BY PETER EGWUATU

Michael Oyebola is the Senior Vice President and Head of Asset Management of FBN Capital Limited, a part of the Investment Banking and Asset Management business of the FirstBank Group. He has wealth of experience spanning 18 years both locally and abroad. Until his appointment in January 2011, Michael worked as the Chief Investment Officer of Guaranty Trust Assurance Plc for 4 years and was pioneer Head of Investment, Crusader Sterling Pensions Ltd.

In this interview with few capital market correspondents, he spokes on issues in the financial market, the projection in the financial market for the next half year, the apathy of investors in equity market, why FBN Capital introduces fixed income funds and lots more. Excerpts:

What would be your projection in the financial market for the next six months of the year? Should we expect any major change from the pattern seen in half year?

On the equity side, we believe there will be a brief market rally in third quarter, the result of companies releasing their second quarter results. Thereafter it’s expected to drift again once the reporting season is over and the holiday season takes hold. Fourth quarter will bring another respite from the lull. For Fixed Income, we expect the Monetary Policy Rate (MPR) to remain unchanged, as the CBN continues its bit to defend the local currency. Bond and Treasury Bill rates will fluctuate, but we expect interest rates to remain at their current levels.

How would you describe the performance of the financial markets in the first six months of the year?
It was mixed. The year began with more of hope than total conviction. The hope was that with AMCON cleaning up the final pieces in the banking sector and the implementation of IFRS by the end of 2012 and relative cheapness of listed Nigerian equities there was hope for positive returns on the equity market. The rally peaked by 2nd week of May.

In the Fixed income space, having seen rates rise late last year, international inflows to take advantage of high yields and a stable currency the market had remained a delight for fixed income investors. However, the global economic crisis especially in the Eurozone has led to a re-rating of risk and investment destinations and the Nigerian financial market has felt its impact. Add to that the decline in oil prices and this has put pressure on the currency with the naira depreciating against the dollar. Currently, there are no new positive catalysts to cause a sudden change in direction.

Mr Oyebola

Is the performance in line with your expectations?
For the equity market, no. Whilst the rally at its peak got overdone, the current pull back is also overdone. Investors’ confidence needs to return to the market. For the fixed income, yes. Though we believe rates may have peaked.

Some capital market operators have said that the high yields on fixed income securities have contributed to the low patronage of the equities market, what is your opinion?

Investors will always gravitate toward where the best returns are and with the least amount of risk. Whilst the statements you just made may be partly true, all investors have their own investment targets and each allocates capital accordingly. Fixed income investments are an integral part of any portfolio. Currently the risk free rate for a 1 year instrument ranges between 15% and 16% any riskier asset will have to generate returns in excess of that. But we also need to realize that equity investments are not short term investments.

Why has FBN Capital come up with two mutual funds targeted at the fixed income markets?
As mentioned earlier, the retail investors do not have direct access to the fixed income market. By creating funds we are indirectly giving them access to these markets as well as the returns that ensue. A Collective Investment Scheme (Mutual Fund) is the bringing together of a group of people with common investment goals to buy securities such as stocks, bonds, money market instruments, the collective holdings of these securities being known as its portfolio.

Each share or unit holding represents an investor’s proportionate holding of the portfolio and their proportionate entitlement to the income generated by those holdings. The two mutual funds give clients this access and allow them to maximize their returns while minimizing their risks due to the diversification benefit of the funds.

Tell us more about the Fixed Income Fund and the Money Market Fund?
The FBN Money market fund is a collective investment scheme that pools money from investors that share a common investment objective and invests it in money market instruments of less than one year such as fixed or term deposits and certificates of deposits with banks, Bankers Acceptances, Commercial Papers and government treasury bills of various tenors.

The FBN Fixed Income Fund is also a collective investment scheme that pools money from investors that also share a common investment objective and invests the money this time in longer term fixed income instruments such as FGN Bonds, State Government Bonds, Corporate Bonds, Eurobonds and to a lesser extent money market instruments just for liquidity.

What are the objectives of the Funds?
From and investment perspective, the objective of the FBN Money Market Fund is to achieve high returns commensurate with existing returns on money market instruments on the market. For the FBN Fixed Income Fund, the objective is to achieve an even higher but stable amount of investment returns commensurate with that obtained by investing in a diversified portfolio of FGN, State, Corporate and Eurobonds.

Why should investors subscribe to these funds?
Affordability, the FBN Money Market Fund represents an investment opportunity that allows everyone from a large institutional investor to the small individual investor to invest in the asset classes with steady income streams. Accessibility, FBN Fixed Income Fund represents an investment opportunity that allows retail to institutional investors to invest in asset classes that may not be readily accessible.

Both funds provide steady and attractive returns. Unit holders will receive value in the form of cash or dividend income. For the money market fund income is paid out quarterly whilst for the fixed income fund income is paid out half yearly. The funds also have liquidity as investors will be able to purchase and sell the Units in the Fund on any business day throughout its existence. Both funds offer competitive yields.

Kindly tell us what the benefits are to your potential investors?
Investment diversification; Portfolio diversification; Lower cost; Convenience;     Liquidity; Exposure to asset classes they may ordinarily not have access to;  Higher returns than other traditional savings products; Capital preservation; Lower risk profile;  Professional fund management; Access to Nigeria’s largest financial institution.