The uncertainty in Nigeria’s investment environment heightened by the outbreak of COVID-19 and the Central Bank of Nigeria’s (CBN) recent monetary policy that sent yields on government securities to a single digit has increased investors’ appetite for attractive instruments.
With a record-inflation rate that has risen for 10 consecutive months to 12.56 percent in June, yields on fixed-income instruments are mostly negative for investors. Although they have investment capital but the attractive yielding securities are either unavailable or limited.
“Cultivating a relationship with a local fund manager could offer several advantages to investors in this season,” FBNQuest, one of sub-Saharan Africa’s leading merchant bank and asset manager, says.
While interest rates in Nigeria have always been high due to the monetary system in vogue since 2009, which sought to use FGN bonds/T-bills and OMO bills as a means of attracting US dollars into the country to stabilise the naira, the recent OMO policy by the CBN, which prevents domestic investors from participating in the auction is the key driver of the recent low-interest rates.
Yields on both T-bills and bonds instruments have hit a bottom record from a double interest rate enjoyed some four years ago.
Fixed-income investors seeking high-yielding securities from the last Treasury Bills (T-Bills) auction conducted by the CBN on behalf of the Federal Government of Nigeria (FGN) were disappointed as the highest yield on the short-term instrument stood at 3.4 percent. Also, more than N200.75 billion bids were unsuccessful, a pointer that shows the high liquidity in the financial system.
According to FBNQuest, the services of a fund manager are important at a time like this due to the following reasons:
Seeking opportunities with diversified risk
With the core responsibility to implement a fund’s investment strategy and manage its trading activities, a fund manager can offer clients the expertise to spot opportunities.
While the search for an instrument with attractive yield could expose an investor to higher risk related to the volatility of returns or the liquidity of the instrument, a portfolio manager is equipped with the resource to help an investor review the investment objectives in the context of the economic circumstances of the client.
Monitors investment
Portfolio manager bears the stress associated with constantly monitoring financial markets that are often complex.
“Financial markets these days are very fast-moving and comprise several elements such as stocks, bonds, exchange rates and commodity prices,” FBNQuest notes, adding that the last four months since the spread of the COVID-19 virus across the world have shown that the elements can fluctuate dramatically, sometimes on the smallest piece of news.
The services of a portfolio manager, although come with a fee, take away the headache of continuously monitoring an investment portfolio, a typical scenario of ‘let your money work for you’.
Bears investing emotional burden
According to market analysts, investing in financial markets can be an emotional roller coaster as markets can be intoxicating when they are rising, as they did between January 2006 and March 3, 2008, when an economic boom and elevated foreign investor interest in Nigeria saw the NSE all-share index rise over 100 percent.
Fund managers at FBNQuest believe the market can, however, be devastating when they are falling. “As we saw in the subsequent four years when the NSE all-share index declined by 69 percent from its historic peak.”
The volatility and potential losses from ill-advised investments are one of the reasons why market experts have advised to consider the services of a fund manager.
Portfolio rebalancing
Portfolio rebalancing is one of the investment discipline heightened by market analyst needed by an investor to achieve risk-adjusted returns. Portfolio rebalancing is described by industry players as the process of adjusting holdings by buying and selling certain stocks, funds, or other securities to maintain an established asset allocation.
The process, according to market experts, is important because it helps to keep investor’s tolerance for risk at the most comfortable level.
Access to structured products
According to the FBNQuest, taking advantage of the discretionary portfolio management service also provides access to structured products.
These investment products are in the form of notes issued by entities that could be related or unrelated to the fund manager but secured by underlying assets.
While the structured products are often riskier than traditional fixed income instruments, they often offer higher yields and indirectly access income yielding assets in the local or in foreign markets.
Although this kind of products may not be for everyone, the fund manager can help investors get access to them as an addition to a diversified portfolio. For example, they could offer indirect exposure to bonds issued by African governments and corporations.
