Analysts say PACAM Balanced fund offers investors portfolio diversification

As investors’ interests in PACAM Balanced Fund keep increasing, analysts see the fund offer as an effective portfolio diversification strategy.

The PACAM Balanced Fund is an open-ended fund authorised and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act.

The Fund is governed by a Trust deed with FBN Trustees Limited as Trustees. The Fund is offering 1,000,000,000 units as the initial subscription to the public.

PAC Asset Management Limited, on February 4, 2015, opened for subscription 1 billion units of PACAM Balanced Fund of N1.00 each with minimum subscription of 50,000 units and multiple of 10,000 units thereafter.

PACAM Balanced Fund is a mutual fund duly registered with the Securities and Exchange Commission. The Fund proposes investment allocation of 40 percent in equities, 30 percent in fixed income and 30 percent in real estate.

Meanwhile, yield on Money Market Instruments is expected to average 12.1 percent in 2015, 11 percent in 2016, and 10 percent in 2017 and 2018. In fixed income market, yields from investments in Bonds are expected to average 11.53 percent over the forecast period, while, real estate is projected to post an average return of 17 percent per annum over the period of the forecast.

Analysts see this Fund diversification as timely as they see the raising 2015 growth projection for the Euro zone to 1.5 percent and 1.9 percent for 2016 (against 1.1% and 1.5% earlier projected) by the European Central Bank (ECB) as having a positive impact on the markets across frontier and emerging markets.

The Nigerian equities market currently trades at a P/E ratio of 10.5x, lower than most of other emerging markets; Brazil – 13.8x; India – 20.3x; South Africa – 20.5x, and Indonesia – 31.9x. Analysts at WSTC Financial Services Limited believe that attractive valuation in the Nigerian markets compared with its emerging market peers, and increasing stability in the foreign exchange market, present attractive risk-adjusted return to institutional investors.

They also expect yields in the fixed income market to remain attractive in 2015 on expectation of aggressive government borrowing on account of shrinking revenue and maintenance of tight monetary stance by the Central Bank of Nigeria (CBN).

However, in terms of market prices and current economic headwinds, they reckon that the proposed allocation of 60 percent of the Fund’s proceeds outside of equities will shield the Fund’s cash flows from (equities) market volatility.

“Also, we believe that the Nigerian equities market, with a P.E Ratio of 10.5 xs is relatively undervalued compared with peers (South Africa’s equities market currently trades at a P.E ratio of 18.1x). This offers the Fund an attractive entry point for investment in Nigerian equities, thus creating significant upside potential,” Olutola Oni, investment research, WSTC, said in an e-mailed response to BusinessDay.

The ongoing Fund offers investors such benefits like diversification of portfolio for risk reduction, outstanding portfolio management by seasoned professionals and liquidity and ease of entry and exit at all times, thereby allowing opportunity to increase investment at regular intervals, David Okwuadigbo, managing director of PAC Asset Management Limited, explained.

The primary objective of the Fund, according to him, is to achieve long-term capital appreciation, capital preservation as well as providing a stable stream of income to investors by investing the Fund’s assets across a mix of high quality listed equities on the NSE, investment grade fixed income instruments, money market instruments and real estate assets in Nigeria.

The structure of fund is done in such a way to ensure there is trust and safety. The PACAM Balanced Fund shall be managed by a team of professional portfolio managers including FBN Trustee, UBA Custodian, among others.

“Since the launch of the fund it has been going well, response has been positive. Funds are beginning to come in. We are making progress in terms of receiving agents returning the funds, that is why we can still actively market it,” Okwuadigbo, said in an interview with BusinessDay.

However, the challenges are the misunderstanding of the concept by people who think balance fund is purely equity market.

“We are taking measures to educate people so that they can understand the difference and the whole concept of the fund because it is that misconception that is the biggest problem,” he said.

PAC Asset Management is a licensed funds/portfolio manager positioned to provide clients with innovative investment management services. Its mission is to deliver investment opportunities from different sectors of the economy, ranging from asset classes such as equities, money market/fixed income, real estate and alternative investment vehicles.

The firm does this by offering an array of products to corporate/institutional investors, high networth clients and retail investors in discretionary and non-discretionary ways. These products include Mutual Funds, Endowment Funds, Educational Plans, Assets Replacement Funds, etc. Its product lines are constantly been updated to bring clients cutting-edge services to satisfy their investment needs.

HOPE MOSES-ASHIKE