Fund Manager's Report

Fund Managers' Report As At 30th September, 2020

Domestic Economic Update

The economy as measured by the Gross Domestic Product (GDP) declined by -6.10% in Q2, 2020, compared with its 1.87% expansion in Q1, 2020. This is the sharpest fall in GDP growth for a decade as it halted the tepid but positive growth since the country exited recession in 2016 and reveals the structural deficiencies, negative impact of COVID-19, fall in oil prices and forex revenue experienced during the period under review.

Also, the Nigeria’s Purchasing Managers Index (PMI) posted 46.90 points in Q3, 2020 (which is significantly below 50 expansion threshold). This happens to be the fifth contraction in PMI after 36 consecutive months of expansion. The index contracted at a slower rate by about 14.11% from 41.10 points recorded in Q2, 2020. Contractions were experienced in production level, new orders, employment level and raw material, while supplier delivery recorded its 5th consecutive expansion during the period.

Consumer Price Index (CPI), which measures Inflation rose further by 0.66% to 13.22% in Q3, 2020 from 12.56% in Q2, 2020, increasing the 12 months average to 12.23%, which stands as the 12th consecutive increase and highest inflation level since March 2018. The continued rise in the general price level can be largely attributed to supply disruptions due to the planting season and exchange rate pressures as the country gradually eases the lockdown of the economy.

The long awaited Unemployment rate was released during the period increasing by 4% to 27.1% in Q2, 2020 from 23.1% reported for Q3, 2018, which happened to be the previous rate released by the National Bureau of Statistics (NBS) as it showed the growing imbalances in the Nigerian Labor market, bringing the country to 6th place in the world based on the misery index (Inflation + underemployment + unemployment).

On to governance updates, Minister of Power Engr. Sale Mamman disclosed that the Federal Government has successfully secured $6.15bn for infrastructural development which is in line with the administration’s drive to achieve generation, transmission and distribution of 25,000 MW of electricity by 2025. Elsewhere, the FG flagged off two funding schemes namely, the National MSME Survival Fund and the Guaranteed Off-take Stimulus Scheme under the Nigerian Economic Sustainability Plan in a bid to provide financing for 1.7 million micro, small and medium enterprises across the country with N75bn.

Financial Market Update

Capital Market Update

The stock market improved by 9.61% in Q3, 2020 to close the period at  26,831.76 points when compared with Q2, 2020 where it closed at 24,479.22 points. The impressive performance in the period under review can be credited to investors’ general bargain hunting for equities as most companies released their Q2, 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 enriched 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 Q2, 2020 with stop rates on 5-year, 15-year, 25-year and 30-year FGN Bonds closing at 6.00%, 8.52%, 8.90% and 8.94% respectively. All tenors of the FGN Bonds were oversubscribed.

Foreign Exchange (FX) Market Update

 At the official segment of the FX market, the naira depreciated by 4.99% in Q3, 2020 to ₦379.00/$1 when compared with its closed price of ₦361.00/$1 in Q2, 2020. On the flip side, at the parallel market, the naira appreciated by 2.11% to ₦465.00/$1 in Q3, 2020 as against ₦475.00/$1 in Q2, 2020.

Monetary Policy And Inflation Update

The monetary policy committee (MPC) met in the period under review and lowered benchmark interest rate by 100bps to 11.50% from 12.50% being the second rate cut in 2020 and the lowest MPR since 2016. Meanwhile, Cash Reserve Ratio (CRR) and liquidity ratio remained unchanged at 27.50% and 30% respectively. The asymmetric corridor between borrowing and placing funds with the CBN also expanded to +100/-700bps from +200/-500bps, meaning that Deposit Money Banks (DMBs) can now have access to CBN’s discount window at a cheaper rate.

The latest official inflation rate as released by the Bureau of Statistics shows a 12 months average of 12.23% while the year-on-year change was 13.22%.

