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%
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.
Dangote Says N300bn Bond Listing Reflects Nigerian Capital Market Depth
By Aduragbemi Omiyale
The listing of Dangote Industries Limited’s N300 billion series 1 and 2 bonds on the Nigerian Exchange (NGX) Limited has been described as an indicator of the depth of the Nigerian capital market.
The Group Chief Executive Officer of the conglomerates, Mr Olakunle Alake, said this on Wednesday when a closing gong ceremony was held to celebrate the completion of the listing of the corporate debt instrument on the local stock exchange.
Mr Alake, represented by the Group Chief Finance Officer, Mr Mustapha Ibrahim, said, “We are pleased to have showcased the depth and liquidity of the domestic capital market whilst we reflect the strong quality of the issuer, despite the current global market realities.”
According to him, the depth of the market was reflected in the successful issuance of the bond, which was the largest aggregate local currency bond issued in the capital market so far within the year.
He further noted that the listing of the bond recorded participation from a wide range of investors, including domestic pension funds, asset managers and insurance companies and further demonstrated investors’ confidence in Nigeria’s credit reality.
On his part, the Divisional Head of Capital Markets at NGX, Mr Jude Chiemeka, speaking at the event, applauded the listing of the bond, which provides corporates with the opportunity to raise capital.
“The listing of this transaction on our platform not only allows for a more liquid capital market, but it also shows our capacity to facilitate large transactions towards enabling a more robust ecosystem,” Mr Chiemeka said.
He further noted that NGX remains committed to fostering similar transactions through its digital gateways such as this and a confident market where corporates and investors can achieve their respective objectives.
Unlisted Securities Market Closes Flat at Midweek
By Adedapo Adesanya
Trading activities ended in a stalemate on the floor of the NASD Over-the-Counter (OTC) Securities Exchange on Wednesday, with no single price gainer or a price loser at the close of business.
As a result of this development, the market capitalisation of the bourse remained intact at N1.03 trillion, as the NASD Unlisted Securities Index (NSI) also remained unchanged at 743.15 points.
The unlisted securities market closed flat in the midweek session amid low investor appetite for the market, as attention shifted to the fixed-income market, where the Central Bank of Nigeria (CBN) sold treasury bills at the primary market, with the stop rate over 14 per cent.
Data from the bourse showed that the volume of securities traded yesterday was abysmally low as it went down by 99.9 per cent to 8,299 units from the 20.1 million units transacted a day earlier.
Likewise, the value of shares traded during the session dropped to N1.2 million, 97.3 per cent lower than the N44.5 million posted in the preceding trading day.
These transactions were carried out yesterday in nine deals, 75 per cent lower than the 36 deals executed on Tuesday.
Geo-Fluids Plc remained the most traded stock by volume on a year-to-date basis with a turnover of 482.1 million units valued at N544.1 million, UBN Property Plc occupied second place with the sale of 365.8 units worth N309.5 million, while Industrial and General Insurance (IGI) Plc was in third place with the sale of 71.1 million units valued at N5.1 million.
Also, VFD Group Plc ended the session as the most traded stock by value on a year-to-date basis with a turnover of 7.3 million units worth N1.7 billion, Geo-Fluids Plc was in second place with a turnover of 482.1 million units worth N544.1 million, while UBN Property Plc was in third place with the sale of 365.8 million units valued at N309.5 million.
Naira Sells N461.24/$1 at I&E, N764/$1 at P2P, N747/$1 at Black Market
By Adedapo Adesanya
The Nigerian Naira appreciated against the US Dollar in the Peer-2-Peer (P2P) and the Investors and Exporters (I&E) windows of the foreign exchange market on Wednesday, March 30, but depreciated in the black market.
In the P2P segment, it gained N3 against its American counterpart to quote at N764/$1, in contrast to the N767/$1 it was traded on Tuesday as the demand for cryptos, which most traders in this category use the funds to buy, was relatively mild.
In the I&E window or the spot market, the Naira appreciated against the greenback yesterday by 51 Kobo or 0.11 per cent to settle at N461.24/$1 compared with the previous day’s N461.75/$1, according to data obtained from FMDQ Securities Exchange, with the forex turnover put at $74.31 million.
But in the parallel market, the domestic currency depreciated against the US Dollar in the midweek session by N4 to trade at N747/$1 versus Tuesday’s exchange rate of N743/$1.
Also, in the interbank window, the Naira lost N1.93 against the Pound Sterling to sell at N567.68/£1 versus Tuesday’s N565.52/£1, and against the Euro, it slid by N2.25 to at N499.21/€1 compared with the preceding day’s N496.66/€1.
Meanwhile, the digital currency market swayed to the bulls yesterday as most of the tokens tracked by Business Post ended in the green territory amid better-than-expected consumer confidence figures from the United States.
Data from the US Conference Board showed that its monthly survey rose to a reading of 104.2 basis points, better than the 101 mark expected, lifting Bitcoin (BTC) by 4.2 per cent to $28,519.76, as Ethereum (ETH) rose by 0.5 per cent to $1,788.52.
Solana (SOL) grew by 2.1 per cent to $21.08, Dogecoin (DOGE) gained 1.4 per cent to sell at $0.0751, Litecoin (LTC) increased by 0.6 per cent to $90.14, while Cardano (ADA) chalked up 0.5 per cent to quote at $0.3797.
However, Ripple (XRP) dropped 0.4 per cent to trade at $0.5336, Binance Coin (BNB) lost 0.2 per cent to settle at $313.02, and Binance USD (BUSD) and the US Dollar Tether (USDT) traded flat at $1.00 apiece.
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