Fund Manager's Report

Fund Managers' Report As At 31st December, 2020

Domestic Economic Update

The economy as measured by the Gross Domestic Product (GDP) shrank by 3.62% in Q3, 2020, which officially confirmed that Nigeria has fallen into recession. While this represents an improvement of 2.48% points over the 6.10% contraction recorded in the preceding quarter (Q2, 2020), it also indicates that two consecutive quarters of negative growth have been recorded in 2020. The current economic situation is a fallout of the structural deficiencies, negative impact of COVID-19, fall in oil prices and limited forex revenue experienced in the period under review.

Also, the Nigeria’s Purchasing Managers Index (PMI) posted 49.6 points in Q4, 2020 (which is marginally below 50 expansion threshold and classified as contraction). The contraction experienced by the index was an improvement of 5.76% from 46.90 points recorded in Q3, 2020.  Contractions were experienced in employment level, raw material during the period, production level, and new order while supplier delivery expanded marginally.

Consumer Price Index (CPI), which measures Inflation maintained its upward trajectory, as it worsened by 1.18% to 14.89% in Q4, 2020 from 13.71% in Q3, 2020, increasing the 12-months average to 12.92%, which stands as the 15th consecutive monthly increase and highest inflation level since February, 2018. The supply chain challenges (border closure, insecurity and flooding) coupled with hike in electricity tariff, higher petrol prices and currency pressures constitute the major factors driving the upward trend in CPI.

On to governance updates, President Muhammadu Buhari on 31st December, 2020, signed into law the 2021 Appropriation Bill of ₦13.588trn for the next fiscal year, as passed by the Senate. Some of the key assumptions were; oil price of $40pb, annual GDP of 3%, crude oil production of 1.86mbpd and an official exchange rate of ₦379/$1 Also, the President ordered the immediate reopening of the nation’s land borders which were closed in August, 2019 to curb smuggling activities. Despite this fresh directives, restrictions on importation of some commodities like rice and other products including poultry persists.

Financial Market Update

Capital Market Update

The stock market improved by 50.08% in Q4, 2020 to close the quarter at 40,270.72 points when compared with Q3, 2020 where it closed at 26,831.76 points, bringing year-to-date expansion to 50.03%. The impressive performance in the period under review can be attributed to investors’ general bargain hunting for equities as most companies released their Q3, 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 relatively lower at the primary market in the period under review when compared with Q3, 2020 with stop rates on 15-year and 25-year FGN Bond closing at 6.9450% and 7.0000% respectively. All the tenors of the FGN bonds were oversubscribed.

Foreign Exchange (FX) Market Update

At the official segment of the FX market, the naira closed flat in Q4, 2020 when compared with its closed price of ₦379.00/$1 in Q3, 2020. At the parallel market, the naira also closed flat at ₦465.00/$1 in Q4, 2020 when compared with prior quarter.

Monetary Policy And Inflation Update

The monetary policy committee (MPC) met during the period under review and left the rates unchanged.

The latest official inflation rate as released by the Bureau of Statistics shows a 12-months average of 12.92% while the year-on-year change was 14.89%.

Key Economic Indicators

Find below the key economic indicators for your perusal:

  DEC-19 MAR-20 JUN-20 SEP-20 DEC-20
Exchange Rate (₦/USD)          
Official 307.00 361.00 361.00 379.00 379.00
Parallel 364.51 385.55 386.50 465.00 465.00
Monetary Policy Rate (MPR) % 13.50 13.50 13.50 12.50 11.50
Inflation Rate          
12-Mth Ave (%) 11.35 11.35 11.90 12.44 12.92
Year-on-Year (%) 11.85 12.20 12.56 13.71 14.89
Foreign Reserve (Billion USD) 38.60 35.52 36.19 35.74 35.36
Crude oil Price in the Int’l Market ($/barrel) 66.00 22.74 41.15 40.95 51.80
GDP Growth Rate 2.27% 1.87% -6.10% -3.62% -3.62%
NSE-ASI 26,842.07 21,300.47 24,479.22 26,831.76 40,270.72
NSE 30 1,177.83 902.37 1,052.09 1,148.54 1,640.11
NSE PENSION INDEX 1,054.06 826.75 953.14 1,051.48 1,388.64
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 and performance of our NLPC PFA – RSA Fund I as at 31st December, 2020 stood as follows:

