Economy
Pension Funds Missing Out On Equity Market Performance
By Quantitative Financial Analytics
Nigerian pension funds continue to show resilience and strength so far in 2017 as they gather improvements in performance but it seems that no matter how hard they try, they are lagging the performance of pure equity portfolios.
All the major indexes in Nigeria are recording mouth-watering performances in the upper double digits except NSE Insurance and NSE Oil and Gas Index whose performance is of single digits.
While NSE Banking index has generated a YTD return of 64.07%, NSE Pension index is showing its strength at 58.48% YTD return.
Not to be out done, the NSE Premium index is standing tall with a YTD return of 51.64%, the NSE Stock Index 30 is also doing the same with a return of 45.44%.
The NSE Industrial, Lotus Islamic and NSE Consumer indexes are proud of themselves with YTD returns of 42.27%, 30.66% and 37.36% respectively but the All-Share Index is beating them with its YTD return of 41.78%.
The fundamentals of the economy are so strong as reflected by the Nigerian equity market that the S&P Nigerian Sovereign index is doing better than the S&P African Sovereign Index. It may take the efforts of financial historians to remember the last time the market did so good.
Even among individual equities that trade on the floor of the exchange, a great majority have rewarded their holders with fantastic returns.
May and Baker has recorded a 261% return YTD, Stanbic IBTC Holdings, 168.24%, Fidson Healthcare Plc, 146.54% to mention but a few although there still are a few like MRS Oil, Forte Oil Plc and 7-Up Bottling Co that are still making negative returns.
For those saving for their retirement through various pension schemes, there is the temptation to find out how good their pensions are doing in the light of the performance of the equity market.
To such investors, my take on that question is that the pension funds are doing good but not so good comparatively.
Among the pension funds in the RSA category, only 6 can boast of double digit YTD returns with APT RSA fund taking the lead with 15.37% followed by AIICO pension RSA fund with 10.02%, according to analysis by Quantitative Financial Analytics.
The good news however is that all the RSA funds are showing positive YTD returns of some sort.
The story is the same among the Retiree fund category in which APT Pension fund leads the YTD return ranking with 14.94% followed by Crusader Pension Retiree fund with 12.81%. Like the RSA funds, all the Retiree funds show positive YTD returns.
There is no doubt that the Nigerian pension fund industry has been very resilient through thick and thin.
When the market headed south in Q2 2016, pension funds held their own and put some smiles of the faces of retirement minded investors and savers.
However, pension funds seem to be missing out on the current equity market performance mostly because of the asset classes pension funds are allowed by regulation to allocate their capital to.
In keeping with such regulatory requirements, Nigerian pension funds have only about 7.45% of their assets in the domestic equity market, according to analysis of latest data from Pencom.
With such little exposure to the equity market, it is difficult not to be hurt when the equity market performs good like it is doing now.
Another reason why pension funds are missing out on the largesse of the stock market is the low correlation between the stock market (All-Share Index) and pension funds.
Per analysis conducted by Quantitative Financial Analytics, many of the pension funds have low correlation to the market.
Correlation is a ratio that measures the degree to which asset types like stocks, bonds, pension funds or mutual funds move up and down at the same time.
When two asset types are highly correlated, they tend to move up or down together but when they have low correlation between them, then they do not gyrate up or down together as much as when they are highly correlated.
In another analysis, Quantitative Financial Analytics measured the relationship between the stock market and pension funds by calculating the beta of the pensions in relation to the All-Share index. The analysis reveals that Nigerian pension funds have very low beta with respect to the equity market. The result of these analysis is not surprising given that the asset allocation strategies of the pensions is over weight in bonds and other fixed securities.
The implication of this is that the pension funds do not move in tandem with the market. It is agreed that pension funds need to be pursue conservative investment strategies to reduce the risk of loss of investors’ capital, it may be reasonable to increase exposure to the equity market in such a way that returns can be maximized while controlling risk.
Pension fund investors should however take solace in the fact that what they are missing in high performance they are gaining in low risk.
A risk analysis conducted by Quantitative Financial Analytics using the standard deviation of returns for pension funds and equities shows that the pension funds are much less risky than equities.
While the seemingly riskiest pension fund has a standard deviation of 1.37, the corresponding number for equities is 31.58, according to the analysis.
Investment performance analysis experts are united in the opinion that risk adjusted returns are more meaningful than absolute returns. So pension fund investors can go to sleep in comfort knowing that what they lost in capital appreciation they gain in capital preservation.
By Adedapo Adesanya
The World Bank has approved a $500 million facility for Nigeria to expand longer-term lending to small and medium sized businesses.
Approved under the Fostering Inclusive Finance for MSMEs in Nigeria (FINCLUDE) project, the package comprises a $400 million International Bank for Reconstruction and Development (IBRD) loan and a $100 million International Development Association (IDA) credit. Both IBRD and IDA are members of the World Bank Group.
