Fund Manager's Report

Fund Managers' Report As At 30th September, 2021

Domestic Economic Update

The import-dependent nature of the Nigerian economy has become its greatest challenge. This defective economic structure exacerbated by a plethora of severe headwinds like huge sovereign debt, low export, blooming insecurity, high food prices, COVID-19 pandemic new variants and reduced foreign investments have put severe strain on the economy. However, the Nigeria economy as measured by Gross Domestic Product (GDP) in Q2, 2021 mirrored a growth of 5.01%, signposting the return of business and economic activity near levels seen prior to the nationwide implementation of COVID-19 related restrictions. This recovery was attributed to the non-oil sector, driven by a rebound in services sector and continued growth in agricultural sector. Meanwhile, the Nigeria’s Purchasing Managers Index (PMI) posted 50.30 points in Q3, 2021 (which is marginally above 50 expansion threshold). The index performed better when compared with 48.80 points recorded in Q2, 2021. New orders, exports, output, employment, suppliers' delivery times, and stocks of purchases went up marginally in the period under review.

Consumer Price Index (CPI), which measures Inflation decreased to 17.01% in Q3, 2021 from 17.75% in Q2, 2021. This represents the fifth consecutive decline in the rate of inflation recorded in Nigeria. However, the 12-months average maintained upward trajectory as it accelerated marginally by 67bps to 16.60% in Q3, 2021 from 15.93% in Q2, 2021. The composite food index rose by 20.30% in Q3, 2021 (compared to 22.28% in Q2, 2021). This infers that prices continued to rise in Q3, 2021, albeit at a slightly slower stride than it did in Q2, 2021.

On to governance updates, The Senate approved the 2022-2024 Medium Term Expenditure and Fiscal Strategy Paper (MTEF/FSP). It maintained the crude oil benchmark price of $57 per barrel for 2022 as proposed by President Muhammadu Buhari. Also, the daily crude oil production of 1.88mbpd, 2.23mbpd, and 2.22mbpd were approved for 2022, 2023 and 2024 respectively. Elsewhere, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, said the apex bank is set to launch CBN’s N15 trillion infrastructure fund in October 2021 to enhance finance for capital projects. The project is designed by the CBN in collaboration with the African Finance Corporation and the Nigerian Sovereign Investment Authority to address some of the Nigerian infrastructure deficit while providing reasonable returns to investors.

Financial Market Update

Capital Market Update

The stock market improved by 6.10% in Q3, 2021 to close the period at 40,221.17 when compared with Q2, 2020 where it closed at 37,907.28. The Year-to-Date (YTD) returns currently stands at -0.12%. The positive performance in the period under review can be attributed to investor’s general bargain hunting for equities.

In line with our medium/long term view of the equity market, we maintained our hold strategy on the stocks in the portfolio. Meanwhile, as a professional fund manager that is conscious of the performance of the portfolio, we explored pockets of available fixed income securities with impressive 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 Q2, 2021 with stop rates on 10-year, 15-year and 30-year FGN Bonds closing at 11.60%, 12.75% and 13.00% 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 Q3, 2021 when compared with its closing price of ₦380.69/$1 in Q2, 2021. Also, at the parallel market, the naira depreciated significantly by 14.71% to close at N577.00/$1 in Q3, 2021 when compared to N503.00/$1 in Q2, 2021.

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 16.60% while the year-on-year change was 17.01%.

Key Economic Indicators

Find below the key economic indicators for your perusal:

SEP-20 DEC-20 MAR-21 JUN-21 SEP-21
Exchange Rate (₦/USD)               
Official 379.00 379.00 379.00 380.69 380.69
Parallel 465.00 465.00 486.00 503.00 577.00
Monetary Policy Rate (MPR) % 13.50 11.50 11.50 11.50 11.50
Inflation Rate          
12-Mth Ave (%) 12.44 12.92 14.05 15.93 16.60
Year-on-Year (%) 13.71 14.89 17.33 17.75 17.01
Foreign Reserve (Billion USD) 35.74 35.36 36.20 33.37 36.41
Crude oil Price in the Int’l Market ($/barrel) 40.95 51.80 63.54 75.13 78.35
GDP Growth Rate -3.62% 0.11% 0.51% 5.01% 5.01%
NGX-ASI 26,831.76 40,270.72 39,045.13 37,907.28 40,221.17
NGX 30 1,148.54 1,640.11 1,555.92 1,594.87 1,674.51
NSE PENSION INDEX 1,051.48 1,388.64 1,362.60 1,479.77 1,552.33
Liquidity Ratio (%) 30.00 30.00 30.00 30.00 30.00
Cash Reserve Ratio (%) 27.50 27.50 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 30th September, 2021 stood as follows:

