stockwold

By Chinenye Anuforo and Chinwendu Obienyi

An ETF or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a  common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated once at the end of every day like a mutual fund does.
Starting off in the late 1980s, the ETFs have come a long way to become one of the most popular financial innovations to hit the market since the introduction of the mutual funds in the 1770s. Taking the industry by storm, ETFs are being considered the future of the investment industry because they have become quite popular among millennial investors who feel these are the best investment vehicles.
ETFs are created when an institutional investor, a bank for example, or a market maker referred to as an authorised participant (AP) pools together a large number of securities that are of same index into a portfolio. The portfolio is then exchanged with the ETF sponsor/manager for a large number of ETF shares known as creation units, which are then minimised to smaller shares and sold in the open market to the small investors.
The fund usually tracks the performance of stock indices, which are normally comprised of many types of stocks. When an investor acquires an ETF share, they are normally investing in the performance of bundle of securities mostly involved in a particular sector. The ETF shares tend to focus more on a sector in whole rather than a particular stock so that one is able to profit even if a particular stock fails and the sector flourishes.
ETFs were valued at $2.9 trillion as of 2015 with the rise being attributed to its advantages over other funds. Investors were mostly attracted to this investment vehicle due to its higher liquidity. As compared to mutual funds that can only be bought and sold at the end of the day once trading closes, the ETF can be traded anytime when the market is open making it easy for those who want to liquidate.
Apart from better chances of liquidity, ETFs are also easy and cheap, as they have no minimum requirements. One can even buy one share. They tend to have lower costs. This is caused by their structure, which requires a passive management. They also have a minimum expense ratio unlike mutual funds, which have higher costs mainly because of an active management.
However, in Nigeria, the patronage for ETF is quite low and so, recently, the Nigerian Stock Exchange (NSE), in order to encourage investors’ participation in the fund, held a workshop to sensitise Nigeria’s brokerage community and investors on the need to embrace ETF.
The issuers – Stanbic IBTC Asset Management, Lotus Capital Halal Investments and Vetiva Fund Managers Limited – while participating in a panel discussion on the future of ETFs in Nigeria at NSE 2016 ETF Workshop noted that the low participation in ETFs could be addressed when brokers are made to facilitate and actively engage in the issuance of ETFs.
ETFs were introduced into the Nigerian stock market in December 2011, yet, it still struggles with market acceptance and participation.
According to Executive Director, Stanbic IBTC Asset Management, Shuaib Audu, investors tend to prefer direct equities investment. He said the total trade on direct investment in the past year was a little under N1 trillion (N976 billion), a sharp contrast to N250 million quoted as the combined total value of ETF traded by issuers on the stock exchange.
Some of the benefits of ETFs as highlighted during the workshop were the enhancement of flexibility, transparency, investment diversification, liquidity and low cost.
In his opening remarks, the CEO of the NSE, Mr. Oscar Onyema, said, “the existence of ETFs in our market is beneficial to retail and institutional investors, as ETFs offer a direct and inexpensive way to attain diversified exposure to an index, commodity, sector or region.
“Aside diversification and tradability, ETFs also offer additional benefits of low expense ratio as compared to mutual funds, increased liquidity and can be used to execute different investment strategies.”
Onyema who stressed that as part of the Exchange’s efforts to develop the ETF market, the workshop was organised to create awareness of the product, address its challenges and promote its opportunities in Nigeria and Africa.
He said, “ETFs have gained widespread acceptance in most developed markets with demand from global retail and institutional investors leading to a variety of offerings by ETF sponsors.
“ETFs have become a huge success story as Global ETF Assets Under Management (AUM) have grown from $1.4 trillion in December 2010 to about $3 trillion as at April 2016 representing over 102 per cent cumulative growth over the last five years.
“Experts have predicted the continued growth of the ETF industry estimating that global AUM will reach at least $7 trillion by 2021.”
“In the NSE, ETFs were introduced in December 2011 with cross listing of Newgold ETF with AUM of N287.5 million to provide investors with new opportunities to diversify their portfolios and access the market.
“As at today, we’ve recorded about 1,900 per cent growth in our ETF market with total AUM of about N4.24 billion as at September 2016 on eight ETFs currently listed and traded on the Exchange – Newgold ETF, Vetiva Griffin 30 ETF, Stanbic IBTC ETF 30, Lotus Halal Equity ETF, Vetiva Sector Series ETFs – Banking, Consumer Goods and Industrial, and Vetiva S&P Nigerian Sovereign Bond ETF (six equity backed, one commodity ETF and one bond ETF).
“Investors now have the ability to quantify and evaluate the trade-offs in our markets and are able to select the instrument that allows for the most efficient implementation of their desired strategy.
“There are currently about 506 investors holding ETFs but we are optimistic that the growth of ETFs in Nigeria has only just begun with support of market intermediaries, stakeholders and our regulator.”
On the process of investing in the ETF, Chief Executive Officer, Morewits Financial Market Institute and Morewits Consulting, Dr. Oluwatobi Oyefeso, said, “the process of investing in ETF is simple; prospective investors only need to approach a licensed and registered stockbroker who would give all necessary information about any current ETF in our capital market and subsequently open account to be able to buy on behalf of their client investors and the prospective investor can seek professional advice from SEC’s registered investment adviser,” Oyefeso explained.
He said, “investing in ETF gives investors the opportunity to diversify into different stocks in the case of equity ETF without actually investing in each underlying stock of the ETF.”
However, this investment does not always enjoy lower costs because its shares are acquired through a broker. The more an investor purchases ETFs, the more the brokerage commission increases, pushing ones cost. These increased trading costs cause the fund to lose its appeal to investors.
ETFs are considered to be more tax efficient as compared to mutual funds that trigger capital gain taxes whenever its investors are redeemed through sale of portfolio assets. ETFs usually reduce the tax burden on the investors if they are redeemed through shares and not cash, which most investors actually prefer.
Speaking on the outlook in the coming year for ETF offerings in the Nigerian market, Managing Director, Lotus Capital Limited, Hajara Adeola, said, “we look towards greater liquidity, diverse ETFs to capture unique profiles of investors, a deeper embrace of the fund managers and investors of ETF as an investment tool towards individual portfolios.”
On his part, Shuaib Audu, Executive Director of Stanbic IBTC Asset Management, noted that he looks forward to the ease of regulations on the pension funds. He said if PenCom could allow a minimum of 2.5 per cent of the pension funds investment in ETF and mutual funds, it will help boost the market significantly.
Vetiva Fund Managers, represented by its Head of Investment, Oyelade Aigbe, said a downward review of the trading fees by the NSE will also stimulate the market to a more positive direction, adding that there is room for more issuers in the market.
She said the more issuers there are in the market, the higher the acceptance level of the product.


