FBNQuest Asset Management Limited is a subsidiary of FBNQuest Merchant Bank. The company offers a range of investment products and services across various asset classes while also providing its clients with strategies best suited for their investment goals and portfolios. Ike Onyia, managing director/CEO FBNQuest Asset Management, in this interview with DOLAPO ASHIRU speaks on various issues regarding the Fund management sector of the Nigerian economy.
Which of your various funds has received the most subscription from your clients and what reasons are given for this selection?
Within the Nigerian Mutual Fund industry, low risk investments have received the highest patronage from investors and the story is no different at FBNQuest Asset Management. Within the Firm, we offer pooled solutions across the risk spectrum and our lowest risk solution, the FBN Money Market Fund, has received the highest inflows from clients. Over a two year period, 2016 – 2018, the FBN Money Market Fund saw its Assets under Management grow exponentially by over N100bn (c. 430%). The Fund has therefore been one of the fastest growing funds within the market. Investors have cited the safety of the Fund due to the underlying assets of the Fund. The Fund is invested in money market instruments such as treasury bills, fixed deposits and commercial papers. Investors have also referenced the liquidity of the Fund. Investors within the Fund are able to redeem cash efficiently, particularly, when using our app, FBN Edge. The relatively attractive yield of the Fund is another benefit. The Fund allows investors invest as little as N5000 and still earn the attractive returns available within the Nigerian money market space.
Can you give us an idea of your various funds and their performance?
FBNQuest Asset Management currently offers 5 mutual funds to investors across the risk spectrum, invested in various asset classes including bonds and equities.
The FBN Money Market Fund is a low risk solution for investors looking for attractive yields, liquidity, income and capital preservation. The Fund’s average yield over 2018 was 13.4%, outperforming its benchmark, the average 90 day treasury bills rate of 12.4%.
The FBN Fixed Income Fund is a low – medium risk solution for investors that wish to enjoy the capital appreciation and income that comes from investing in the Nigerian fixed income market. This Fund may appeal to investors who need regular income from their savings while providing the potential to shield their capital from the corrosive effects of inflation. In 2018, the fund returned 12.9% (total return), outperforming its benchmark which gained 10.3%.
The FBN Heritage Fund is a balanced Fund with exposure to Nigerian fixed income instruments and equities. The inclusion of equities allows investors participate in the capital appreciation of Nigerian equities. This solution is attractive for investors looking to build a nest egg over time. The Fund generated a total return of 39.6% in the 2 years to December 2018, outperforming its benchmark which gained 27.6%.
The FBN Nigeria Smart Beta Equity Fund, the first of its kind in Nigeria, is a multi-factor equity fund, whose constituents are determined by a proprietary quantitative model. This is a high risk strategy designed for investors who wish to have strategic exposure to equities. The Fund has provided a total return of 61.0% to investors since its inception in 2016, outperforming the NSE30, its benchmark, which has gained 7.1% in the same period.
We also offer a solution for clients who wish to invest and earn attractive returns in US dollars. The FBN Nigeria Eurobond Fund was the first Eurobond Fund in Nigeria and has allowed investors with as little as $2,500 participate in the returns available in the Eurobonds market. Since inception in 2016, the Fund has earned a total return of 25.3% in US Dollars versus a benchmark return of 20.1%.
What kind of Equities are included in your equity fund and the criteria for their inclusion or removal
Two funds within our suite of mutual funds contain equities. The FBN Heritage Fund is an actively managed fund. The Portfolio Managers follow a fundamental, value biased, quality focused strategy when selecting stocks for the Fund. Companies listed on the Nigerian market are firstly screened to remove illiquid stocks. Following this, the buy-side research team analyses each company’s financials and business model and makes a determination about the value of the company, its future prospects as well as its strengths, weaknesses, available opportunities and any threats. This allows the Portfolio Managers make a determination as to the relative attractiveness of the company vis-a-vis its current market valuation and the macroeconomic situation. A preference is given for names with relatively high return on equity (ROE) and low leverage as we believe that in the Nigerian market, quality names offer the best long term growth. Tactical trading positions may be taken where an arbitrage opportunity is identified. Within the active strategy, names are excluded when they become overvalued (that is, the current price no longer justifies the expected future returns of the stock) or when the macroeconomic environment no longer supports investments in the company.
The FBN Nigeria Smart Beta Equity Fund’s equity positions are determined by a proprietary quantitative model. The model was created as a result of extensive back-testing of various factors which have been known to drive equity market performance and capitalise on market inefficiencies. This strategy is commonly known as smart beta investing. Consideration is also given to the liquidity of the stocks in question. Essentially, the Portfolio Managers draw constituents from the largest 40 stocks (by market capitalization) and screen these stocks based on the identified anomalies. Weights assigned to stocks are screen-rank-driven and the top-20 stocks form the constituents of the Fund. The portfolio is rebalanced semi-annually and names that no longer satisfy the criteria are removed whilst new names that fit the criteria are included.
Where do you see the fund management industry in the next 5 years?
The Nigerian Fund Management industry has grown by a CAGR of 97% over the last 3 years; driven by increasing awareness of the benefits of collective investing and a rise in the number and sophistication of available products as Fund Managers themselves become savvier. We expect this trend to continue to be supported by a collaborative regulator, an increased use of digital platforms to distribute more efficiently and the proliferation of more complex products. We also expect that the importance of transparency to investors will increase. As the industry matures, clients will begin to demand and expect transparency in the investment management relationship across a number of vectors including investment performance, detailed and timely investment factsheets, transparency around the total fees charged within each solution and the comprehensiveness of the information provided by Fund Managers.
