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 United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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