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SEC takes step at improving financial literacy
The Securities and Exchange Commission is set to improve the financial literacy of Nigerians as poor financial literacy has been identified as one of the factors responsible for the low level of financial inclusion in the country.
This was disclosed by Director General of the Securities and Exchange Commission (SEC) Mounir Gwarzo at the launching of the Nigerian Journal of Securities Market (NJSM) in Lagos.
Gwarzo said the launch of the journal is one of the steps being taken by the Commission to address this gap.
According to him “As part of the SEC mandate to develop the Nigerian capital market and by implication the economy, the Commission is putting all energy, resource and time into implementing the Nigerian Capital Market Master Plan.
“The SEC has focused on several financial literacy initiatives as part of its market development drive”
The DG said efforts are being made to boost financial literacy among young people with school programmes, literacy week and a capital market curriculum.
He said the journal represents another milestone in the endeavour of the SEC to fulfil its Capital Market literacy master plan whose major recommendation is developing a regular and up to date publication and journal on capital market operations
Gwarzo said  “The Nigerian Securities Market Journal (NSMJ) is a periodic multi-disciplinary journal that will serve as a platform for disseminating information and research on the Nigerian Capital Market. The journal will publish original evidence-based papers on capital market activities
“It aims to revamp capital market information, serve as evidence point and re establish SEC as the knowledge bank of the capita market. The journal will provide an avenue to disseminate critical insights into some of the main problems facing the securities market
“It will provide an avenue to present and analyse emerging trends and contemporary issues as they affect the Nigerian Securities market,” he added.
Launching the journal, Managing Director Financial Derivatives Ltd, Mr. Bismarck Rewane commended the SEC on its efforts at financial literacy as he said it is important for Nigerians to be financially literate especially given the current economic recession.
He however expressed optimism that the country will experience early symptoms of recovery by late 2017 and urged the SEC to sustain its efforts at educating Nigerians on financial issues.


