Fund Manager's Report

Fund Managers' Report As At 30th June, 2020

Domestic Economic Update

The economy as measured by the Gross Domestic Product (GDP) grew by 1.87% in Q1, 2020, compared with 2.10% in Q1, 2019 and 2.55% in the Q4, 2019, representing a contraction of 23bps and 68bps respectively. This is the slowest quarterly GDP growth since Q3, 18 and reveals the early signs of the disruptive impact of COVID-19 as well as the sharp decline in oil prices.

In contrast, the Nigeria’s Purchasing Managers Index (PMI) posted 41.1 points in Q2, 2020 (which is significant below 50 expansion threshold). This happens to be the second contraction in PMI after 36 consecutive months of expansion. The index contracted by about 20% from an expansion of 51.1 points recorded in Q1, 2020. Contractions were experienced in production level, new orders, employment level and raw material, while supplier delivery recorded its 2nd consecutive expansion during the period.

Consumer Price Index (CPI), which measures Inflation surged further by 14bps to 12.40% in Q2, 2020 from 12.26% in Q1, 2020, increasing the 12 months average to 11.79%, which fully reflected the impact of COVID-19 pandemic and exchange rate volatility, pushing prices of commodities northwards. However, the reduction in price of petrol and disposable income of the informal sector due to the pandemic has helped cushion inflationary pressure in Q2, 2020.

On to governance updates, the Federal Executive Council (FEC) approved N2.3trn stimulus plan proposed in the Nigeria Economic Sustainability Plan designed to support the nation’s economy in the face of the disruptions and challenges of the COVID-19 pandemic. Specifically, the plan will enable the government respond to the triple problems of low exchange rate, youth unemployment and the declining economic growth. Elsewhere, the World Bank approved $750m International Development Association credit for Nigeria’s Power Sector Recovery Operation, as the Bank expressed concerns in the acute deficiencies in power supply which has affected economic productivity. This facility is expected to support the FG’s target to lift 100million Nigerians out of poverty.

Financial Market Update

Capital Market Update

The stock market surged by 14.92% in Q2, 2020 to close the period at 24,479.22 when compared with Q1, 2020 where it closed at 21,300.47. The impressive performance in the period under review can be attributed to investors’ general bargain hunting for equities as most companies released their Q1, 2020 results.

In line with our medium/long term view of the equity market, we maintained our hold strategy on the stocks in the portfolio but enhanced it a bit by selling those stocks with weak fundamentals. Meanwhile, as a professional fund manager that is conscious of the performance of the portfolio, we explored pockets of available fixed income securities with better yields in the market to stabilize and improve return on investment.

The yields on Federal Government Bonds closed lower at the primary market in the period under review when compared with April, 2020 with stop rates on 3-year, 15-year and 30-year FGN Bonds closing at 8.00%, 11.00% and 12.15% respectively. All tenors of the FGN bond were oversubscribed.

Foreign Exchange (FX) Market Update

At the official segment of the FX market, the naira closed flat in Q2, 2020 when compared with its closed price of N361.00/$1 in Q1, 2020. Meanwhile, at the parallel market, the naira depreciated by 0.25%q/q to N386.50/$1 in Q2, 2020 as against N385.55/$1 in Q1, 2020.

Monetary Policy And Inflation Update

The monetary policy committee (MPC) met in the period under review and reduced the MPR by 100bps to 12.50% from 13.50%, being the first adjustment since March 2019.

The latest official inflation rate as released by the Bureau of Statistics shows a 12 months average of 11.79% while the year-on-year change was 12.40%.

Key Economic Indicators

Find below the key economic indicators for your perusal:

  JUN-19 SEP-19 DEC-19 MAR-19 JUN-20
Exchange Rate (₦/USD)          
Official 306.90 307.00 307.00 361.00 361.00
Parallel 361.50 362.23 364.51 385.55 386.50
Monetary Policy Rate (MPR) % 13.50 13.50 13.50 13.50 13.50
Inflation Rate          
12-Mth Ave (%) 11.30 11.27 11.40 11.51 11.79
Year-on-Year (%) 11.40 11.02 11.98 12.20 12.40
Foreign Reserve (Billion USD) 45.07 41.99 38.60 35.52 36.22
Crude oil Price in the Int’l Market ($/barrel) 66.55 60.78 66.00 22.74 41.15
GDP Growth Rate 1.94% 2.28% 2.27% 1.87% 1.87%
NSE-ASI 29,966.87 27,630.56 26,842.07 21,300.47 24,479.22
NSE 30 1,255.68 1,147.00 1,177.83 902.37 1,052.09
NSE PENSION INDEX 1,058.77 989.81 1,054.06 826.75 953.14
Liquidity Ratio (%) 30.00 30.00 30.00 30.00 30.00
Cash Reserve Ratio (%) 22.50 22.50 22.50 27.50 27.50
NLPC PFA - RSA Fund I

The Asset Allocation which is in compliance with PenCom’s investment regulation and guidelines, stood as follows;

Quoted Equities 20%, Government Securities 51%, Money Market 29%.