The scheme will be implemented by the Development Bank of Nigeria (DBN), with credit guarantees provided through DBN’s subsidiary, Impact Credit Guarantee Limited (ICGL).
FINCLUDE is designed to address constraints faced by micro, small, and medium enterprises (MSMEs) in Nigeria which despite accounting for most businesses and nearly half of gross domestic product (GDP) face long-standing barriers to formal finance.
Fewer than one in 20 MSMEs have access to bank credit; loans are often short-term and costly; and collateral requirements exclude many viable firms. Women-led enterprises, which make up a substantial portion of MSMEs, are disproportionately affected, facing higher rejection rates and limited tailored products. Agribusinesses, central to food security and rural livelihoods, similarly struggle to obtain more extended‑tenor financing for equipment, processing, storage, and logistics.
However, FINCLUDE seeks to address these constraints by expanding access to affordable, longer-term finance and tailored solutions for segments with the most significant development impact.
Speaking on this, the World Bank Country Director for Nigeria, Mr Mathew Verghis, said, “FINCLUDE is about jobs, opportunity, and inclusion. By expanding access to finance for viable MSMEs—particularly women-led firms and agribusinesses—Nigeria can accelerate growth and deliver tangible benefits across communities nationwide.
“The project will make it easier for deserving small businesses to get the finance they need to grow and hire workers. With better support for lenders that practice inclusive finance and fairer, longer-term loans for entrepreneurs, we are backing the people who power Nigeria’s economy—especially women and those in agriculture.”
The FINCLUDE project will help to mobilise private investment and expand access to and usage of inclusive, innovative financial products for MSMEs nationwide.
Through DBN, the operation will strengthen the capacity of banks, including microfinance banks and non-bank financial institutions such as financial technologies (fintechs), to provide larger loans with more reasonable repayment periods, and—through ICGL—will scale partial credit guarantees so that lenders can extend credit to businesses they might otherwise consider too risky.
Targeted technical assistance will modernise loan appraisal by leveraging AI-enabled digital platforms to accelerate decision-making, improve data quality, strengthen impact measurement, and build capacity for both MSMEs and participating financial institutions.
According to the World Bank, a strong emphasis on inclusion will ensure that women-led businesses and agribusinesses benefit from these improvements.
Also commenting, Task Team Leader for FINCLUDE, Mrs Hadija Kamayo, said, “FINCLUDE will help to mobilize approximately $1.89 billion in private capital, expand debt financing to 250,000 MSMEs—including at least 150,000 women-led businesses and 100,000 agribusinesses—and issue up to $800 million in guarantees to catalyse lending.
“By extending the average maturity of MSME loans to about three years, it will help firms invest in equipment, factories, staff, and productivity, translating finance into jobs and growth.”
By Dipo Olowookere
The local stock market firmed up by 1.13 per cent on Friday as appetite for Nigerian stocks remained strong.
Investors reacted well to the 2026 budget presentation of President Bola Tinubu to the National Assembly yesterday, especially because of the more realistic crude oil benchmark of $64 per barrel compared with the ambitious $75 per barrel for 2025. This year, prices have been between $60 and $65 per barrel.
Business Post observed profit-taking in the commodity and energy sectors as they respectively shed 0.14 per cent and 0.03 per cent.
But, bargain-hunting in the others sustained the positive run, with the consumer goods index up by 3.82 per cent.
Further, the industrial goods space appreciated by 1.46 per cent, the banking counter improved by 0.08 per cent, and the insurance industry gained 0.04 per cent.
As a result, the All-Share Index (ASI) increased by 1,694.33 points to 152,057.38 points from 150,363.05 points and the market capitalisation chalked up N1.080 trillion to finish at N96.937 trillion compared with Thursday’s closing value of N95.857 trillion.
A total of 34 shares ended on the advancers’ chart, while 24 were on the laggards’ log, representing a positive market breadth index and bullish investor sentiment.
Austin Laz gained 10.00 per cent to close at N2.42, Union Dicon also jumped 10.00 per cent to N6.60, Tantalizers increased by 9.80 per cent to N2.69, Aluminium Extrusion improved by 9.78 per cent to N12.35, and Champion Breweries grew by 9.71 per cent to N16.95.
Conversely, Sovereign Trust Insurance dipped by 7.42 per cent to N3.87, Royal Exchange lost 6.84 per cent to trade at N1.77, Omatek slipped by 6.84 per cent to N1.09, Eunisell depreciated by 5.88 per cent to N80.00, and Eterna dropped 5.63 per cent to close at N28.50.
Yesterday, traders transacted 1.5 billion units worth N21.8 billion in 25,667 deals compared with the 839.8 million units sold for N32.8 billion in 23,211 deals in the preceding session, showing a surge in the trading volume by 76.61 per cent, an uptick in the number of deals by 10.58 per cent, and a shrink in the trading value by 33.54 per cent.
By Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
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