Amidst the turbulence sparked by the COVID-19 pandemic and its reverberating impact on the global economic landscape, the predictability of investment environments has been disrupted. In response to a waning interest from foreign investors in Nigeria, exacerbated by the pandemic’s effects, the Central Bank of Nigeria has recalibrated its approach to monetary policy, notably slashing yields on government securities over the past four months. Concurrently, the inflation rate has soared for ten consecutive months, reaching 12.56% in June. Consequently, the returns on virtually all local fixed income funds market instruments have dipped below the inflation rate, prompting fixed income investors to seek alternative avenues offering superior yield. In this context, nurturing a partnership with a local fund manager presents several enticing prospects for investors.
Spotting Lucrative Opportunities
One of the invaluable services a portfolio manager brings to the table is their adeptness in identifying lucrative opportunities. Beyond just overseeing local currency investments, portfolio managers delve into exploring foreign currency investment prospects. The Nigerian Eurobond market, for instance, stands out as a treasure trove of opportunities unbeknownst to many investors. Currently, certain securities within the Eurobond market yield higher returns than local currency instruments of comparable tenors and risk profiles.
Embracing Diversification
While the allure of higher returns in the Eurobond market is palpable, investors are wise to adopt a diversified portfolio strategy during these times. The pursuit of elevated yields might tempt some to concentrate investments in high-yielding securities, albeit at the expense of heightened risks associated with volatility or liquidity. It falls upon the fund manager to scrutinize the client’s investment objectives against the prevailing economic backdrop, underscoring the value of entrusting portfolio management to a professional.
Delegating Portfolio Rebalancing Discipline
Achieving sustained success in investing, particularly in terms of risk-adjusted returns, hinges on disciplined portfolio rebalancing. This entails adjusting holdings by buying and selling select stocks, funds, or securities to uphold a predetermined asset allocation. By adhering to this process, investors maintain their risk tolerance at an optimal level. Given the propensity for human nature to sway decisions, delegating this responsibility to a fund manager proves prudent.
Accessing Structured Products
Opting for discretionary portfolio management services not only grants access to structured products but also unlocks a realm of investment avenues. Structured products, typically issued as notes by entities affiliated or unaffiliated with the fund manager, are secured by underlying assets. While inherently riskier than traditional fixed income instruments, they often yield higher returns and provide indirect exposure to income-yielding assets in local or foreign markets. For instance, they might offer indirect exposure to bonds issued by African governments and corporations. While not suitable for every investor, they can serve as a viable addition to a diversified portfolio.