NSE

Ifeoluwa Abiodun emerges winner of 2016 NSE Essay competition

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By Chinwendu Obienyi

Miss Ifeoluwa Abiodun, a 14 year old student of Babington Macauley Junoir Seminary, Ikorodu Lagos has emerged winner of the 16th edition of the Nigerian Stock Exchange (NSE) Essay competition for Senior Secondary Schools Students in Nigeria.
Over 7,400 students had earlier participated in the competition, but at the award ceremony which held in Lagos recently, Ifeoluwa was declared winner of the competition, winning N500,000 in Scholarship fund for university education, N250,000 worth  of equity and a laptop. Her school were rewarded with three desktop computers and a printer.
Speaking at the event, Chief Executive Officer(CEO) NSE, explained that the competition’s overall goal was aimed at developing a culture of wealth creation amongst youths towards ‘Building a Financially Savvy Generation” ,noting that the NSE supported a number of programmes to help contribute to raising the level of financial literacy in Nigeria.
“The NSE Essay Competition is one of the financial literacy and inclusion initiative aimed at bridging the gap between classroom learning and practical knowledge required for long term  personal financial planning and the competition’s overall goal is to develop the culture of wealth creation amongst our youths towards building a financially Savvy Generation”
“To date, we have executed over 200 free capacity building workshops, aimed at enhancing investor understanding of the basics of investing and the multiplier of these workshops is phenomenal, as approximately 16,000 retail investors from the grassroots can now make investment decisions”, He said.
According to Him, “The Exchange, in the past 16 years, has through this laudable initiative impacted the lives of many Nigerian youths in various secondary schools positively and We have been able to inspire over 37,000 young people in more than 7,000 schools across Nigeria to learn how good financial decisions can better their lives now and in the future, and ultimately grow the economy.


union-bank

Union Bank unveils 2 ‘new look’ branches in Lagos

By Chinenye Anuforo and Chinwe Obienyi

As part of efforts to make banking “simpler and smarter” for its teeming customers, Union Bank has unveiled two of its upgraded branches in Lagos.
The two upgraded branches of the bank unveiled are located at old Ojo road, Mazamaza, Awuwo Odofin and at Adeola Odeku,Victoria Island.
Speaking at the event, Joe Mbulu, Transformation Director Union Bank, said the bank had in the past three years been working and improving on its physical infrastructure to provide customers a more comfortable banking environment.
“We have done a lot of work in the background such that when customers come into the new Union Bank, they can see it’s as good as (if not better than) any other bank in Nigeria.” In fact, our goal is to make it better than any other bank in Nigeria,” he said.
But beyond the physical infrastructure upgrade, Mbulu said the bank had improved on its operations, especially its technology. Customers can now walk into any of the branches and open an account (including processing of ATM card) in less than 30 minutes.
He said, “Our transformation transcends the physical branch. We used to have archaic technology, we admit. The old Union Bank was a bit difficult to work with; but we have currently the best in banking technology in Nigeria.
“We have (also) built a world class data centre in Lagos; and we have a backup of that databank. So, the era of ‘system down’ in Union Bank is over.
Corroborating, Head, Retail Banking of the bank, Carlos Wanderly explained the bank has recorded consistent growth in the retail banking products and service. He urged old and new customers to partake in the products.
“ It has definitely been positive and in the last two years we have grown in all areas of our balance sheet and particularly the retail plain where we have seen consistent growth because our products are not just deposits as we used to have in banking but are solutions tailored to meet customer’s needs.”