Quoted Equities 27%, Government Securities 50%, Money Market 14%, Cash & Others 9%. The NLPC PFA – RSA Fund I opened with a unit price of N1.0516 in January 2020 and grew to N1.3350 as at 31st December, 2020 translating to year to date growth of 26.95%.

NLPC PFA - RSA Fund II

The Asset Allocation and performance of our NLPC PFA – RSA Fund II as at 31st December, 2020 stood as follows:

Quoted Equities 6%, Government Securities 79%, Money Market 2% and Cash & Others 13%. The unit price grew from N3.9460 in January, 2020 to N5.4954 as at 31st December, 2020 translating to a year to date growth of 39.27%.

NLPC PFA - RSA Fund III

The Asset Allocation and performance of our NLPC PFA – RSA Fund III as at 31st December, 2020 stood as follows:

Quoted Equities 3%, Government Securities 85%, Money Market 4% and Cash & Others 8%. The unit price grew from N1.1701 in January, 2020 to N1.6365 as at 31st December, 2020 translating to a year to date growth of 39.86%.

NLPC PFA - RSA Fund IV

The Asset Allocation and performance of our NLPC PFA – RSA Fund IV as at 31st December, 2020 stood as follows:

Quoted Equities 2%, Government Securities 91%, Money Market 3% and Cash & Others 4%. The unit price grew from N3.4255 in January, 2020 to N4.6665 as at 31st December, 2020 translating to a year to date growth of 36.23%.

Outlook & Strategy
  • Breaking out of recession needs a boost to aggregate demand; output and purchasing power should spring back to growth in 2021 as activities improve. The recently opened land borders, the surge in Crude Oil prices and the discovery of several high efficacy Covid – 19 vaccines will surely contribute to growth going forward.

    We forecast an economic growth of 1.00% for Nigeria in 2021. However, Macroeconomic instability is the main risk factor to the outlook. Others are: elevated unemployment, insecurity challenges, social tensions and structural factors, amongst others.
  • Meanwhile, the stock market closed the year 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 unappealing. We expect the stock market to close slightly positive in 2021. 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 yields in fixed income market to increase slightly in 2021 due to recession, surge in inflation, low foreign reserve, FX issues and expanded budget deficit, amongst others. The snags to our fixed income market forecast which may require disfavouring increasing interest rates from the CBN are: continuous increase in crude oil prices, an improved external account, declining inflation, the aftermath of the enhancement of cash reserve ratio (CRR), 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 31ST DECEMBER, 2020
ASSET CLASS MARKET VALUE(N'MLN) WEIGHT(%)
GOVERNMENT SECURITY 31.757 50
MONEY MARKET 9.005 14
EQUITIES 16.820 27
OTHERS 5.559 9
TOTAL 63.140 100
NLPC PFA-RSA FUND II ASSET ALLOCATION AS AT 31ST DECEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 109.810 79
MONEY MARKET 3.028 2
EQUITIES 9.004 6
OTHERS 17.524 13
TOTAL 139.365 100
NLPC PFA-RSA FUND III ASSET ALLOCATION AS AT 31ST DECEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 109.152 85
MONEY MARKET 5.138 4
EQUITIES 3.913 3
OTHERS 10.029 8
TOTAL 128.233 100
NLPC PFA-RSA FUND IV ASSET ALLOCATION AS AT 31ST DECEMBER, 2020
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 47.461 91
MONEY MARKET 1.770 3
EQUITIES 0.839 2
OTHERS 2.295 4
TOTAL 52.365 100