Quoted Equities 8%, Government Securities 59%, Money Market 30%, Cash & Others 3%. The unit price declined from N1.3350 in January 2021 to N1.1964 as at 30th September, 2021 due to fall in the price of FGN bonds translating to year to date negative growth of 10.38%.

NLPC PFA - RSA Fund II

The Asset Allocation and performance of our NLPC PFA – RSA Fund II as at 30th September, 2021 stood as follows:

Quoted Equities 7%, Government Securities 62%, Money Market 17% and Cash & Others 14%. The unit price declined from N5.4954 in January, 2021 to N5.2261 as at 30th September, 2021 due to fall in the price of FGN bonds translating to a year to date negative growth of 4.90%.

NLPC PFA - RSA Fund III

The Asset Allocation and performance of our NLPC PFA – RSA Fund III as at 30th September, 2021 stood as follows:

Quoted Equities 3%, Government Securities 73%, Money Market 14% and Cash & Others 10%. The unit price declined from N1.6365 in January, 2021 to N1.6197 as at 30th September, 2021 due to fall in the price of FGN bonds translating to a year to date negative growth of 1.03%.

NLPC PFA - RSA Fund IV

The Asset Allocation and performance of our NLPC PFA – RSA Fund IV as at 30th September, 2021 stood as follows:

Quoted Equities 1%, Government Securities 78%, Money Market 17% and Cash & Others 4%. The unit price grew from N4.6665 in January, 2021 to N4.7833 as at 30th September, 2021 translating to a year to date positive growth of 2.50%.

Outlook & Strategy
  • Current statistics and forecasts for key macroeconomic variables for the Nigerian economy, suggest further rebound in output growth for Q4, 2021. This will however be hinged on the continued stability in oil price and robust vaccination in Nigeria and across other countries. Foreign exchange market stability, further reduction in inflationary pressure in the economy and continued interventions by the monetary and fiscal authorities are very important factors to sustain the growth momentum. Having said that, our forecast is inhibited by weak fiscal revenue, tight FX liquidity, high unemployment, security issues and social tensions, among others.
  • Meanwhile, the stock market closed Q3, 2021 on a positive note. The improved performance were as a result of the positive numbers released by some companies for H1, 2021 and the fact that investors took position in stocks with good fundamentals but trading below their intrinsic value forcing their prices to appreciate. In the same way, we expect the stock market to close slightly positive in Q4, 2021. In effect, 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 decline in Q4, 2021 due to Government posture to continue its loose monetary policy, continued surge in GDP, increased liquidity in the system and decline in inflation. The downsides to our fixed income market forecast which may force the CBN to adjust the rates upward are but not limited to: continuous decrease in crude oil prices, rising difference in the external account, FX issues, surge in inflation, significant decline in GDP, among 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 optimally.

 

NLPC PFA-RSA FUND I ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2021
ASSET CLASS MARKET VALUE(N'MLN) WEIGHT(%)
GOVERNMENT SECURITY 44.08 59
MONEY MARKET 22.24 30
EQUITIES 6.02 8
OTHERS 2.28 3
TOTAL 74.62 100
NLPC PFA-RSA FUND II ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2021
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 81.11 62
MONEY MARKET 22.75 17
EQUITIES 8.62 7
OTHERS 18.32 14
TOTAL 130.80 100
NLPC PFA-RSA FUND III ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2021
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 93.08 73
MONEY MARKET 18.17 14
EQUITIES 3.87 3
OTHERS 12.70 10
TOTAL 127.82 100
NLPC PFA-RSA FUND IV ASSET ALLOCATION AS AT 30TH SEPTEMBER, 2021
ASSET CLASS MARKET VALUE(N'BLN) WEIGHT(%)
GOVERNMENT SECURITY 41.88 78
MONEY MARKET 8.75 17
EQUITIES 0.54 1
OTHERS 2.31 4
TOTAL 53.48 100