Economy
Nigerian Pension Funds Outperform Bench Mark Index
By Quantitative Financial Analytics
Nigerian pension funds once again recorded another year of brilliant performance in 2016 roundly beating the NSE Pension Index by wide margins.
The NSE Pension index ended the year 2016 at 810.04 points from its 2015 value of 815.16 points, thereby ending the year down by 5.13 points or -0.63%.
Savings Retirement Accounts (RSA):
Except for APT Pension Retirement Saving Account which ended the year with a negative performance of 22.96%, having lost N0.65 on the unit price of the RSA, every other RSA ended the year with positive performance of 8% or greater. The highest return of 12.67% came from AXA Mansard Pension Retirement Savings Account, followed by Future Unity Glanvills (FUG) RSA with 11.93%
Retiree Accounts:
The performance of the Retiree Accounts followed closely that of the RSA but unlike the RSAs, the Retiree Accounts did much better with no losses recorded by any one of them. Trust Pension Fund Retiree Account led the performance league with 14.68%. All the Retiree Accounts but one, recorded double digit positive return in 2016.
Asset Allocation is Everything
Asset allocation has been said to be responsible for most of the investment fortunes in history. That too can be rightly said about Nigerian pension funds. The implication of asset allocation is that it matters how a portfolio is divided between Bond, Equities, Cash, Money Market and other asset classes. Most Pension funds in Nigeria allocate at least 75% of their Asset Under Management (AUM) to fixed income securities (Government Bonds, Treasury Bills and corporate bonds). The interest rate on those assets has been on the increase over time and the CBN has signaled that it does not plan to reduce the rates any time soon. Though there is an inverse relationship between interest rate (yield) and bond prices, the increasing yield environment especially at the shorter end of the yield curve implies that matured bonds or treasury bills are being reinvested at higher yields and lower prices which benefits the pension funds. By having much of their AUM in fixed income securities, these PSAs tend to be insulated from the downside pressure of the stock market.
Asset Characteristics too
Another pointer to the performance of the Pension funds can be seen by looking at how they behave in relationship to the entire stock market. All the Pension funds have Betas of less than 1 indicating that they do not move in tandem with the stock market. This indication is also supported by the low R-Squared of the pension funds. All these relatively low statistics derive from the fact that majority of the pension fund assets are held in fixed income and money market instruments whose correlation with the market is relatively low.
A beta of 1 indicates that the security’s price moves in tandem with the market but a beta of less than 1 means that the security is imperially less volatile than the market while a beta of greater than 1 indicates that the security’s price is theoretically more volatile than the market. R-Squared on the other hand is a measure of the percentage of a portfolio’s or security’s performance that is attributable to the performance of its bench mark.
The implication of this is that for risk averse investors planning and saving for their retirement, it may be more prudent to overweight on pension fund assets by making additional voluntary contributions rather than investing same in the regular stock market.
Risk Adjusted Performance
Though the RSAs and other Retiree accounts are expectedly and comparatively less risky than similar products like Fixed Income Mutual Funds (as evidenced by their standard deviation of returns), their performance is not as mouthwatering as they seem when analyzed on a risk adjusted basis. Most of the pension funds have negative Alpha and negative Sharpe ratio, according to research by Quantitative Financial Analytics.
Alpha is a measure of the return on an investment compared to a suitable market index such that an alpha of 1% means the investment’s return over a period was 1% better than the market during that same period while an alpha of -1 means the investment underperformed the market. Sharpe ratio measures the risk adjusted performance of an asset or portfolio taking into consideration the prevailing risk-free rate.
The major reason for the negative alpha and Sharpe ratio is that the risk-free rate in Nigeria is quite high, (a risk-free rate of 15% was used for this analysis). Granting the low risk characteristics of the pension funds and the rising interest environment in Nigeria and compared to the performance of other asset classes, it will be appropriate to say Bravo to the pension fund managers for a job well done in 2016.
Contacts: info@mutualfundsnigeria.com
By Dipo Olowookere
About $197.71 million has been injected into the foreign exchange (FX) market by the Central Bank of Nigeria (CBN) to boost liquidity.
This intervention by the apex bank is expected to strengthen the Naira in the different segments of the forex market after coming under pressure in the past few days as a result of the new import tariffs imposed on countries, including Nigeria, by the President of the United States, Mr Donald Trump.
Business Post reports that on Friday, the Naira depreciated against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by 1.45 per cent or N22.49 to settle at N1,573.23/$1 versus Thursday’s exchange rate of N1,550.74/$1, and in the parallel market, it lost N10 to sell for N1,570/$1 compared with the N1,560/$1 it was transacted a day earlier.
To ease the pressure on the domestic currency, the central bank sold fresh $197.71 million to authorised FX traders between Thursday and Friday.
“The Central Bank of Nigeria (CBN) has noted recent movements in the foreign exchange market between April 3 and 4, 2025, reflecting broader global macroeconomic shifts currently affecting several emerging markets and developing economies.
“These developments were as a result of the recent announcement of new import tariffs by the United States government on imports from several economies, which has triggered a period of adjustment across global markets.
