PFAs Increase Investments in Better Yielding Bank Placement, Bonds; Slow Down on T-Bills…

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Freshly released report on pension fund assets by National Pension Commission (NPC) showed that the total value of pension assets rose year on year (y-o-y) by 17.88% to N10.51 trillion in February 2020 from N8.91 trillion in February
2019.

According to the report, most of the
pension fund assets were invested in FGN
Securities; however, its share of the total assets moderated to 67.51% (or N7.09 trillion) in the month under review, from a 73.12% (or N6.52 trillion) it printed in February 2019 as T-bills yield plummeted to lower single-digit amid COVID-19
pandemic shock.

Given the reduction in the weight of FGN Securities to the total assets, we
saw Pension Fund Administrators (PFAs) investment preference drifted towards Local Money Market Securities (LMMS) as total funds invested in this investment category rose y-o-y by 128.41% to N1.60 trillion in February 2020 (lifting its share of the total assets to 15.25%), from N0.70 trillion in February 2019 (or 7.87% of total assets).

Total invested fund in Corporate Debt Securities as a percentage of total pension fund assets stood at 6.30% (or N0.66 trillion) in February 2020 from 5.41% (N0.48 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 N0.22 trillion) from 2.60% (or N0.23 trillion) in the period under review.

Similarly, we saw Cash and Other Assets which constituted 0.62% (or N64.85 billion) of the total pension fund assets in February 2020 decline from 0.83% (or N74.21 billion) in February 2019.

Further breakdown of the N7.09 trillion FGN Securities revealed that investment in FGN Bonds gulped N5.62 trillion in February 2020, rising from a N4.49 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 N1.48 trillion in February 2020 from N0.60 trillion in February 2019 while investment in commercial papers, constituting 7.86% of investment in LMMS, barely increased to N0.13 trillion from N0.10 trillion.

On the flip side, investment in Treasury Bills plunged to N1.37 trillion in February 2020, from N1.91 trillion in February 2019; also, investments in Sukuk and Green Bonds were relatively low as their respective shares of allocated pension assets stood at N84.42 billion and N13.77 billion in the month under review.

Meanwhile, pension fund assets investment in the domestic equities market moderated to N0.53 trillion in February 2020 from N0.60 trillion in February 2019; thus, reducing 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 N2.74 billion, from N2.05 billion and N0.87 billion in December 2019 and February 2019 respectively.

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; given the crash in treasury bills rates, which was chiefly due to the several expansionary monetary policies aimed at stimulating economic growth.

Meanwhile, 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.

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