The United Capital Nigerian Eurobond Fund returned 0.5% in June to bring its YTD performance to 3.79%. This represents an annualized return of 7.58%, which, according to the fund manager, beats annualized return of 4.1% credited to its benchmark, Libor+200 basis points. The seemingly non-stellar performance has been attributed to the bearish trends in Eurobonds, although corporate bonds remained resilient through the period.
The fund which came to live in 2017 is worth $5.21 million or N1.6 billion as at June 30 and is an open-ended mutual fund that invests in Dollar denominated Eurobonds floated by the Federal Government of Nigeria and top-tier corporates.
The aim of the fund is to offer investors a hedge against local currency depreciation as well as long term capital preservation and growth. It takes an initial subscription of $1,000 and subsequent investments of $500 to invest in the fund which charges 1.506% management fee in addition to other fees that brings the total expense ratio to 1.679%. The benchmark, the London Interbank Offered Rate (LIBOR) is the average interbank rates at which a selection of banks on the London money market are prepared to lend to each other.
The United Capital Nigerian Eurobond Fund performance is not too different from the performance of its peers or other Eurobond and Dollar funds being managed by various fund managers in Nigeria. The FBN Eurobond USD Institutional Fund returned 3.02% (annualized 6.02%) while its sister fund, FBN Eurobond USD Retail Fund returned 1.76% (annualized 3.42%) for the fiscal year ended June 30, 2018. The current performance by FBN Eurobond USD Institutional Fund is nothing compared with its 2017 corresponding period performance of 12.17% in 2017.
The Stanbic IBTC Dollar fund on the other hand generated a return of 1.73% in the second quarter of the year to bring its YTD performance to 3.65% (annualized 7.3%). Like its peers, this fund beat its bench mark, 6 Months Libor which ended the quarter with 0.62% return and 1.15% for this fiscal year. Stanbic IBTC Dollar 2018 half year performance is much more in line with its 2017 performance than its peers. In 2017, the fund returned 6.26% in a year when its bench mark made 1.48%.
It is doubtful if these funds will repeat their 2017 performance record in 2018 given the events that are unfolding in Eurobond markets as a result of Brexit uncertainties and the sound of drums of trade wars being beaten by the US president as well as the prevailing stability in the local currency. Irrespective of the performance, Nigerian investors are still in love with Euro Bond funds as evidenced by the over subscription of the Legacy Dollar fund which recorded a 144% oversubscription in April.
About FBN Eurobond Funds
FBN Eurobond Funds is mutual fund that seeks to provide investors with competitive income and total returns in USD by investing primarily in USD denominated debt instruments issued by the Nigerian Government, corporates and financial institutions. The fund is said to be suitable to foreign currency deposit investors that want to mitigate the effects of exchange fluctuations and those that seek to diversify their portfolio
About Stanbic IBTC Dollar Fund
The Stanbic IBTC Dollar Fund’s objective is to foster currency diversification as well as preservation and appreciation of wealth. It also seeks to optimize returns to both retail, institutional and high net worth individuals who have preference for investing in dollar denominated securities by investing a minimum of 75% in USD Fixed Income Securities and 25% maximum in short term USD investment and a maximum of 10% investment.
Dangote, MTN, GTbank hit a home run as Nigeria’s bourse sustains bullish momentum
Nigeria’s bourse gained N47.9 billion in second trading day of June over share price appreciation in blue-chip companies.
Investors at Nigeria’s bourse gained N47.9 billion in second trading day of June over share price appreciation in blue-chip companies. The market capitalization which opened the month at N13.168 trillion inched higher by 0.27 % to close at N13.241 trillion.
Also, the NSE All-Share Index rose by 67.28 points or 0.27% to close at 25,383.43 basis points compared with 25,316.15 points it closed yesterday.
Thus, Year-to-Date losses moderated to 5.43% Market activity closed strong compared to the previous trading session, as total volume and value improved by 49.18% and 128.03% to close at 377.88 million units and N6.05 billion respectively.
Nigerian Breweries was the most traded stock by volume at 50.4 million units, valued at N2.22 billion.
Market breadth finished flat with 20 gainers led by NEIMETH (+9.84%), while 18 stock declined, topped by UBN (-8.21%).
Performance across sectors under review was mixed as two indices gained, two lost, while the oil and gas index remained unchanged. The Insurance index (+0.44 %) led gainers following price appreciation in CHIPLC (+8.33%) and AIICO (+3.77%).
The industrial (+0.20%) indices trailed due to buying interest in DANGCEMENT (+1.44%), while the Consumer Goods & Banking index shed -0.13 % and -0.09% on the back of price decline in UACN (-6.67%), UBN (-8.21%) and ACCESS BANK (-1.39%).
