As the real return on investment across many Nigerian instruments remained in the negative following a high inflation rate that exceeded yields on many asset classes, there is a need for investors to explore some strategies to reap from the opportunities that may arise in 2022, findings by Businessday have shown.
After hitting more than 17 months-high at 9.75 percent on May 14, 2021, yields on the less-risky Federal Government Treasury Bills (T-Bills) dropped to 5 percent on December 15, the lowest in 10 months.
The performance of T-bills in the review period was similar to other instruments. Investors expect T-Bills rates to plunge further in the first quarter of 2022 before picking up in the second quarter of next year.
Following the failed attempts in 2021 to get high returns from the risk-free government instruments and other investments, fixed income investors redirected some of their funds to the more attractive banks’ placement and commercial paper (CP), according to BusinessDay findings.
Citing where investors were redirecting their investment, Ayo Ebo, Head, Retail Investment, Chapel Hill Denham said “a lot of corporates have been issuing commercial paper at attractive rates.” This is coupled with “placement with banks that also comes at an attractive return.
From a total asset under management at N1.49 trillion at the beginning of 2021, the Nigerian mutual fund industry shed N220.18 billion to record N1.27 trillion as of December 10, 2021, as analysed from the data by the Securities and Exchange Commission (SEC).
Money market and bond funds took the front seat among peers that recorded a decline in their net asset value (NAV) in the review period. Both funds shade N702.77 billion and N220.11 billion, respectively.
On the other hand, Mixed/balanced and Equity-based funds led other mutual fund asset classes as their net asset value increased by N514.15 billion and N241.80 billion, respectively.
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Investment analysts at financial advisory firm, Afrinvest expect that next year a mix of fundamental and market sentiment will drive market activities across regions of the world, markets, and even asset classes.
“We think the investment landscape is going to be driven by both fundamentals especially coming from the recovery that we have seen in 2021 from the dip of 2020,” Robert Omotunde, chief investment officer, Afrinvest, said.
Looking at the key themes that are likely to shape the investment landscape for 2022, Afrinvest identified the following investment pointers that can guide investors towards an appropriate investment strategy next year.
Cautious optimism
In the euphoria of economic recovery, investment analysts at Afrinvest advise investors to be cautious in their optimism in order not to be caught off guard.
“We expect investors to be guided by both fundamental and market sentiment.”
Market timing
Timing and accuracy, according to the Lagos-based financial advisory firm are the two factors that differentiate great investors from informed investors.
The firm advised that in 2022, it will be better to identify and position investors’ portfolios to benefit from market movement.
“One of the key things that will differentiate great investors in 2022 is the fact that they can time the market,” it said.
Because of the fear of different variants of the pandemic, Afrinvest said there will be periods that will present opportunities to buy cheap and it thinks “investors can take advantage of this” and so “market timing is going to be very crucial as part of the overall theme for investment strategy in 2022.”
Staying liquid
Staying liquid was highlighted as the third strategy for 2022 because the market could present a pocket of opportunities in the year ahead and so “cash is king”.
“We also like to emphasize the need to stay liquid as much as possible,” Omotunde said.
Looking at the model portfolio of Afrinvest for 2022, it showed that it allocated up to 70 percent of its clients’ investment in liquid assets because they believe investors need the flexibility to be able to move in and out of the assets and to take advantage of different opportunities that will arise.
Diversification
In a time of economic recovery, Afrinvest said it expects investors to diversify across and within assets to minimize risks and improve returns. As a result, it highlighted that diversification remains a key theme of its 2022 strategy.
“Diversification is key within the traditional and alternative assets and even within the specific asset class; there is still can be diversification across corporate, sovereign and even across and within maturities.”
Portfolio rotation
According to the advisory firm, 2022 is expected to be a year of policy normalization across the world, as a result, Afrinvest said it believes that investors should rotate from long-term assets to short/mid dated assets as the former is more vulnerable in such period.
Because of the outlook on the interest rate and the stability that it expects from the overall economy both locally and globally, Afrinvest projects that portfolio rotation will be a very good investment strategy next year from short to long term duration instrument across different asset classes.
