Most fund managers in Nigeria’s collective investment space were moved to hedge against losses from equities and bond market as evidenced in their assets allocation for the month of December 2014.
In 2014, when the total returns at the equities market was in negative of 16.14 percent as oil price declined in addition to investors fear over rising political risks, most fund managers rerouted equity-based funds into money market in search for higher returns.
Ideally, an ‘equity-based fund’ is a mutual fund that invests principally in stocks. This and other mutual funds are regulated by the Securities and Exchange Commission (SEC).
Some equity based-funds whose managers invested reasonable percentage of their assets in money market in the month under review include: Coral Growth Fund (37.83% in equities) and (50.44% in money market). Fund managers of IMB Energy Master Fund invested 32.78 percent of the fund in equities and 65.98 percent in money market.
Also, fund managers’ investment schedule as of December shows that only 7.93 percent of Anchor Fund was invested in equities while 90.89 percent went to money market. The fund managers of Afrinvest Equity Fund invested 35.94 percen of the fund in equities while 62.78 percent went to money market. Only 44.49 percent of BGL Nubian Fund was invested in equities while the fund managers invested 52.96 percent in money market.
The equities market has continued to maintain a downward trend since the first weeks of 2015. The value of listed equities which stood at N11.478 trillion at the beginning of this year depleted by N2.274 trillion to N9.204 trillion last weekend; while the NSE ASI which was 34,657.15 points as of January 2, 2015, dropped to 27,585.26 points.
The downward trend has been attributed to the combination of a sustained drop in global oil prices, profit taking, and uncertainty ahead of Nigeria’s general elections, the weakening naira and increase violence in the North-Eastern part of the country. These factors, analysts noted, continue to dampen investors’ appetite for the country’s securities given the gloomy economic and political outlook.
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On the contrary, almost all the fund managers allocated over 90 percent of their money market funds to money market. A money market fund is a mutual fund that invests in short-term debt securities such as Nigerian Treasury bills and commercial papers (CPs).
For instance, 99.85 percent of Stanbic IBTC Money Market Fund was invested in money market; UBA Money Market Fund (99.54%); FBN Money Market Fund (90.28%); AIICO Money Market Fund (100%), and ARM Money Market Fund (98.81%).
At the money market last month, rates decreased to a four year low of 6 percent per annum (p.a.) at the interbank market, compared to an average of 11 percent p.a. at the start of the year. Open Buy Back (OBB) and Overnight rates traded at 6.08 percent p.a. and 6.5 percent p.a. as of January 20, compared with 10.79 percent p.a. And 11 percent p.a., respectively, at the start of the year.
“The 500bps decline was a result of heightened liquidity upon receipt of the monthly statutory funds which were lower than the prior month‘s allocation,” said analysts at Financial Derivatives Company Limited in their bi-monthly economic and business update.
In the Treasury bills market, the CBN issued N227.89 billion T/bills with stop rates of 11.2 percent (91-day), 14.19 percent (182-day) and 14.56 percent (364-day). The stop rates were lower in comparison to the first PMA of the year, following the same downward trend recorded with interbank rates.
“No major change is expected in the direction of interest rates as the macro-economic dynamics are unlikely to change. Interbank rates will continue to move in tandem with liquidity conditions in the market, which we expect will remain high, pending any significant debit or CBN intervention,” the analysts said.
Furthermore, a look at fund managers’ investment schedule in relation to bond fund shows fund managers of Stanbic IBTC Bond Fund invested 68.79 percent of the fund in fixed income securities and 30.97 percent in money market; 62.35 percent of UBA Bond Fund was invested in fixed income securities, while 37.42 percent was allocated to money market.
A bond fund or debt fund is a fund that invests in bonds, or other debt securities. For Nigeria International Debt Fund, 90.90 percent of its assets were allocated to fixed income securities while 3.08 percent went to money market; 74.35 percent of BGL Sapphire Fund was invested in fixed income securities, while 17.03 percent went to money market; fund manager of Coral Income Fund invested 27.40 percent in fixed income securities while 72.60 percent went to money market.
For Kakawa Guaranteed Income Fund, its fund managers staked 8.12 percent of the mutual fund in fixed income securities while 84.67 percent was invested in money market. Zenith Income Fund (0.00%) in fixed income securities while 79.43 percent of the fund was invested in money market.
FBN Fixed Income Fund shows 57.19 percent was allocated to fixed income securities while 41.81 percent went to money market. SFS Fixed Income Fund (26.08% in fixed income securities) and 73.45 percent in money market; while Stanbic IBTC Guaranteed Fund shows none of the fund assets was invested in fixed income securities in the review month while 93.72 percent of the fund was invested in money market.
Earlier this year, global rating agency, Moody’s Investors Service, said attacks by the militants in the North Eastern part of Nigeria were adding pressure to Nigeria’s credit rating even as plunging oil prices undermine economic growth.
The agency had said that the violence might be “weighing on investor demand for Nigerian assets at the moment.
“We are certainly seeing pressure on the currency; we are seeing pressure on Nigeria’s bond prices, so it is one of an array of downside risks. The extent to which we see the precipitous decline in oil prices will dampen growth prospects” in Nigeria, and other crude producers, including Angola and Gabon, and put pressure on public finances, Matt Robinson, manager, Africa Sovereign Ratings, Moody’s had said.
Iheanyi Nwachukwu
