| FBN Heritage Fund -- Another bold step |
 Recently, the First Bank of Nigeria, a foremost financial institution in Nigeria, through its subsidiary, FBN Capital, introduced a new baby into the market. The baby, FBN Heritage Fund, was conceived to take advantage of increasing growth in the capital market to help interested long-term investors achieve quality returns on their investment. We had a chat with the fund manager, FBN Capital, to get details of the Fund. The Lead Portfolio Manager, Nicholas Nneji, spoke to us about the fund and its strategies. Below is our discussion: About the fund The name FBN Heritage Fund is derived from the heritage of the parent company to FBN Capital, which is First Bank. First Bank has some strength, which are discernable in the market place. There are certain reputations that the bank is associated with. So, we are trying to draw from that reputation to create an investment product which is lacking within the group, and which is the mutual fund. The need for a mutual fund We see that it is strategic for First Bank to provide the full range of services to its teeming customers. If you look at the First Bank Group product offering, a mutual fund as an investment product is lacking. The group already provides other products within the finance sector: mortgage banking, trusteeship, pension custodian, etc, except a mutual fund. Why mutual fund We wanted to start off with this particular fund first, because this is actually the first among series of funds that the group plans to launch into the market, this is not the only one, just the first. We wanted to start off with a balanced fund that will cut across all the asset classes. If you look at the asset allocation strategy for our fund, it undercuts various investment classes: equities, fixed income instruments, money market instruments, commercial papers, real estate. Subsequently, we would go into other specialised and sector targeted funds. Assets backing the fund The underlying assets the fund would be investing in are equities, within the range of 50%-65%, and this would be equities of publicly quoted companies or other equities that are transferable. Then of course we have fixed income instruments, corporate bonds, government bonds, then the money market instruments and real estate. These are the four main asset classes that the fund would try to invest its proceeds in. Benefits for investors We are very optimistic that the fund will deliver good returns. One because we have chosen the asset classes carefully and in percentages that we believe within medium to long term will enhance the yield of investors. Two, we believe in the ability of the fund manager, FBN Capital. A mutual fund cannot actually perform better than two basic things: the performance of the underlying assets and the capability of the fund manager. Again, we would not load this fund with unnecessary costs or go against the trust deed. What we have set out to do, in the manner we have set out to do these things we would definitely carry them out to the letter. The reputation of our parent company is something we wouldn't want to go against. Fund manager’s pedigree FBN Capital, which was formed after the banking consolidation in 2005, is actually a combination of these businesses and competences: One, FBN Merchant Bankers, which was solely an investment bank and it had the reputation of managing both public and private funds, like the National Programme on Immunization (NPI) fund. It had between N2 billion and N3 billion of private fund under management. Then you had MBC International Bank, and the corporate finance department of First Bank. So, the competences you would find in FBN Capital are derived from these three organisations mentioned. The people from these three institutions were brought into FBN Capital. The managing director of FBN Capital was the managing director of FBN Merchant Bankers; Mr Kofo Majekodunmi, an executive director in FBN Capital, was deputy managing director of MBC International Bank. The third executive director, Mr Taiwo Okeowo, was the head of Corporate Finance Group in First Bank. Competitive advantage If you look at some recently launched funds they are termed guaranteed income fund. That belies the nature of the underlying asset that the fund would be invested into, which is money market instrument. Some of these funds in their assets allocation structure have 75% allocated to the money market, 25% to equities. What it means is that fixed returns can be guaranteed but they are usually small. Our fund is predominantly an equity-based one with a higher level of return. There is the First Bank reputation behind us and we have experienced and competent managers. We believe that this fund is going to have the lowest expense ratio. So, subscribers would not suffer high cost of running the fund. Again, unlike most other funds, FBN Heritage Fund is a balanced fund, giving you the advantage of having the benefit from different asset classes. The fund is also flexible. We have provided a range in each asset class that we can operate within; for instance, equity is 50%-65%, real estate 0-5%. We have given ourselves flexibility within an asset class and flexibility along the entire asset classes. Effectiveness of strategy The flexibility thing is not a short cut. At any point in time, we want the yield to be as high as possible. So, if temporarily there is a bearish trend in equities, one can move to another asset class or manoeuvre by reducing the percentage of holding within the specified range. The money market instruments, apart from the yield from them, are maintained to meet the demands of investors that may want to redeem. Cost to investors Some funds have been launched with the initial cost of offer being as high as 7% but this one is conservatively pegged at 5.3%, but by the time this offer is concluded, we know that the 5.3% could actually be lower than that; it could be like 4%. Initial 5% loss by a subscriber Even if you invest directly in the capital market, there would be charges; there would be cost of transaction. There is no investment without some charges. What is important is for those charges to be minimal and transparent, which is what the fund manager is promising. Investment strategy/how stocks are picked Our investment philosophy, which will guide our investment decisions are: for equity, we are going to adopt sound risk management strategy and use fundamental research analyses, using top down asset allocation and bottom up stock selection processes; for fixed income security, we will be looking at high yielding debt instruments that would be diversified to spread the risk so that there would be no concentration risk. Money market instruments would be maintained to accommodate potential redemption of units. A cautious approach would be adopted in real estate in the first three years. Our appetite would be for real estate instruments because of their improved liquidity. So rather than have a building we have an instrument that has a building as the underlying asset, like the real estate investment trusts that are coming up soon. Investment strategy in a bearish market If you carry out your fundamental analyses of some stocks, you would find out that there are some hidden values. We basically use the fundamentals, adopting the top down or the bottom up approach to determine what stocks are good value to invest in. Rate of returns In the first year, the fund is promising a conservative yield of 14.25%, in the second year 27%, and in the third year 29% return. These are very conservative estimates based on assumptions that we have made on what would be the outcome of the underlying investment. Returns from a well managed fund A well-managed fund should perform above the All-share index or the average of all the indices where the underlying assets of the fund are invested in. Like for the money market, it could be the Treasury bill rate of investment return. For a fund that has all the asset classes underlying it you could say average, but a good fund manager should outperform the maximum obtained rather than the average. Realisation of projections The yields that recently launched funds are promising, even in the first year, are not as promising as our own. For those that are money market funds they are promising like 12%. So, I am confident that what this fund is promising in the first year is achievable. And talking of the established funds, what they are reporting are historical yields. If you invest now, you are not going to benefit in that. What is available to you is the future. Low projections No. Our projections are objective, based on assumptions that are generally acceptable. Price level in 3-4 years Based on the return projections you can easily place what the price would be in three or four years from now. Certificate issue There is a projected timetable, based on that, barring any delays from the regulatory authority, by mid-March 2008 the unit certificates should be distributed. Deployment of technology Investors would be able to access their accounts online. Check the bid and offer prices, read the prospectus or the trust deed online any time they want fresh information on the fund. |
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