SKYAVN up 9.52% to close at N2.07,GUARANTY up 2.24% to close at N25.1,NASCON up 1.80% to close at N11.3,DANGCEM up 1.44% to close at N141,MTNN up 0.43% to close at N116.5
UBN down 8.21% to close at N6.15,UACN down 6.67% to close at N8.4,MAYBAKER down 5.33% to close at N3.2,PZ down 3.64% to close at N5.3,WAPCO down 1.72% to close at N11.45
Blue chip kept the momentum has some stocks closed flat today, Nairametrics envisage cautious buying as market liquidity remains a bit thin.
Nigeria’s Fund Industry Remain Resilient Amid COVID-19 Concerns
COVID 19 has done some devastating damage to the economy, One industry in Nigeria that has remained resilient in spite of it all is the mutual fund industry.
There is no doubt that COVID-19 has done some devastating damage to various parts of the Nigerian economy and indeed, the world economy. Price of oil fell so much such that, buyers were figuratively or literarily being begged to buy, stock markets became jittery, unemployment rate spiked, the need for social services skyrocketed, the list goes on and on.
One industry in Nigeria that has remained resilient in spite of it all, is the mutual fund industry. The health and wellbeing of the asset management industry is usually measured or gauged with trends in inflow, outflows, and total Net Asset Value (NAV).
Using those metrics as a measure of the extent to which the Coronavirus impacted the industry, one can say that the mutual fund industry in Nigeria is alive and well, and is defying all the odds against a virulent virus that visited the world with vengeance. Before the advent of COVID-19, early in 2020, the total asset value of Nigeria’s mutual funds stood at N1.042 trillion (according to the December 27th 2019 edition of NAV Summary Report from the SEC). Fast forward to May 15th 2020, after COVID-19 took hold on the world economy, the total net asset value of mutual funds in Nigeria has increased to N1.31 trillion. This represents an increase of N270 billion or 26%
Fund Flows: Of the N270 billion increase in asset value, N260.5 billion came from increase in net flows while N9.5 billion came from investments returns. The fact that the industry saw a positive inflow of that magnitude in periods where people were almost at the verge of dipping hands into their savings and investments is indicative of how resilient the industry has been. Although the industry was shaken by the effects of the virus and the trends in the oil market between March and April, it regained its strength towards the end of April and has since maintained a positive trend.
Flight to Safety: In what looked like flight to safety, much of the positive fund flows went to Bond Funds and Money Market Funds. While Money Market Funds recorded a year to date net positive flow of N97.5 billion, Bond Funds generated N110.4 billion in net inflows. This is the first time any fund category is generating more positive flows than the Money Market Fund category. The reason could be because yields on bond funds are slightly better than what is obtainable from money market funds. Eurobond funds, recorded N12 billion in positive net flows while Infrastructure fund category saw N27 billion come in.
Performance Indicators: In an apparent justification for the flight to safety, almost all funds under the equity fund category made losses except ACAP Canary Growth fund and PACAM Equity fund. In all, that category of funds has lost an estimated N1.2 billion within the period under review. On the other hand, only 6 out of the 21 Bond funds made losses as that category of funds gathered an estimated gain of N3.5 billion. Eurobond funds seem to be basking in the euphoria of Naira devaluation as they gain massively from what is lost from the value erosion in the Naira. The Eurobond category generated an estimated N9.8 billion from January to May 15th 2020. It does look like this category of fund may be a good hedge against Naira devaluation. Much of the gains however, came from Stanbic IBTC Dollar fund and United Capital Euro Bond fund.
Though there are pockets of gains by some funds, most of the categories made lose within the period under review, arising mostly from their increased exposure to the equity market.
Elsewhere in the World: This trend does not seem to be peculiar to Nigeria. Recent news from Canada indicates that Canadian Pension Plans defied the COVID-19 menace and added $17 billion to increase the total net asset value to $409 billion, as at March 31st 2020. Like the Nigerian mutual fund story, $5.5 billion of the increase in Canada’s pension plans came from contributions or net flows while $12.1 billion was as a result of positive performance.
Future Expectations: The year 2020 is still too young and the world economy too volatile for credible prediction, one can therefore not say with great certainty if the yield driven funds like the Bond Funds and Money Market Funds will maintain the momentum in generating positive gains. In terms of generating positive net flows, it does look like that trend will continue till the end of the year when it becomes clearer what direction the world economy will be heading to following the devastating effects of COVID-19. Until then, we are watching.
- This analysis is based solely on data obtained and obtainable from the Security and Exchange Commission, Nigeria
Why Nigeria’s banking stocks performed well in May
Many portfolio investors were unable to move their money from the country due to FX limitations. So, they reinvested.
Virtually all the banks listed on the Nigerian Stock Exchange (NSE) witnessed varying degrees of growth in their share price during the month of May. Besides Union Bank of Nigeria Plc which declined by 0.7% and Aso Savings and Loans Plc which recorded no price movement, all the other banking stocks recorded increases according to checks by Nairametrics Research.
