Retail investors frequently overlook or misunderstand mutual funds as investment opportunities. However, in the previous three years, the sub-sector has experienced extraordinary growth. For example, the sub-Net sector's Asset Value increased by 48% from N1.006 trillion in 2019 to N1.494 trillion in 2020.
Ete Ogun, CEO of Anchoria Asset Management, a subsidiary of VFD Group, a proprietary investment firm, discusses the variables that will shape the sub-sector in 2021, as well as the need for investors to include shares in their portfolios, in this interview.
High Net Worth Institutions (HNIs) that invest in mutual funds are also known to me. In terms of the returns we have, there is no way you could have made them any other way, so why won't you be a part of them?
According to SEC data, the asset management industry had a fantastic year in 2020. Net Asset Value increased by 48 percent year over year to N1.494 trillion at the end of 2020, up from N1.006 trillion at the end of 2019.
Surprisingly, 2020 was a year of conflicting feelings. It was good in some ways and not so wonderful in others. You are not mistaken if you suggest that mutual funds have seen higher returns on their investments. But, once again, it's a sectorial issue. You can figure out where those gains originate from if you look at the different types of mutual funds.
So far this year, the money market fund has performed well, the fixed income fund has performed well, and the equities fund has performed well. They continued to improve their returns as the year progressed. However, as the year progressed, the money market fund began to outperform the fixed income and equity sectors.
Fortunately for Anchoria, we have access to all three funds, so we had mixed feelings about the year. We had strong results in both the fixed income and equity funds, and when you combine their returns, you get roughly 46 percent, which is not far from the average of 48 percent that you mentioned. So it's understandable to say it was a nice year, but I'd rather say it was a year of conflicting emotions and reactions, and we're glad we didn't do too badly despite our belief that we could have done better.
I am optimistic about the sector's performance this year
However, as long as people have jobs and firms are thriving, it is a matter of identifying those individuals and persuading them to invest. Opportunities will constantly present themselves.
What I believe will drive this year is the creation of value in equities as a result of the low interest rate in the money market. So, while equities should provide higher dividends, would individuals flock to them given their continued apathy? Young folks have no business not being in equity, as I always remind my customers. When I mention young folks, I'm referring to those under the age of 50. They should always have an equity investment because it boosts their portfolio's return.
However, as long as people have jobs and firms are thriving, it is a matter of identifying those individuals and persuading them to invest. Opportunities will constantly present themselves.
What I believe will drive this year is the creation of value in equities as a result of the low interest rate in the money market. So, while equities should provide higher dividends, would individuals flock to them given their continued apathy? Young folks have no business not being in equity, as I always remind my customers. When I mention young folks, I'm referring to those under the age of 50. They should always have an equity investment because it boosts their portfolio's return.
So, while I expect 2021 to be a recovery year, we should see an increase in equity market returns, and if we position bonds appropriately, based on where they appear to be going, things should also work out well. Then, for foreign currency investing, everything should go smoothly.
You stated that there is no reason for young people not to invest in equity funds. Why?
We will now have to determine 'weighting' when I say 'had no reason not to be.'
So, if you're 50 years old, I'd advise you to be 15% in equity, but not completely out of it, because of your age and circumstances. Because they are young, the younger individual should invest in equities funds to the tune of 60 to 70%. However, as kids become older, that percentage should decrease. But what I mean is that you shouldn't completely abandon it.
So, if someone performs a portfolio study, you'll probably be at 20% of your total, so when they talk about money you put into your business, the money you put aside, in equities, you'll probably be at about 15% to 20%.
That is not a terrible thing since, by the time you have analyzed the dividends that have accrued to you throughout that time period, you will realize that they have played a role. It's simply that it's not as substantial as the others, so it doesn't reflect as well. And if you add it up over the years, it adds up to something concrete.
So you think people should invest more in stocks?
I feel that you should not completely abandon any industry. You must vary your interests while also being aware of your danger. Equity, in particular, protects the risk's time value.
Nestle's stock had previously traded at N300 and then N1500. Imagine the joy of those who had the opportunity to purchase it five years ago and are now in possession of it. Then there's a discussion of the bonuses that have accrued. You don't just lock yourself out. Some people bought GTBank shares at N5 and it has done well so far.
What do you think the primary economic elements that will influence the asset management sector's success this year are?
As I have stated, the money market yield comes first, followed by investment channels and volatility. In general, if you can handle those, we should be fine.
Could you expand on the topic of volatility?
When we look at money market rates in 2020, we ended up somewhere around 13%, and by the first quarter of the year, we were somewhere around 11%. By the second quarter, we'd dropped to 6%, and by the third quarter, we'd reached zero. That's a really volatile situation.
But it's the same thing that's driving fixed income and equities funds higher. That's the double-edged sword. However, those are the events that will take place.
If there is less volatility in the market, it will encourage more individuals to put money aside since it helps them plan.
According to some commentators, the CBN would resume a tight monetary policy in the second half of this year.
Should the asset management industry be concerned about this, and why?
While I cannot predict what the CBN Governor and his economic team would accomplish, I can ask, regardless what they do for us, what are the opportunities? So, with this tightening, improvement for FPIs, the OMOs, the question becomes, if these FPIs come in, will they go into OMO bills, but not all of them will go into OMO bills because there are so many other opportunities?
So, what are the prospects for our industry? They are numerous, as long as you keep track of them.
So, now, more than ever, we need to understand where these regulations are headed so that we can create possibilities around them. This is in opposition to focusing on whether they are tightening it or not; instead, we must concentrate on the opportunity.
Your firm manages three mutual funds with a total value of around N1.26 billion, or less than 1% of the sector's net asset value.
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