How are you leveraging on technology via digital & mobile platforms to further increase your reach and serve clients better?
We realise that digitalisation though, disruptive, is an effective enabler for innovation across the value chain of the investment management process. We have assessed our business operating model and have crafted a well-defined digital road map, which will ensure that clients are better served. This road map is designed to ensure that our solutions are customer-centric and efficient. Digitalisation to us, means that we can measure the quality of our service more precisely, interact with and serve our clients all the time through a digital and Omni-channel platform to provide value-adding investment solutions. We have a mobile platform that provides customers access to our traditional asset management products (mutual funds).
What are your views on the emergence of Fintech companies and do you feel threatened by their emergence?
The emergence of Financial Technology (FinTech) in Nigeria poses vibrant opportunities for the country’s financial services sector. Increasingly, a cross-section of the Nigerian population are using technology to make payments, invest, and borrow, through USSD and Mobile platforms. In 2018 alone, the value of transactions done via USSD in Nigeria grew significantly from 25% usage in 2017 to 35% usage in 2018. Technology is making it easier for consumers to access financial services, without going into a brick and mortar store. Regulators have also embraced the use of technology as a driver for increasing financial inclusion through initiatives such as the Central Bank of Nigeria’s (CBN) National Financial Inclusion Strategy (NFIS). We think that given the population of Nigeria, FinTech and technology are critical even more today in providing solutions to consumers at large.
At FBNQuest Asset Management, we fully embrace technology’s role in evolving Banking and Investment Management business models. We have a mobile platform that gives customers access to our traditional asset management products (mutual funds). We are keen on continuing to build and maintain relationships within the FinTech ecosystem, to help us provide value-adding solutions to our customers. As technology continues to enhance and simplify customer experiences, we expect the financial world to become even more data driven. We will continue to work together with regulators and FinTech innovators to provide the best solutions to our customers.
What is driving patronage for Fund managers especially from the retail client segment?
The rising interest of retail clients in the services of Fund Managers is driven by a number of factors. Firstly, the use of Fund Managers allows all investors access to the professional management of their investments. Fund Managers are governed by strict regulatory guidelines and have a fiduciary duty to manage their clients’ investments in the best interest of the clients’ and in line with the agreed investment objectives and risk profile of the Fund in question. Additionally, the availability of Fund Managers also allows investors access the returns within the Nigerian financial markets with as little as N5,000 investible capital. These monies can be invested in the pooled solutions offered by Fund Managers. This means that investors need not be concerned with having a large pool of investible capital before they are able to participate in the financial markets. Fund Managers are also increasing the public’s awareness of the benefits of investments by way of a variety of marketing campaigns. This, in addition to the proliferation of various digital avenues to access Fund Management services, causes an increase in the interest in Fund Management services, especially from retail clients.
What is the average return on portfolio like in the various Asset Classes?
The performance of the various asset classes are driven by the macroeconomic situation of the country. When the economy is booming and incomes are growing, risky assets such as equities are more likely to perform better. However, when the economic performance is weak, there is a general flight to safe assets and returns in those assets outperform the risky assets returns. Using 2015 – 2018 for example, Nigerian markets have been relatively volatile with equities underperforming fixed income instruments on average. Given the relatively high yields obtainable in the treasury bills space, the returns to the average 91 day Treasury bill over the 4 years totalled over 60%. Within the Nigerian sovereign bond space, the average total return over the same period was about 72%. Returns to equities lagged, with the total return to the Nigerian Stock Exchange All Share Index over the 4 years closing at 8.5%.
It is difficult to compare the returns across the various funds due to lack of information around distributions made to investors over the years – a key component of any total return computation.
In advising clients what determines your portfolio structure/Asset mix for the different categories of clients?
There are a few broad factors that drive a client’s portfolio structure/asset mix. These factors are blended to form the investment objective of the client. The first point to note is the client’s aversion to risk, that is, their ability and willingness to stomach large swings in the value of their investments (especially swings to the downside). Secondly, the client’s expected return is important. This allows the manager understand how the client is thinking about investments and temper expectations accordingly. When the client would like to withdraw the money is another key consideration that speaks to the client’s liquidity needs. Where the liquidity needs are high for example, it means that a large proportion of the monies are best invested in liquid, safe assets. How long the investment is intended to last for i.e. the time horizon affects the potential asset allocation. Other factors include tax considerations and any unique needs the client may have.
What are the current challenges being faced by Fund managers in Nigeria? And how are you mitigating against those challenges
The level of investor education is relatively low in Nigeria. Whilst investing is becoming more mainstream, there is still a long way to go in ensuring that investors are armed with the skills and the expertise needed to meet their financial goals. Improving financial awareness is key to empowering the population of the country. The point around investor education goes hand in hand with improving the financial literacy level in the country. Low financial literacy hinders the use of investment management services. The final challenge is the limited knowledge of financial products. We find that product knowledge is low, especially for more complex products.
At FBNQuest Asset Management, we mitigate these challenges by focusing on education. By way of thought leadership sessions, as well as one on one interactions with clients and the general public, we aim to up-skill individuals and empower all to make sound investment decisions.