The NLPC PFA – RSA Fund I opened with a unit price of N1.0516 in January 2020 and grew to N1.1108 as at 30th June, 2020 translating to year to date growth of 5.63and an annualised return of 11.32%.

NLPC PFA - RSA Fund II

The asset allocation which is in compliance with PenCom’s investment regulation and guidelines, stood as follows;

Quoted Equities 5%, Government Securities 70%, Money Market 15% and Cash & Others 10%.

The unit price grew from N3.9460 in January, 2020 to N4.7335 as at 30th June, 2020 translating to a year to date growth of 19.96% and an annualised return of 40.13%.

NLPC PFA - RSA Fund III

The asset allocation which is in compliance with PenCom’s investment regulation and guidelines, stood as follows;

Quoted Equities 2%, Government Securities 80%, Money Market 13% and Cash & Others 5%.

The unit price grew from N1.1701 in January, 2020 to N1.4067 as at 30th June, 2020 translating to a year to date growth of 20.22% and an annualised return of 40.66%.

NLPC PFA - RSA Fund IV

The asset allocation which is in compliance with PenCom’s investment regulation and guidelines, stood as follows;

Quoted Equities 1%, Government Securities 78%, Money Market 19% and Cash & Others 2%.

The unit price grew from N3.4255 in January, 2020 to N4.0836 as at 30th June, 2020 translating to a year to date growth of 19.21% and an annualised return of 38.63%

Outlook & Strategy
  • The domestic spread of COVID-19 is expected to alter consumer behaviour and business confidence, and disrupt production, with deeply negative consequences for the economy. Most notably, its spread within Nigeria will likely weaken domestic demand as consumers adopt precautionary behaviours and government containment measures will hinder economic activity. As Government fiscal resources are already severely reduced by the oil price shock, a sudden surge in emergency spending may crowd out public investments in physical and human capital, lowering prospects for Nigeria’s long-term growth.

  • Also, the simultaneous decline in both oil prices and remittances is a unique feature of the COVID-19 pandemic. Though oil prices plunged in 2015, remittances were largely unaffected. However, now the pandemic-related global economic slowdown is impacting both oil prices and remittances, compounding its adverse impact on our balance of payments. In effect, the economy will most likely lose traction in Q3, 2020. However, agriculture and telecommunication sectors may make positive contribution to growth despite sectoral challenges.

  • Meanwhile, the stock market closed Q2, 2020 on a positive note. This can be attributed to CBN expansionary monetary policy drive which hurt yields in fixed income market and forced investors to take more risks by increasing their exposure in the stock market.  We expect the stock market to close Q3, 2020 on a positive note. In this context, we shall continue to maintain our medium to long term view of the equities market. Whilst holding on to stocks with good fundamentals, we shall continue to increase our holdings as buy opportunities exist.  

  • Lastly, we expect yield in fixed income market to improve a bit in Q3, 2020 due to surge in inflation, low oil prices in the international market, low foreign reserve, expanded budget deficit, low remittances from Nigerians abroad, corona virus issues, amongst others. The downsides to our fixed income market forecast which may require the continuation of the dovish treatment from the CBN are: an upward movement in crude oil prices in the international market, an improved external account, declining inflation, amongst others. In effect, we shall continue to explore strategies to take advantage of the fixed income market with strong focus on securities at the medium/long end of the yield curve in order to improve the portfolio return accordingly.       

  • We will continue to focus on our goal of growing the Fund under management by optimizing returns on investment without compromising the security and liquidity of assets and also ensuring that every worker with retirement savings account with the company receives his/her benefits as at when due.

NLPC PFA-RSA FUND I ASSET ALLOCATION AS AT 30TH JUNE, 2020
ASSET CLASS MARKET VALUE(N'MLN) WEIGHT(%)
GOVERNMENT SECURITY 35.767 51
MONEY MARKET 20.352 29
EQUITIES 13.928 20
TOTAL 70.047 100
NLPC PFA-RSA FUND II ASSET ALLOCATION AS AT 30TH JUNE, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 88.690 70
MONEY MARKET 15.890 15
EQUITIES 6.739 5
OTHER 11.572 10
TOTAL 122.891 100
NLPC PFA-RSA FUND III ASSET ALLOCATION AS AT 30TH JUNE, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 90.438 80
MONEY MARKET 13.670 13
EQUITIES 2.604 2
OTHER 5.208 5
TOTAL 111.919 100
NLPC PFA-RSA FUND IV ASSET ALLOCATION AS AT 30TH JUNE, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 34.418 78
MONEY MARKET 8.489 19
EQUITIES 0.602 1
OTHER 0.633 2
TOTAL 44.142 100