To what extent do you trust your investment brokers?

investment brokers _trust

There are various services generally provided by investment brokers in Ghana. Out of these offered services, the common ones are trading of stocks on clients’ behalf, management of investment funds, and investment advisory services. Investment brokers’ role in the financial sector can therefore not be understated. Nevertheless, as humans as they are, they equally make mistakes. These mistakes range from petty ones such as carelessness to critical ones that can result in devastative effects on clients’ investments. Hence, as investors, it is essential to be alert and be aware of the extent to which our investment brokers can be trusted. It is always important to ensure that our investment brokers (and advisors) really have our interests at heart. This can be attained by paying attention to typical attributes such as honesty and transparency, competency, reputation and track record.

Investment brokers are expected to be honest and transparent without withholding vital information from their clients. Information such as clear fee structure, performance updates, financial statements and reports should be readily available to clients to make informed decisions. Getting regular feedback from your brokers should not be too complicated. Certainly, investment brokers must keep their clients in the loop and present them with the available lucrative [investment] options for decision making. However, it is unfortunate that the nature of their job, these days, appears like that of salespersons- They tend to be primarily concerned about revenue generation for their financial institutions (employers). Investment brokers seem to rather focus on the promotion and market of their investment products. Of course, the more they sell their investment products, the more revenue they make through management fees and other commissions. After all, what commission or management fee would NTHC brokerage make if it endorses FirstBanc Heritage fund instead of NTHC Horizon fund? Similarly, you don’t expect Databank financial services to recommend SAS Fortune fund to its clients while they have their own [Epack] investment fund. In much the same way, it would be unheard of if SAS Investment Management recommend Epack mutual fund for their prospective clients even if Epack overwhelmingly performs better than other funds. Clearly, investment brokers and their financial institutions favour their own products which may put their credibility to test.

The reputation and track record of brokers must also be carefully examined when trust is concerned. A little background check and public perception can serve as useful starting point. How long has the institution or individual operated as a broker and how has their past performance looked like? Although historical performance may not guarantee future prospects, they still serve as useful measures when dealing with brokers. Undoubtedly, there exist a few good brokers who have not operated in the industry for so long. Nothing therefore prevents investors to give them a try. However, it is important to do so in a cautious approach. For instance, one may start dealing with new investment brokers by testing their services on a small scale. That is, by initially investing smaller amounts with them and increasing their investment in a gradual manner as they keep building trust. It’s like taking a bath with hot water of unknown temperature. You don’t pour the hot water on yourself right away. You cautiously test it, probably by dipping your finger slightly in it. A key factor of equal consideration, while looking at investment brokers’ reputation, is whether they are licensed or not. You have worked hard for your money and surely deserve to keep it safe from fraudsters. It is worth to note that the potential for fraud lessens when dealing with licensed brokers. The Ghana Stock Exchange provide details of all licensed brokers where you can do some background check on their date of incorporation, key personalities etc. The Security and Exchange Commission (SEC) similarly publish names of licensed mutual funds.

Furthermore, it is essential for existing clients to pay attention to details such as data accuracies in their transactions. A couple of weeks ago, I happened to bump into the Facebook page of an investment management firm. While going through people’s comments and reviews, I came across one that specifically advised colleagues to regularly check on their accounts to ensure accurate details. The person was commenting on grounds that some deposits he made some time ago did not reflect in his account until he followed up with the investment firm. In fact, I couldn’t stop grinning after going through his review. This is because I have particularly witnessed, on some occasions, similar errors made by my investment broker. On two separate occasions, they misplaced my purchasing order form for stocks. Realising unusual delay in the purchasing of stocks I had requested for, I had to follow up. Surprisingly, they couldn’t locate my completed forms so I had to pick another form and start over. This definitely led to further delay in the stocks purchase. On another occasion, they mistakenly purchased a different company’s stock instead of the one I had ordered for. There was this day too when a deposit I made into my equity fund account rather ended up in my money market fund account (managed by the same broker). Imagine if this had found its way in a third party’s account. I also recall one painful experience whereby an investment firm issued me a closed account number for telex (electronic) transfer.

As you can see, such carelessness and poor data records may translate into grave consequences in the management of clients’ investment. If they could lose my purchase order forms, mistakenly purchase a different company’s stock instead of the one I requested for, issue me a deactivated account number for telex transfer, what is the guarantee that they cannot commit similar critical mistakes in the management of our funds. Mind you, this was even one of the oldest and respectable brokerage firms in the country. How much more the ‘baby-toothed’ ones?

The bottom line is that, investment brokers and advisors can be professionals as far as investment services are concerned. However, instead of sitting back and leaving everything in their hands, you can play an active role to ensure that your investment stay on track. In other words, never leave your investment on autopilot, trusting the experts to always do things right. In addition, avoid falling prey to brokers’ personal interests. Personally take interest to access and compare investment options of different firms and then choose the ones that align with your interests. Finally, you should periodically monitor your investment transactions and balances. If you don’t have access to online services, you may request or physically go to their offices for your account statements on a regular basis.

Get to know your mutual funds: Epack investment fund

Databank Epack investment

In my post about ‘best’ investment product in Ghana, I mentioned how important it is to know the company managing your investment, their experience and the kind of businesses they invest clients’ money in. In reference to this, I deem it necessary that we expand our knowledge on the common mutual funds in Ghana. To begin with, let’s consider Epack investment fund.

