Pension funds: the net asset value records a first increase in 2021


The National Pensions Commission (PENCOM) yesterday released the April 2021 Pension Fund Industry (PFI) Portfolio Report. Contrary to the trend of successive declines since January 2021, the net asset value ( NAV) for April 2021 increased (47 basis points m / m) to N12.40 trillion from N12.34 trillion in March 2021.

Investments in securities showed a different trend in April. Excluding foreign common stocks (up 4.8% m / m to N101.63 billion), corporate debt securities (up 28.1% m / m to N794.67 billion) and securities local money market (up 3.6% m / m to N1 $ 0.74 trillion), which rose in the month, other asset classes such as domestic equities (down 1.3% m / m to N830.62 billion), FGN securities (down 2.2% m / m to N 8.32 trillion), and mutual funds (down 12.4% m / m to N129.14 billion) showed a decrease.

Recall that the 2020 financial year was characterized by a significant drop in investment returns on fixed income instruments, which increased the prices of fixed income instruments and, consequently, the fair value gain over the period. Since the start of 2021, however, yields have started to rise and, as such, PFAs are reorganizing their portfolios to avoid excessive losses on assets held for trading.

For example, PFAs invest less funds in FGN securities, as evidenced by the reorganization and declines recorded on FGN bonds (down 2.9% m / m to 7.45 billion naira), Treasury (down 4.3% m / m to 690.43 billion naira)) and SUKUK (down 6.8% m / m to 79.31 billion naira). We note that more assets are now held to maturity in a rising yield environment, which suggests fair value losses for assets held for trading.

To manage the effect of a rising yield environment, we have observed more fund managers tilting towards investing in corporate debt securities, local money market funds and foreign common stocks. while they seek stability. This is in line with our expectations, as these managers aim to mitigate the effect of rising fixed income yields and declining performance in the equity market.

Essentially, more and more managers are prioritizing short-term securities for trading.

We expect PFAs to maintain the current strategy given their historical tendency to invest heavily in fixed income instruments.

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission of Nigeria. CSLS is a member of the Nigerian Stock Exchange.


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