Stock rout hurts FSDH’s fund profitability
Amid the current rout in the Nigeria equities market, Coral growth fund an open-ended fund actively managed by First Securities Discount House (FSDH) Asset Management limited, announced a distribution of the sum of N6.02k to unit holders.
At an annual general meeting on Thursday, parties to the trust presented the Fund’s financial position as at the end of December 2018 to unit member present, to mark 10th ordinary general meeting of holders of Coral growth fund.
Recall in the pre-election year of 2018, the Nigeria stock exchange market nosedived by some 18 percent in value as investors suffered negative returns in the value of their holdings. Coral growth fund which has about 65 percent its assets in equity securities quoted on the NSE and a minimum of 35 percent in investment grade fixed income investments also had its hands burnt in the market rout.
According to its 2018 annual report, the fund recorded a loss after tax of N41.428 million as against a net income of N646.214 million in the corresponding period. The not too good performance was prompted by a net loss on financial assets measured through profit and loss for the period which stood at – N177,564 million as against a profit of N463.237 million in 2017. This brought about a decline by 95 percent to its earnings before interest and tax which stood at N34.86 million.
To put in a better perspective, net trading income on quoted equities during the period plunged by 78 percent to N77.869 million meanwhile trading loss on equity stood at -N246.435 million in 2018.
“The Fund has made a loss due to volatilities prevalent in the equities market. It is envisaged that notable increases will be recorded in all areas of business operations in the years ahead with a view to improving on its performance,” the Fund stated in its report.
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Although the fund in the year 2018 recorded a negative return of 1.08 percent, it outperformed the NSE All Share Index which was down 17.81 percent during the same period.
The stock market experienced a short-lived bullish run in the first quarter of 2018 on the expectation of a bright macro-economic outlook coupled with brilliant corporate announcements. But reverse was the case in the rest of the year’s quarters on the back of political outlook uncertainties and rising global yields which saw foreign investors pullback exposure in the Nigeria equities market.
The narrative has changed much so far in the 2019 NSE trend as the market is currently down YTD by -14.81 percent with a lot of stock trading below their fair values.
“In view of our opinion that some of the quoted stocks are trading below their fair value, we will take advantage of purchasing selected stocks with good fundamentals and take profits when prices appreciate,” the fund manager stated in the fund’s report.
“Also, in the fixed income space, we will continue to lock into high yielding securities,” the report added.
Analysts have noted outlooks for the Nigeria equity market still bleak as reforms which should boost investor confidence in the economy aren’t yet forth coming. Despite US fed rate cut which gives room for carry trade and renewed interest in emerging and frontier markets assets by foreign investors, the Nigerian equity market still doesn’t look like a viable destination for these fund inflows despite a lot of value stocks on the exchange waiting to be fairly priced.