Brief background of Epack investment fund

Epack started as an investment club in October 1996 by five individual investors- Evelyn Walter-Ofei, Phyllis Clottey, Angelina Ammah, Caroline Awere and Kingsley Bentum. Using the initials of their first names, they formed the acronym EPACK. That is:

EEvelyn

PPhyllis

AAngelina

CCaroline

KKingsley

In 1998, the fund was incorporated to take over from the investment club. Epack is recognised as the first mutual fund in Ghana. It is managed by Databank Asset Management Services Limited (DAMSL). Started with an initial capital of GH¢25 (then 25,000 old cedis) in October 1996, Epack’s total assets, as of 30th December 2016, had grown into GH¢ 124.845 million (according to Databank’s fact sheet). Epack is an equity fund, which is meant for investors who seek high potential growth over the long term.

Nature of Epack investment fund

Epack is an open-ended mutual fund. As an open-ended fund (as opposed to closed-ended fund), Epack has no limitation to the number of shares (units) it can issue to clients. When investors purchase additional shares by depositing money in their mutual fund accounts, more shares are subsequently created. Thus, one can buy as many Epack shares as possible, with no limitation. As stated earlier, Epack is a long-term equity fund. It therefore invests mainly in equities (stocks). Epack is however not listed on the stock exchange.

Investment strategy of Epack investment fund

Majority of the fund’s money is invested in stocks on the Ghana Stock Exchange. As of 31st December 2015, Epack’s top five holdings on the Ghanaian market were Enterprise Group Ltd, Standard Chartered Bank Ghana Ltd, GCB Bank Ltd, Fan Milk Ltd and Total Petroleum Ghana Ltd. However, Epack also invest in other African stock markets. These include Egypt, Kenya, Malawi, Mauritius, Nigeria, South Africa, Tanzania, Ivory Coast and Uganda. For instance, according to the 2015 annual report of Epack investment fund, the fund had invested 4.18% of its portfolio in Sonatel SN (Senegal), 3.90% in Equity Group (Kenya), 3.73% in Tanzania Breweries Ltd (Tanzania), 3.63% in QNB Alahli (Egypt), and 3.39% in CRDB Bank (Tanzania). These equities were even listed in the fund’s top 10 holdings. What this means is that Epack’s performance does not therefore depend solely on the Ghana Stock Exchange. In other words, the performance of Epack may not always reflect that of the Ghana Stock Exchange. Even though the Ghana Stock Exchange may be doing well in a particular year, any poor performance of the other African markets can negate the overall performance of Epack investment fund. On the other hand, a poor performance of the Ghanaian equity market may not significantly affect Epack’s return as long as its investments in the other African markets are doing well. The chart below depicts the portfolio allocation (country wise) of Epack investment fund as of 31st December 2015.

Epack investment country allocation. 2015 annual report
Country allocation of Epack investment fund as of 31/12/15
Source: Epack’s 2015 annual report

Apart from the stock markets, Epack further invest in unlisted equities (ie. shares of companies which are not traded on the stock market). Epack invest in varying organisational sectors. Their investment portfolio includes the financial sector, consumer staples, communications, energy, and conglomerate.

Epack also invest in other collective investment schemes. For instance, according its 2015 annual report, the fund had invested part of its portfolio in Databank money market fund, Stanbic Cash Trust and Stanbic Income Fund Trust.

Performance of Epack investment fund

As earlier explained, Epack is an open-ended fund. Generally, open-ended funds do not trade on the stock exchange. Therefore, you cannot monitor the performance of Epack on the Ghana Stock Exchange like you have been monitoring other company stocks. Nevertheless, the fund manager, Databank, reprice the fund at the end of each trading day based on the fund’s net asset value.  The fund’s annual return is also published at the end of every year. Epack has had its ups and downs. Its best performance in the last decade (2007-2016) is 83.95%, which was posted in 2013. On the other hand, its worst performance in the last decade is -12.21%, recorded in 2011. Over the same period, Epack has recorded four downward (negative) returns and six upward (positive) returns. In the table below, you will find the performance trend of Epack investment fund since inception.

 

Performance trend of Epack Investment fund

Year Epack return, %
1996 -2.00
1997 82.00
1998 123.00
1999 -3.00
2000 20.00
2001 50.81
2002 69.90
2003 137.00
2004 60.75
2005 -4.35
2006 32.22
2007 51.00
2008 -3.68
2009 -5.11
2010 33.36
2011 -12.21
2012 17.37
2013 83.95
2014 39.58
2015 0.65
2016 -3.44

For performance comparison of Epack and other investment funds, refer to this link.

Epack’s awards

Epack investment fund is accorded with the following awards:

  • Equity Fund of the Year, 2014 (Ghana Investment Awards)
  • Investment Fund of the Year, 2014 plus Hall of Fame Inductee (Made in Ghana Awards)
  • Equity Fund of the Year, 2015 (Ghana Investment Awards)
  • Portfolio Manager of the Year, 2014 – Mr. Nii Ampa-Sowa, Epack’s Portfolio Manager, (Ghana Investment Awards)
  • Portfolio Manager of the Year, 2014 – Mr. Nii Ampa-Sowa, Epack’s Portfolio Manager, (Ghana Investment Awards)

Investing in Epack

Epack investment fund is opened to the public. One must be at least 18 years in order to directly open an account. Nevertheless, persons below 18 years can still open an Epack account via their parents or guardians. The parent or guardian opens the account in trust for the child and invest on his behalf. One can open an account with a minimum lump sum of GH¢50. This can be further topped up at any time. There is also the option of a regular investment plan which can be started with a minimum monthly contribution of GH¢10. Accounts can be opened through Databank Asset Management Services Ltd., the organisation managing Epack. Currently, Databank main branches are in Accra (headquarters), Tema, Kumasi and Takoradi. Besides these, they also partner with selected GTBank branches within Accra, Ashaiman, Cape Coast, Tarkwa and Tamale. Clients who stay invested in Epack for a minimum of three years pay no fees or commissions. However, any withdrawal made before three years attracts a fee of 1-3% of the withdrawal amount. For details on investment fees and commissions, refer to this link.