond Fund is to achieve competitive returns on its assets with minimal risk. The Fund seeks to achieve this objective by investing at least 65 per cent of its assets in high quality bonds and other fixed income securities, while a maximum of 35 per cent of its assets is invested in quality money market instruments. In 2010, 2011 and 2012, the Stanbic IBTC Bond Fund returned 6.30 per cent, 8.23 per cent and 10.68 per cent respectively compared to the Fund’s benchmark of 3-year weighted rate of 7.45 per cent, 11.75 per cent, 14.46 per cent respectively.