Best banking stocks in May
The best-performing banking stock for the month was Jaiz Bank Plc. The share price increased by 27.3% to N0.70, up from N0.55 in April. This is followed by Stanbic IBTC Holdings Plc which rose by 25.6%. Zenith Bank Plc and Unity Bank Plc both gained by 18.2%, followed by FBN Holdings Plc which rose by 16.3% and then Ecobank Transnational Incorporated with 14.6%.
See the rest of the banks and their share price performances in the chart below.
The factors responsible for the positive performance, starting with CBN’s FX restrictions
Interestingly, the positive returns for Nigerians banks may not be linked to any tangible fundamentals. According to Investment Advisor and Fixed Income expert, Ighodaro Alonge, these banks are significantly undervalued and operate in a very challenging economy. He told Nairametrics that one of the factors responsible for the positive performance of the banking index was the fact that many portfolio investors were unable to move their money from the country due to FX limitations. So, they reinvested.
“Fundamentally, the Nigerian banking system is not what is really driving performance. What is driving performance is more from investments that cannot exit the Nigerian market due to the backlog of FX demands. There’s a backlog of FX demands at the Investors & Exporters window of about $1.5 billion. Those monies have not been able to leave Nigeria. So, some of them have had to roll their money back into the stock market,” Alonge said.
Equity Trader, Kenneth Kanebi, shared a similar point of view. In a separate phone interview with Nairametrics, he explained that given the very sparse FX liquidity due to the fall in oil prices and also the Coronavirus pandemic, Nigeria was not getting as much FX revenue as it used to get in the past. As a result, the country’s obligation to foreign portfolio investors who invested in Nigeria, sold their assets, and were looking to repatriate funds, could not be met.
“A couple of these foreign portfolio investors have had their money trapped since March when the CBN restricted the sale of dollars on the I&E window. A couple of these investors have also earned dividends within that period. And what we believe is that they began to reinvest in the market. Hence, the demand we saw in the likes of GTB,” he said.
Some maturing financial instruments found their way to the equities market
In an emailed response to Nairametrics’ inquiries, the Head of Retail Business at CSL Stockbrokers Limited, Ifeoma Ukwunna, noted that “maturing debt instruments found their way into the equity market rather than being rolled over at very low-interest rates, and banks were their favorites.”
On his part, Kenneth Kanebi also explained the role played by OMO maturities. He said:
“OMO maturities also played a huge role. This is because the investments that are maturing cannot be reinvested in OMO given the new CBN policy. So, we believe that some of that naira inflow found their way into the equities market now that there are limited opportunities to invest in. Secondly, the few domestic investors that tried to use NTBs as substitutes for the OMO bills have realised that because of huge demands, the yield on NTBs crashed significantly. So, for a few of these guys, the only option available was equities.”
Global influence on the Nigerian bourse
It should be noted, at this point, that the performance of the Nigerian stock market in May, was in tandem with global trends. Across major markets in North America, Europe, Asia, and Sub-Saharan Africa, the prices of equities increased. As Ighodaro Alonge explained, this can be attributed to what he described as ‘central banks’ liquidity’. In other words, central banks around the world, especially the U.S Federal Reserve, pumped liquidity into the system. He explained:
“In May, equity prices rose across the globe. We saw that reflect in Nigeria across the board. What was fueling the rise in asset prices is Central Banks’ liquidity. The amount of liquidity pumped into the system by the U.S Federal Reserve between March and April has gotten to about $3 trillion. They pumped in about $3 trillion into buying a range of assets such as US Government bonds, U.S-backed mortgage securities, and even investment-grade corporate bonds. So, the liquidity helped assets to climb upwards.
“Now, whatever obtains within the U.S market usually tends to happen across the globe. The U.S makes up about 40% of the global stock market capitalisation. So, the U.S direction tends to sway the global market either upwards or downwards. Therefore, because the U.S market has been bullish, the Nigerian market was also bullish.”
Impacts of COVID-19, crude oil prices and more
In her emailed response, Ifeoma Ukwunna also attributed the rally on the NSE to the COVID-19 pandemic and fall in crude oil prices. According to her, the pandemic, oil price decline, and asset sell-offs by foreign investors all led to stock prices declining initially. As bad as this was, it also presented an opportunity for other investors buy up value stocks; including a lot of the banking stocks. She, however, forewarned that the rally may not be sustainable.
“With the outbreak of COVID-19, fall in crude oil prices, and sale programme activated by foreign investors in Q4 2019, most stock prices dropped sharply in February and March. The banking index in particular fell by 15.59% and 21.56% respectively, presenting a good opportunity for bargain hunters to pick up value names.
“We doubt the trend will be sustained going into this quarter, with the IMF’s call for banks to call off dividend payments. The CBN hasn’t said anything to the effect as there are already existing conditions to be met for dividend payments. Investors will react negatively if the CBN advocates the same.”