Segun Peters, a 37-year old architect, is considering investing in one of the numerous fixed income-based mutual funds available to investors in Nigeria’s capital market.
He has cause for pause, though, as there are close to 50 different fixed income-type funds, ranging from money market funds to bond funds, currently available in the market.
“I really have no way of knowing which of these funds have performed well in terms of total returns when compared against each other or who charges the lowest fees,” Peters told BusinessDay on phone. “I think I will just go with the one a friend recommended.”
In a world where global fund managers like Vanguard and Schwab are competing by dropping fees to zero, Nigerian fund managers are largely not wooing investors on the basis of that metric.
Retail investors have been a force behind mutual funds’ growth in Nigeria in the past five years, with assets under management (AuM) up 250 percent since 2015, data from the Securities and Exchange Commission (SEC) show.
Money market funds have been the major attraction for investors with the fund type making up 73 percent of AuM as at November 22, according to data from SEC.
However, mutual fund investors have no clear way of judging the performance of Nigeria’s fund managers to compare and make informed decisions, a situation that has resulted in a lack of competition among players in the industry.
Checks by BusinessDay to various fund management companies reveal fund managers often show a lack of willingness to disclose vital information of charges to prospective investors.
Nigeria has seven different types of funds comprising money market, equity-based, bond, fixed income, real estate, ethical, and mixed fund. The total value of managed funds stood at N924.23 billion as of November 22, 2019, according to SEC.
In Nigeria, fund managers charge a certain proportion of total managed funds called management fees which are borne by the investors who have little or no information about the performance of these funds.
Nigeria ranks among the most expensive countries in the world in terms of fees charged on equity, money market, and other mutual funds or collective investment schemes, according to data compiled by BusinessDay.
For instance, PAC Asset Management charges 1 percent of their assets under management (AUM) annually, and 15 percent of accrued interests for withdrawals within the first 30 days, while Afrinvest Asset Management charges 20 percent of returns accrued on investment for early withdrawal within the lockdown period of 90 days.
For SCM Capital Limited, a Lagos-based fund manager which plans to float its money market fund in 2020, the fees come at higher costs. The manager charges 1.5 percent of AUM per year, while any withdrawal made before an agreed period would attract 20 percent of accrued interests.
Similarly, Investment One Limited charges 1.5 percent of AUM but investments into any of its funds can only be redeemed after a minimum period of six months, else a pre-termination charge of 10 percent of accrued interests will be borne by the investors.
Stanbic IBTC Asset Management Limited, the biggest player in Nigeria’s fund management industry with seven funds, appears different with a processing fee of 0.5 percent of redemption proceeds for withdrawals made within the 30 days, while the fund manager charges an annual management fee of 1.5 percent.
Vital information such as expense ratio which represents all of the management fees and operating costs of a fund was not available on most of the funds’ websites.
A mutual fund’s expense ratio is very important to investors because fund operating and management fees can have a large impact on net profitability.
The expense ratio is calculated by dividing a mutual fund’s operating expenses by the average total naira value for all the assets within the fund.
Further checks on the fund managers’ financial results show Stanbic IBTC Asset Management Limited, a subsidiary of Stanbic IBTC Holdings, garnered N20.33 billion from management fees in 2014. This rose steadily to N41.15 billion in 2018.
Zenith Asset Management Limited grew fees from N4.34 billion to N7.7 billion in 2018. First Bank of Nigeria Capital Asset Management, which generated N1.53 billion from management fees in 2014, grew the income to N2.95 billion, while AXA Mansard Investments Limited rose from N50 million to N723 million within the same period.
A look at returns of different fund managers shows that some have outperformed their peers which could be a basis for attracting investors.
Stanbic IBTC Nigerian Equity Fund had total returns of -11.85 percent as at Thursday, November 28, compared to Zenith equity fund which returned -9.55 percent, United Capital equity fund -9.09 percent, and AXA Mansard equity income fund year-to-date total returns of – 4.54 percent, according to data from the Fund Managers Association of Nigeria.
The benchmark Nigeria Stock Exchange (NSE) All Share Index (ASI) has returned -14.09 percent for the period.
“The challenge is that there are not much of investment assets that can accommodate the growth in managed funds,” Gbolahan Ologunro, research analyst at CSL Stockbrokers, said. “Some of the asset classes used in advanced nations are still largely underdeveloped in Nigeria.”
The outlook of performance of the fund managers looks glimmer as they face fresh hurdles with the central bank’s restriction of local non-bank players from participating in the open market operations (OMO) bills market, a move that made the return on alternative Nigerian government Treasury-bills crash to single-digits for the first time since 2016.
Exchange-traded funds (ETFs) which promise lower expense ratios still represent a small portion of Nigeria’s fund industry, with AuM at N5 billion or 0.5 percent of total mutual fund managers assets.
OLUFIKAYO OWOEYE & OLUWASEGUN OLAKOYENIKAN