“Crude oil prices have also weakened – declining by over 12% to approximately $65.50 per barrel – presenting new dynamics for oil-exporting countries such as Nigeria.
“In line with its commitment to ensuring adequate liquidity and supporting orderly market functioning, the CBN facilitated market activity on Friday, April 4, 2025, with the provision of $197.71 million through sales to authorised dealers.
“This measured step aligns with the Bank’s broader objective of fostering a stable, transparent, and efficient foreign exchange market.
“The CBN continues to monitor global and domestic market conditions and remains confident in the resilience of Nigeria’s foreign exchange framework, which is designed to adjust appropriately to evolving fundamentals.
“All authorised dealers are reminded to adhere strictly to the principles outlined in the Nigeria FX Market Code and to uphold the highest standards in their dealings with clients and market counterparties,” a notice from the Director of Financial Markets Department at the CBN, Ms Omolara Omotunde Duke, said.
By Dipo Olowookere
The Debt Management Office (DMO) has revealed that the total public debt stock of Nigeria increased by 48.58 per cent or N47.32 trillion to N144.67 trillion ($94.23 billion) as of December 31, 2024, from N97.34 trillion ($108.23 billion) in the preceding year.
In a report released on Friday, the agency disclosed that the rise in the domestic and foreign debts was due to the borrowing of funds by the government in the period under review.
Business Post reports that external debt of the total debt accounted for 48.59 per cent at N70.29 trillion ($45.78 billion), while the domestic component was 51.41 per cent at N74.38 trillion ($48.45 billion).
A breakdown showed that for the total foreign borrowings, the federal government accounted for 43.49 per cent at N62.92 trillion ($40.98 billion), while the 36 states of the federation and the Federal Capital Territory (FCT) accounted for 5.10 per cent at N7.37 trillion ($4.80 billion).
As for the domestic debt, the federal government contributed 48.67 per cent at (N70.41 trillion ($45.86 billion) and the states and the FCT contributed 2.74 per cent at N3.97 trillion ($2.59 billion).
Analysis showed that in 2023, the external debt was N38.22 trillion ($42.50 billion) before rising in one year by 83.89 per cent to N70.29 trillion ($45.78 billion) in December 2024, while the local debt stood at N59.12 trillion ($65.73 billion) as of December 2023 before jumping by 25.77 per cent in 12 months to N74.38 trillion ($48.44 billion).
Since the current administration of Mr Bola Tinubu assumed office on May 29, 2023, it has sourced funds from local and external sources through treasury bills, Naira-denominated and Dollar-denominated bonds to finance its budget deficits.
However, much has been done to cut down Nigeria’s revenue-to-debt service ratio to 65 per cent from 97 per cent, according to Mr Tinubu in November 2024.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited ended Friday’s trading session lower with a marginal decline of 0.01 per cent as a result of continued market volatility.
Customs Street was down during the last trading session of the week despite bargain-hunting activities in the banking and industrial goods sectors, which closed higher by 0.51 per cent and 0.01 per cent, respectively.
Business Post reports that profit-taking in the other sectors contributed to the downfall of the local bourse yesterday, with the insurance index weakening by 3.21 per cent.
Further, the energy counter went down by 0.50 per cent, and the consumer goods space depreciated by 0.24 per cent, while the commodity industry closed flat.
At the close of business, the All-Share Index (ASI) shrank by 13.37 points to 105,511.89 points from 105,525.26 points and the market capitalisation declined by N8 billion to settle at N66.147 trillion versus Thursday’s closing value of N66.155 trillion.
A total of 348.3 million shares worth N8.1 billion exchanged hands in 11,444 deals on Friday compared with the 397.1 million shares valued at N8.7 billion traded in 13,667 deals a day earlier, implying a drop in the trading volume, value, and number of deals by 12.29 per cent, 6.90 per cent, and 16.27 per cent, respectively.
The activity log was led by UBA with the sale of 26.3 million stocks for N972.3 million, United Capital traded 25.6 million shares valued at N391.5 million, FCMB exchanged 24.2 million equities worth N211.2 million, Zenith Bank transacted 22.9 million shares valued at N1.1 billion, and Fidelity Bank traded 22.6 million stocks worth N441.7 million.
Investor sentiment remained bearish yesterday after the NGX finished with 19 price gainers and 29 price losers, showing a negative market breadth index.
Lasaco Assurance and AXA Mansard were the worst-performing equities with a decline of 10.00 per cent each to sell for N2.34, and N8.64 apiece, May and Baker decreased by 8.72 per cent to N7.85, Guinea Insurance crashed by 8.70 per cent to 63 Kobo, and FTN Cocoa lost 6.43 per cent to end at N1.60.
However, Learn Africa and Livestock Feeds closed as the best-performing stocks after they gained 10.00 per cent each to quote at N3.30, and N7.92, respectively, VFD Group soared by 9.83 per cent to N57.00, Union Dicon expanded by 9.43 per cent to N5.80, and NGX Group rose by 8.17 per cent to N32.45.
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