By Habibat Aliu
Expert has called for more investment in Exchange Traded Funds (ETFs) and securities lending as a means of diversifying portfolios, minimising systematic risks, and generating revenues across asset classes.
Securities lending is the act of loaning a stock, derivative, or other securities to an investor or firm. This requires the borrower to put up collateral, whether cash, security, or a letter of credit.
Managing Director of Vetiva Fund Managers Limited, Oyelade Eigbe, while speaking at the recently concluded Securities Lending Forum Webinar organised by the Nigerian Exchange Limited (NGX), with the prolonged downturn in the stock market in the past few months, there is the need for investors to leverage different asset classes and securities in the market to minimise the overall risk of the portfolio.
She pointed out that securities lending can assist investors with settlement coverage, directional investing, liquidity management, and investment strategy deployment,
According to her, other key benefits include increased revenue, diversification opportunities, and good investment returns for borrowers.
Eigbe stressed the need to ensure thorough documentation in securities lending because these securities are being loaned to the borrower.
Furthermore, she said as the high-interest rate environment continues to make fixed-income instruments more attractive at the expense of equities, players must ensure that they deploy a mix of operational approaches to achieve desired results.
“Based on Jun 2022 data from ISLA, globally, pension plans account for about 30 per cent of securities lending transactions while Collective Investment Schemes (CIS) constitute 16 per cent, and Government/Sovereign Wealth Funds accounted for about 30 per cent.
“Most ETFs are open-ended funds that are listed and traded on an exchange. ETFs track an index or commodity or basket of securities that are passively managed and provide diversification benefits.
Eagle also stated that there is a need for policies that safeguard the beneficial owners, borrowers, investors and the market at large to be put in place while initiating securities lending transactions.
She added that there should also be a cautious lending policy based on selecting well-capitalised borrowers and liquidity, as well as considering the volatility of a stock to be lent out with collateral received.
