Investors Advised to Diversify Portfolios through Mutual Funds
Goddy Egene
Investors in the nation’s stock market have been advised to diversify their portfolios by investing in different asset classes through mutual funds.
The advice was given by speakers at one-day seminar organised by Pragmatic Shareholders Association of Nigeria (PSAN) in Lagos with the theme: “Portfolio Investments: Opportunities and Mounting Challenges for Nigerian Shareholders.”
According to them, the inability of the market to commence trading in derivatives, which provides hedging instruments, makes the market more vulnerable to both external and internal shocks.
They, however, said investing through mutual funds is one of the best ways to successfully navigate the market. They noted that one of the major benefits of investing in mutual funds is the professional management of investors’ monies, where experts select stocks based on in-depth research that identifies unique opportunities to deliver consistent returns without taking undue risk.
A mutual fund, also known as collective investment scheme(CIS) is a pool of money provided by individual investors, companies and other organisations and a fund manager is then hired to invest the cash contributed. Instead of buying individual shares, investors are buying shares of mutual funds.
The Acting Director-General of Securities and Exchange Commission (SEC), Ms. Mary Uduk, who was represented at the event by an official from the commission, Effiong Ekpeyong, encouraged retail investors to embrace CIS
“Nigeria is a mono product economy and this has made the stock market very volatile. To this extent, retail investors need to spread their demand for stocks in various classes by patronising mutual funds,” Uduk said.
According to her, the concept of buying mutual funds allows investors to outsource the management of their money to professional portfolio managers that would channel the money into investments in the appropriate selected assets based on their investment objective, time horizon and tolerance of risk.
The Managing Director of Cowry Asset Management, Johnson Chukwu, explained that it is easier for a fund manager to switch portfolio in mutual funds than in equities.
“If you have a good fund manager, the manager can actually switch on your portfolio when any of the portfolio risk is on the high side. Also, the monetary policy environment affects the direction of the equities market. If the interest rate is high, portfolio investors like you and I will underweight our portfolio in equity than our portfolio in fixed income.
“Conversely, if the interest rate is low, we will overweight in equities than in fixed income, so it is easier for a fund manager to switch your portfolio, but if it is an equity fund, you cannot switch to fixed income,” he said.
The National Coordinator of PSAN Mrs. Bisi Bakare, said the seminar was an avenue for shareholders to identify their challenges towards longterm savings through portfolio investments.