Cowry Asset estimates moderate return on pensioners’ fund in 2020
As Pension Fund Administrators are looking to maximizing returns on investment, Cowry Asset Management has estimated moderate return on pensioners’ fund for the financial year 2020.
Monitoring the PFAs investment pattern, it was observed that managers were investing on bank placement, bonds but look away from Treasury instruments.
In a report, the investment banking firm said it expects the current demand pressure for T-bills to spill over to the bonds market; hence a reduction in bond yields is anticipated for most maturities.
The firm explained that with the anticipated reduction in yields, it expect returns on pensioners’ funds to moderate in 2020.
According to National Pension Commission (NPC) report, total value of pension assets rose year on year by 17.88% to ₦10.51 trillion in February 2020 from ₦8.91 trillion in February 2019.
Meanwhile, the breakdown of the report shows that most of the pension fund assets were invested in FGN Securities; however, its share of the total assets moderated to 67.51% (or ₦7.09 trillion) in the month under review.
It moved from a 73.12% (or ₦6.52 trillion) it printed in February 2019 as T-bills yield plummeted to lower single-digit amid COVID-19 pandemic shock.
The firm stated given the reduction in the weight of FGN Securities to the total assets, the firm saw Pension Fund Administrators (PFAs) investment preference drifted towards local money market securities (LMMS).
The firm explained that this is because total funds invested in this investment category rose year on year by 128.41% to ₦1.60 trillion in February 2020.
Lifting its share of the total assets to 15.25%, from ₦0.70 trillion in February 2019 or 7.87% of total assets.
Meanwhile, total invested fund in corporate debt securities as a percentage of total pension fund assets stood at 6.30% or ₦0.66 trillion in February 2020 from 5.41% (₦0.48 trillion) in February 2019.
However, funds invested in real estate properties as a fraction of the total pension fund assets dropped to 2.09% or ₦0.22 trillion from 2.60% or ₦0.23 trillion in the period under review.
Similarly, Cowry Asset stated that it saw cash and other assets which constituted 0.62% or ₦64.85 billion of the total pension fund assets in February 2020 decline from 0.83% (or ₦74.21 billion) in February 2019.
Pension assets jumps 16.86% to N10.218 trillion in 2019
Further breakdown of the ₦7.09 trillion FGN Securities revealed that investment in FGN Bonds gulped ₦5.62 trillion in February 2020, rising from a ₦4.49 trillion that was recorded in February 2019.
Also, investment in LMMS showed that more pension fund assets were invested in Banks, which include Open Market Operations, OMO, and DMBs fixed deposits, than in commercial papers.
Funds invested in Banks, constituting 92.14% of investment in LMMS, rose to ₦1.48 trillion in February 2020 from ₦0.60 trillion in February 2019.
However, investment in commercial papers, constituting 7.86% of investment in LMMS, barely increased to ₦0.13 trillion from ₦0.10 trillion.
On the flip side, investment in Treasury Bills plunged to ₦1.37 trillion in February 2020, from ₦1.91 trillion in February 2019.
Also, investments in Sukuk and Green Bonds were relatively low as their respective shares of allocated pension assets stood at ₦84.42 billion and ₦13.77 billion in the month under review.
Meanwhile, pension fund assets investment in the domestic equities market moderated to ₦0.53 trillion in February 2020 from ₦0.60 trillion in February 2019.
Thus, reduced the weight of total pension funds in local equities market to 5.07% from 6.75%.
Nevertheless, the equities market received some “patronage” from “RSA FUND 1” as its total invested funds rose to ₦2.74 billion.
This was against ₦2.05 billion and ₦0.87 billion in December 2019 and February 2019 respectively.
Cowry Asset explained that the increased investment by PFAs in Bank Placement and FGN Bonds was essentially to take advantage of the relatively high yields in OMO and bonds markets.
This, given the crash in treasury bills rates, which was chiefly due to the several expansionary monetary policies aimed at stimulating economic growth.
“We expect the current demand pressure for T-bills to spill over to the bonds market; hence a reduction in bond yields is anticipated for most maturities.
“With the anticipated reduction in yields, we expect returns on pensioners’ funds to moderate in 2020.
“Thus, we opine that it is time the PFAs took advantage of the low stock prices and invest more in equities, given the high dividend returns in some selected stocks
“…and the potential capital appreciation they also offer as stock prices have dropped way below their net book values amid COVID-19 pandemic”, the firm stated.
Cowry Asset estimates moderate return on pensioners’ fund in 2020
