Pension funds embrace stocks as bond yields decline

Nigeria’s pension funds are finding solace in domestic stocks with N874 billion investments as of September 30, 2021, amid declining bond yields, according to figures from the National Pension Commission (PenCom).

Pension Fund Administrators (PFAs), managers of the fund, in a continuous search for better returns on investment (ROI) for its retirement savings account holders with safety as priority, have during the past few months increased their stakes in stocks.

From the unaudited report on pension funds industry portfolio for the period ended September 30, 2021, released by PenCom, N873.49 billion was invested in stocks, as against N846.55 billion in August 2021.

According to analysts at FBNQuest, Nigerian pension funds, share of domestic equities rose slightly from 5.1 percent to 6.7 percent over the past 12 months, and members holding rose by 49 percent to N874 billion.

The all-share index (ASI) also rose by 50 percent over the same period, implying a modest shift by the PFAs into domestic equities, state the analysts.

They note that the pension industry’s exposure to Nigerian Treasury Bills (NTBs) continues to trend downward. The share of NTBs fell to 63.6 percent y/y and 30.9 percent m/m to N284 billion, equivalent to 2.2 percent of the total asset under management (AUM).

“The corresponding figures in 2018, 2019 and 2020 were 18.0 percent, 23.6 percent and 6.7 percent, respectively, which it noted was as a result of significant decline in NTBs, which made fund managers to direct their proceeds from OMO bills maturities into the NTBs space, following CBN directives baring domestic non-bank players from its OMO auctions in October 2019,” the analysts note.

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FGN bonds accounted for 60.3 percent of total AUM at the end of September, up from 57.4 percent in the year earlier period, they further note.

They however attribute this to the government’s planned deficit financing in the 2022 budget.

“The FGN’s huge deficit financing requirement of N5.6 trillion in the 2021 budget (before the passage of the supplementary budget by the National Assembly) has contributed to pushing up yields.

“We do not see this trend changing soon considering the Federal Government of Nigeria’s FY 2022’s deficit of N5.6 trillion, of which N2.51 trillion has been set as the domestic borrowing target,” the FBNQuest Capital analysts say.

Glory Etaduovie, managing director/CEO, IEI-Anchor Pensions, believes that renewed interest in the stock market was a reflection of the environment, given all that is playing out in the investment market.

He however notes that there was a deep-down movement in almost everything as result of COVID-19, and currently there are efforts by those who remained afloat to better their situation, and this could be reflected in increment in the stock market space.

According to Etaduovie, after the COVID, it again became clearer that foreign direct investment was slowing since global investors focused on domestic economies. For us, we are left with no option but to rebuild our own economy, Etaduovie states.

Dave Uduanu, managing director/CEO, Sigma Pensions, says there is nothing fundamental in the investment figures on stocks, but a sign of recovery from COVID-19. As you are aware, a lot went down at that period, so we are coming from a low base, and not as if the economy has bounced back, he says.

There are a lot of things driving the market, including absence of foreign portfolio investors, crave for dividend, liquidity, and good results in some names, he states.

“I think in September, there was an open fight for control of First Bank, so stocks like Aritel rallied, MTN rallied because Airtel Africa has investment in many other countries. So, these are good names that could drive a rally.

“Most especially, PFAs will always invest in stocks once we get new money. What has happened was that, with the absence of foreign portfolio investment, any new money put in will lead to a rally in some good names (good stocks), and that could mean higher state,” he says.