Friday September 17, 2021 / 11:00 a.m. / Bukola Akinyele-Yisau for WebTV / Header image credit: WebTV
The Net Asset Value (NAV) sharia-compliant funds in Nigeria increased 174% between December 2019 and August 2021. Mr. Chidi Uzo, Head of Investment Strategy and Research at CitiTrust Asset Management Limited, emphasized this point during his speech on “The Dynamism of Portfolio Investing in Interest-Free Finance”.
According to him, there are around nine ethical funds in the market, and 78% of them are Islamic funds, while 22% are ethical funds.
He pointed out that fixed income funds have Sukuk, Ijarah, Mudarabah contracts and several other contracts used in structured finance. Instruments create liquidity, especially for funds with short-term investment cycles.
Another factor for Sharia fixed income funds, he noted, is that the minimum return in this segment is that all of these funds generate returns above 4%. In August 2021, around 4 Sharia fixed income funds generated decent returns, with the highest of around 8.4% and the lowest around 4%. These will provide decent opportunities for Halal investors who wish to invest in interest-free investments.
Speaking about people’s understanding of what inflation does to deplete the value of money in storage, he said that different people have their concepts of what inflation means.
In general, people only understand inflation as an increase in the cost of living without being aware of its eroding effect on their funds. Moreover, few people realize that inflation has a depreciating impact on the value of money. Explaining further about inflation, Uzo noted that as individuals, if incomes did not increase over a period of at least the rate of inflation, then purchasing power would fall, eroding their wealth.
He said holding onto large amounts of cash was not a wise investment option, especially in places with high inflation. The current headline inflation rate in Nigeria for August 2021 was 17.01%; in other words, between September 2020 and August 2021, the general prices of goods and services increased by 17%.
Explaining how people tend to invest exclusively in large cap stocks or properties, he noted a method of portfolio investing aimed at maximizing returns and minimizing risk.
Giving more information on investments, he explained that it is essential for all investors to understand the risk-return approach in the analysis of investments before making any decisions. He said it is essential that investors take a risk-reward approach when deciding to invest. He added that it is impossible to expect a 0% risk and a 100% return, but the best practice is for an individual to understand the risk appetite.
Uzo noted that risk appetite measures a person’s willingness to bear financial risk, which will inform security selection and eventual asset allocation.
He believes that large cap stocks are more volatile in their returns than real estate investments which offer less volatility but greater illiquidity in the short term. The analyst said that no investment opportunity has 0% risk; investors have to take the risk and accept the returns.
Therefore, “the returns are the compensation owed by the investor for the risk borne, which means that riskier investment opportunities promise higher potential returns,” he added.
Regarding the value that exchange-traded funds have compared to mutual funds, Uzo explained that many people don’t understand ETFs. He said these are securities that track the performance of an index, commodity or basket of securities, and traded on the stock exchange just like a company’s shares. Explaining the difference between an ETF and a mutual fund, he said the former offers lower fees and is generally more tax-efficient than mutual funds.
Considering the Sharia-compliant venture capital opportunities in Nigeria, he noted that venture capital is a form of private equity that allows investors to finance start-ups or small businesses in their start-up or development phase. growth.
Uzo observed that “venture capitalists need to be able to deliver high growth potential over the long term and show that they can morph into something huge in terms of profitability. There is an opportunity for Nigeria with a large and growing population ”.
He highlighted the venture capital opportunities in the Nigerian market, including:
- Real estate development
- Pharmaceuticals and drug production and
Speaking on Sharia-Compliant Assets and His Expectations, Given the Rise on the Supply Side, Uzo said Islamic finance is essential to spur socially responsible economic growth and is crucial for economic sustainability.
He was optimistic that with the Securities and Exchange Commission (SEC) underscoring its commitment to spur the development of the interest-free capital market in Nigeria, market forces would come into play with the appropriate structures in place, leading to eventual demand- provides balance.
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