Key Economic Indicators

Find below the key economic indicators for your perusal:

  SEP-19 DEC-19 MAR-20 JUN-20 SEP-20
Exchange Rate (₦/USD)          
Official 307.00 307.00 361.00 361.00 379.00
Parallel 362.23 364.51 385.55 386.50 465.00
Monetary Policy Rate (MPR) % 13.50 13.50 13.50 12.50 11.50
Inflation Rate          
12-Mth Ave (%) 11.327 11.40 11.51 11.90 12.23
Year-on-Year (%) 11.02 11.98 12.20 12.56 13.22
Foreign Reserve (Billion USD) 41.99 38.60 35.52 36.19 35.72
Crude oil Price in the Int’l Market ($/barrel) 60.78 66.00 22.74 41.15 40.95
GDP Growth Rate 2.28% 2.27% 1.87% 1.87% -6.10%
NSE-ASI 27,630.56 26,842.07 21,300.47 24,479.22 26,831.76
NSE 30 1,147.00 1,177.83 902.37 1,052.09 1,148.54
NSE PENSION INDEX 989.81 1,054.06 826.75 953.14 1,051.48
Liquidity Ratio (%) 30.00 30.00 30.00 30.00 30.00
Cash Reserve Ratio (%) 22.50 22.50 27.50 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 29%, Government Securities 31%, Money Market 24%, Cash & Others 16%. The NLPC PFA – RSA Fund I opened with a unit price of N1.0516 in January 2020 and grew to N1.1721 as at 30th September, 2020 translating to year to date growth of 11.46% and an annualized return of 15.31%.

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 N5.1170 as at 30th September, 2020 translating to a year to date growth of 29.68% and an annualized return of 39.64%.

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 77%, Money Market 15% and Cash & Others 6%. The unit price grew from N1.1701 in January, 2020 to N1.5203 as at 30th September, 2020 translating to a year to date growth of 29.93% and an annualized return of 39.98%.

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 76%, Money Market 19% and Cash & Others 4%. The unit price grew from N3.4255 in January, 2020 to N4.3464 as at 30th September, 2020 translating to a year to date growth of 26.88% and an annualized return of 35.91%.

Outlook & Strategy
  • Output is poised to shrink notably this year as subdued oil prices and the pandemic’s fallout suppress domestic and foreign demand. Elevated unemployment, mounting price pressures, tighter FX liquidity and a subdued global economy all cloud the outlook. Having said that, we predict that the economy will strain and quake in Q4, 2020. The positive sides are trade, services and agriculture sectors that are likely to make positive contribution to growth despite the haunting issues.

  • Meanwhile, the stock market closed Q3, 2020 on a positive note. This can be attributed to investors acquiring some fundamentally sound stocks that were not rightly priced and the fact that investors are increasing their risk appetite by taking position in some good stocks as yields on fixed income securities were not attractive. We expect the stock market to close positive in Q4, 2020. 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 slow down a bit in Q4, 2020 due to recent cut in MPR and the fact that fixed income market appears to have priced in some form of loose monetary policy. This is because, despite the increase in fiscal deficit and domestic borrowing, yields on fixed income securities have largely compacted. The downsides to our fixed income market forecast which may require hawkish treatment from the CBN are: rising inequality in the external account, surge in inflation and downward movement in crude oil prices in the international market, amongst others. In effect, we shall continue to explore strategies to take advantage of the fixed income market with strong bias for 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 SEPTEMBER, 2020
ASSET CLASS MARKET VALUE(N'MLN) WEIGHT(%)
GOVERNMENT SECURITY 16.427 31
MONEY MARKET 12.548 24
EQUITIES 15.415 29
OTHERS 8.371 16
TOTAL 52.760 100
NLPC PFA-RSA FUND II ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 92.873 70
MONEY MARKET 17.715 15
EQUITIES 7.116 5
OTHERS 12.709 10
TOTAL 130.413 100
NLPC PFA-RSA FUND III ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 91.645 77
MONEY MARKET 17.475 15
EQUITIES 2.967 2
OTHERS 6.959 6
TOTAL 119.046 100
NLPC PFA-RSA FUND IV ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 36.703 76
MONEY MARKET 9.355 19
EQUITIES 0.657 1
OTHERS 1.609 4
TOTAL 48.324 100