Downsizes TBs investments
By Nkiruka Nnorom
On the backdrop of thinning margins and low yield environment in the fixed income space, Pension Fund Administrators (PFAs) have upscaled their investments in the equities market, while correspondingly reducing their stakes in fixed income, Treasury Bills (TBs).
Figures on distribution of pension fund assets for the eight month period ended August 31, 2020, show that the PFAs invested N544.782 billion in equities, a 17.1 percent increase over N465.333 billion invested in the eight months in 2019, though their percentage commitment in relation to the total PFAs assets under management has not significantly changed.
Further breakdown showed that the PFAs investment in equities rose sharply in May, 2020 when the rate cut began, rising by 8.5 percent to N530.192 billion from N488.478 billion in April.
The change in PFAs investment outlook is coming on the back of the reduction in interest rates by the Central Bank of Nigeria (CBN) in response to the impact of the Coronavirus pandemic and its disruptions in the supply chain and also as a way of encouraging growth and investment in the real sector.
Recall that the Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate (MPR) two times this year as a result of the weakening macro economy and to spur lending in the economy.
At its meeting in May, 2020, the MPC cut by 100 basis points the benchmark interest rate to 12.5 percent from 13.5 percent levels, where the rates have stayed for more than a year.
Again, in July, the interest rate was further reduced by another 100 basis points to 11.5 percent, an action that triggered massive re-allocation of funds from fixed income to equities as a result of the lower yields in the fixed income space.
The rate was retained at 11.5 percent at its November meeting last week.
The equities market has since recorded 38.95 percent returns between May 28, 2020 when the rate cut began and the close of trading on Friday, December 4, 2020, while portfolio managers have swooped on stock market, raising their stakes for higher returns.
Financial Vanguard’s breakdown shows PFAs equity stake rose 18.74 per cent or N82.82 billion quarter-on-quarter (Q/Q) to N524.77 billion as at the end of June 30, 2020 from N441.94 billion in March 31, 2020, while investments in TBs decreased by N298 billion (22.6%) to N1.020 trillion.
The reduction in the value of the Treasury Bills, according to the National Pension Commission (PenCom) in its quarterly reports, was due to maturities and re-allocation to other asset classes, mainly FGN bonds and other money market securities.
Further breakdown showed that the PFAs investment in equities rose sharply in May, 2020 when the rate cut began, rising by 8.5 per cent to N1.113 trillion from N1.129 trillion in April.
It, however, slowed down by 1.02 percent in June to N524.766 billion and closed flat in July. It resumed the upward trend in August, appreciating by four per cent to N544.782 billion.
Conversely, the PFAs investment in TBs maintained a steady downward spiral, dropping by 1.4 percent, 8.4 percent and 2.7 percent in May, June and July, 2020 respectively. It, however, recorded marginal growth of 1.3 per cent in August to close at N1.005 trillion.