Economy
Are Nigerian Mutual Fund Investors Too Risk Averse?
By Quantitative Financial Analytics
The Securities and Exchange Commission (SEC) just released its latest compilation of mutual funds NAV.
As projected by analysts at Quantitative Financial Analytics, the combined net asset value of Nigerian mutual funds has crossed the N400 billion mark. How the NAV got so big is a discuss of another article, however, fund type analysis of the mutual funds’ assets points to one troubling indication.
That analysis, which was based on the NAV Summary report as at November 24th, 2017, indicates that slightly over 67 percent of mutual fund assets is invested in money market funds, 11.33 percent in Real Estate Funds, 8.7 percent in Fixed Income funds while 7.34 percent is invested in Equity based mutual funds. With 2.63 percent invested in Balanced funds, only 1.57 percent is invested in Exchange traded funds with Ethical funds having only 1.35 percent of the NAV.
The same analysis carried out as at December 31, 2016, shows that 48.6 percent of mutual funds NAV was in money market funds, 20.35 percent in Real Estate Funds, 12.25 percent in Equity based funds, 11.24 percent in Fixed Income funds and 3.93 percent in Balanced or mixed funds. Ethical and Exchange traded funds had 2.12 percent and 1.62 percent respectively.
By the end of the second quarter of the year, mutual funds’ assets invested in money market funds had gone up to 54.48 percent, while those in Real Estate funds increased to 16.77 percent, Fixed income funds’ share also increased to 10.72 percent while investment in Equity mutual funds decreased to 10.68 percent. That trend has continued through the last quarter of the year but it does look like it is a trend against the run of play.
Yield curve has been falling since February 2017, although it witnessed some recovery in August but has since resumed and continued its downward move.
One would have expected that investors would reallocate their assets away from yield curve dependent investments, but it does not seem that they did.
On the other hand, the equity market has been aiming at the sky. By the end of Q1, the All Share Index was down 5.05 percent on a YTD basis, but by the end of Q2, it had recovered and gone up by 23.23 percent, and by end of Q3 it had recorded a YTD performance of 31.87 percent which now stands at 39.04 percent (as at November 24, 2017). Equities are by far out performing fixed income securities.
Specifically speaking, FBN money market fund is currently yielding about 18.6 percent while Stanbic IBTC money market fund is yielding about 17.77 percent and ARM Money market fund yields about 17.08 percent.
On the other hand, most equity based funds are yielding much more in YTD returns.
With the performance of the equity market so high and yield curve sloping downward, one could not but wonder why investors will divest from equity funds to money market funds. The only reason that comes to mind is that investors are risk averse preferring the little return being offered by money market funds for their known risk to the high equity returns with their unknown risk.
It has been said that one of the greatest risks in investment is to remain risk averse for too long.
By Adedapo Adesanya
The National Pension Commission (PenCom) has defended its decision to allow Pension Fund Administrators (PFAs) to invest in the parent companies of their custodians, insisting that adequate safeguards are in place to protect contributors’ funds.
The director-general of the pension regulator, Ms Omolola Oloworaran, speaking on Tuesday during the Meet the Press Briefing at the Presidential Villa, Abuja, said the commission’s decision to relax the investment restriction followed a comprehensive risk assessment that found minimal conflict of interest.
She explained that under PenCom’s investment regulations, PFAs are only permitted to invest pension assets in carefully selected instruments that meet stringent criteria, including profitability, strong credit ratings and proven track records.
According to her, the commission regularly reviews its investment regulations, conducts routine examinations and spot checks on PFAs to ensure strict compliance with established risk management guidelines.
“PFAs cannot just go into the stock market and buy any kind of stock. There are strict guidelines. Companies must demonstrate profitability, have a proven track record and satisfy other criteria before pension funds can invest,” she said.
Ms Oloworaran noted that each PFA also operates under the oversight of a board, an investment committee and a risk management committee, providing additional layers of governance to safeguard contributors’ funds.
She said PenCom recently issued a circular allowing PFAs to invest in the parent companies of their custodians after determining that the potential conflict of interest was negligible.
The PenCom boss explained that the parent companies involved are largely Tier-1 banks, including First Bank, United Bank for Africa (UBA) and Zenith Bank, which she described as A-rated institutions with strong financial foundations.
She said the policy was intended to widen investment opportunities for pension funds without compromising safety.
Using Stanbic IBTC as an example, Ms Oloworaran explained that if its custodian is Zenith Bank, the previous restriction prevented the pension administrator from investing in Zenith Bank shares despite the bank’s strong performance.
“We reviewed the risks and any potential conflict of interest and found the risks to be very low. That is why we opened that investment window,” she said.
By Aduragbemi Omiyale
Analysts at Meristem Research have predicted that the inflation rate for June 2026 in Nigeria should marginally rise to 15.95 per cent on a year-on-year basis from the 15.93 per cent reported in May 2026.
The National Bureau of Statistics (NBS) is expected to release inflation numbers for last month later today, Wednesday, July 15, 2026.
In its report sighted by Business Post, Meristem Research said it expects inflationary pressures to re-emerge across key economies in the near term, as the re-escalation of the US-Iran conflict has reignited upward pressure on global oil prices.
It disclosed that this marks a sharp reversal from most of June, when the ceasefire between the two countries helped drive oil prices lower, raising expectations of some relief on the inflation front.
With conflicts now flaring up again, oil prices are likely to increase again, and the anticipated easing in energy-driven inflation may not materialise as broadly as earlier envisaged.
“Nonetheless, some relief is likely from the food segment, where robust supply conditions across major producing regions and softening demand should continue to ease food price pressures,” it stated.
The team also explained that it projected a 15.95 per cent inflation rate because of the lingering effects of persistent food price pressures.
“However, we expect core inflation to moderate as the sharp reversal in energy prices begins to filter through to transportation, distribution, and other energy-related costs, easing underlying price pressures.
“On a month-on-month basis, the combined effect of lower petrol prices, a relatively stable Naira, and the gradual pass-through of reduced energy costs across the supply chain should exert further downward pressure on inflation.
“Based on our assessment, food inflation is expected to remain the key swing factor, as seasonal pre-harvest supply constraints are likely to offset some of the gains from lower logistics costs,” it said.
By Adedapo Adesanya
The duo of Central Securities Clearing System (CSCS) Plc and Afriland Properties Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.61 per cent on Tuesday, July 14.
CSCS Plc saw its stock value drop N9.08 to close at N82.40 per share compared with the preceding session’s N91.48 per share, and Afriland Properties Plc slid by 17 Kobo to sell at N15.00 per unit versus N15.70 per unit.
The losses recorded by the two securities pulled back the market capitalisation by N41.64 billion to N2.546 trillion from N2.587 trillion, and cracked the NASD Security Index (NSI) by 69.36 points to 4,242.31 points from 4,311.67 points.
It was observed that the exchange witnessed two price advancers during the session, led by FrieslandCampina Wamco Nigeria Plc, which gained N1.37 to end at N151.37 per share compared with the previous day’s N150.00 per share, and Food Concepts Plc chalked up 5 Kobo to settle at N2.50 per unit versus N2.45 per unit.
The volume of securities traded by market participants surged by 50.7 per cent to 13.7 million units from the previous 9.1 million units, while the value of securities went down by 79.7 per cent to N65.2 million from N320.4 million, and the number of deals crashed by 3.6 per cent to 27 deals from the previous session’s 28 deals.
At the close of transactions, Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with the sale of 3.4 billion units for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc, which exchanged 2.3 billion units valued at N6.5 billion, and CSCS Plc with 73.9 million units transacted for N5.2 billion.
GNI Plc also closed the trading day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
