By Babajide Komolafe
Mutual funds represent investment opportunities often ignored or even misunderstood by retail investors. However, the sub-sector has been recording phenomenal growth in the last three years. For example, the sub-sector recorded 48 per cent growth in Net Asset Value to N1.494 trillion in 2020 from N1.006 trillion in 2019.
In this interview, Ete Ogun, CEO of Anchoria Asset Management, a subsidiary of VFD Group, a proprietary investment company, speaks about factors that will shape the sub-sector in 2021 as well as the need for investors to include equities in their investment portfolio.
I also know High Networth Institutions (HNIs) that do mutual funds. I mean in terms of the returns that we have there is no other way you could have made this sort of returns, so why won’t you be in them?
Data from the SEC indicate that the asset management sector had a great year in 2020. Net Asset Value rose to N1.494 at the end of 2020 from N1.006 trillion at the end of 2019, indicating 48% year-on-year growth.
Do you see the sector repeating or exceeding this performance in 2021?
Interestingly 2020 was a year of mixed emotions. It was good in some things and not in some things. If you say that mutual funds enjoyed increased returns on investment, you are not incorrect. But again it is sectorial. If you do the analysis of the sort of mutual funds, then you will be able to determine where those gains come from.
So to start the year, the money market fund was good, the fixed income fund was good, the equity fund was standard. And as the year progressed, they began to increase in returns. But as the year started to end, the money market fund began to dovetail while the fixed income and equity sectors did better. So it is a function of which funds you have.
Luckily for Anchoria, we have the three funds so we had mixed sentiments for the year. We had good performances in the fixed income fund and the equity fund which if you pair them together in terms of returns, you will get about 46% returns, which is not far from the average of 48% that you spoke about. So it is understandable to say it was a good year, but I will rather say it was a year with mixed reactions and emotions, and we are happy that we did not do too badly even though we believe we could have done better.
For the performance of the sector this year, I am an optimist. I always believe that in spite of everything you must always hope for the best, even if you try to plan for the worst.
But as long as people have jobs and businesses thrive, it is about targeting those people and getting them to invest. There will always be opportunities.
What I suspect will drive this year is a value that will be created in equities because of the low yield in the money market. So people should get more yields from equities, but will people come to equities considering that they still have apathy? It is like what I always tell my clients, young people have no business not being in equity. And when I say young people, I mean people below 50 years. They should always have an equity investment, it helps the return on their portfolio.
So I expect 2021 to be a recovery year but we should have some increase in returns in the equity market and if we position bonds well, based on where they seem to be going, things should also pan out. And then for foreign currency investment also, things should work well.
You said young people do not have a reason not to invest in equity funds. Why?
When I say, ‘had no reason not to be’, we will now have to determine ‘weighting’.
So while the person is 50 years, I will say to you because of your age, because of your circumstance, maybe you should be in equity 15 percent, but don’t be out of it totally. The younger person should be in equity funds maybe 60 or 70 percent because they are young. But as they grow older, that percentage should begin to drop. But what I mean is don’t go out of it totally.
So for instance, if somebody does an analysis of your portfolio, you will probably be at 20 percent of your entire, so when they talk about money you put in your business, the money you put aside, in equities, you will probably be at about 15 to 20 percent of your general portfolio. And that is not bad because, by the time you have done the analysis of the dividend that has accrued to you during that period, you begin to see that it has played a certain role. It is just that it is not as substantial so it doesn’t reflect. And if you calculate it over the years, it comes to something that is tangible.
So you believe that people should play more in equities?
I believe that you should not go out of any sector totally. You need to diversify your interest but also you will be mindful of your risk. Equity in particular protects the time value of your risk.
Again Nestle shares were once at N300, and then N1500. Imagine the delight for people who had the opportunity to buy it that five years ago and where they are today. Then talk of the bonuses that have accrued. GTBank shares, some people bought it at N5 and it has done well so far, you don’t just lock yourself out.
What do you consider the major economic factors that will influence the performance of the asset management sector this year?
Like I said, the yield in the money market space, then the investment outlets, and the volatility. Basically, if you can manage those then we should be fine.
Can you elaborate more on the issue of volatility?
When we look at money market rates in 2020, we closed somewhere at 13%, and then by the first quarter of 2020, we were somewhere at 11%. By the second quarter, we were down to 6% and then by the third quarter it was zero. That is really really volatile.
But it is the same thing that pushed the fixed income funds and the equity funds up. That is the double play of it. But those are the things that will happen.
For people who are in the market, it will encourage more people to put aside money if they see less volatility because it helps people plan.
Some analysts have predicted that the CBN will return to a tight monetary policy in the second half of this year.
Should this be a concern for the asset management sector and why?
While I can’t pre-empt what the CBN Governor and his economic team will do, I will then say, what are the opportunities despite what they do for us? So what I would then say is, with this tightening, improvement for FPIs, the OMOs, the question then is, if these FPIs come in, so they will go into OMO bills, but not all of them will go into OMO bills because all the other opportunities are vast.
So what are the opportunities for our sector? They are a lot, as long as you are coming in to invest. We can then create alternative investments around the structured investment, looking for value creation that is tied to all of this money.
So, more than ever, for us, it is to even say, we need to have an understanding of where these policies are headed, then we can create opportunities around them. This is against focusing on whether they are tightening it or not, it is what the opportunities are, that is our key focus.
Your company has three mutual funds, with a combined value of about N1.26 billion, which is less than one percent of the net asset value of the sector.
What are your growth projections for the three funds in 2021 and what opportunities do you intend to leverage to achieve this projection?
Yes, we do have three mutual funds and they have less than this market value.
The equity fund returned about 23 percent last year. In the money market fund, the average yield for us was about four percent. And our fixed-income fund did 22 per cent.
But look at when we came in. We came in 2019 when this monetary loosening started happening. And then COVID-19 came and threw everybody off guard. It was not a good time and we threw away whatever strategic plan we had. Now that the world is recovering, the plan is to compete based on returns and then push our brand name out there. Once we can do that, we should be set for growth. So we can then engage more people across the geographical zones based on those achievements, and we hope that that will in turn push the fund and grow it better.
What is your target market in terms of customers?
We serve everybody. We have a product for everybody.
Including the masses?
There is nobody who is a mass. Every ten kobo counts. You are an important person, your money is important. How can you say the N50,000 I have worked for is not important because somebody has N1 million?
Yes, there is a select crowd for each product but there is a place for everyone, which is in line with our goals, to make wealth accessible to everyone. That is our mission statement, to make wealth accessible to everyone.
So based on the product, we determine where you fit. But we want to cater to as many people as possible. While we are specialists in investment, we are specialists in investment across different strata of society. So for the retail people, you will say the mutual funds. But I also know High Networth Institutions (HNIs) that do mutual funds. I mean in terms of the returns that we have there is no other way you could have made this sort of returns, so why won’t you be in them? And we also have structured products for savvy investors who understand it, so really we are open to everyone for business.