Coronation Research today published its report on the Nigerian Investment landscape titled ‘Navigating the Capital Market: the Investor’s Dilemma’. The revolutionary report studies the Nigerian investment scene over a 10-year period and finds how Nigerians have managed to preserve their capital over the long term. Some of the conclusions are surprising. For example, it has been remarkably easy to beat inflation over the last 10-years by buying Federal Government of Nigeria Treasury Bills. However, with the crash in interest rates in the first half of 2020, this era has come to an abrupt end.
By contrast, equity market returns have not preserved capital for investors over the long term, even when adding back the generous dividends paid to investors. By looking at the internal profitability of stock exchange-listed companies, ‘Navigating the Capital Market’ identifies which stocks are the ones most likely to generate satisfactory returns for their owners, and back-tests the results.
“Nigerian investors are faced with difficult choices,” says Guy Czartoryski, Head of Research at Coronation Asset Management, “as interest rates have crashed. The alternatives are either to simply wait for rates to rise again in future, or to accept more risk in order to increase returns. But, to do that, they need to increase their understanding of risk.”
‘Navigating the Capital Market’ takes a new approach to setting investment return benchmarks. Instead of targeting inflation, which is the conventional benchmark, it recommends that investors should aim to beat the effects of Naira devaluation against the US dollar, and obtain the risk-free return they would have in US dollars. This suggests that they should ask for Naira risk-free fixed-income (or Treasury bill) return of 14.7% per annum over the long term. And, when it comes to equities, Coronation Research calculates that Nigerian investors should demand a return of 20.5% per annum. These are high benchmarks, but they show what is necessary to preserve the value of investors’ hard-earned money.
Coronation Research’s investor feedback shows that Nigerian investors have two concerns. The first is inflation. The second is not to lose money in investment schemes. And with fixed-income and bank deposit rates at record lows, and far below the rate of inflation at 12.4%, investors are being tempted to take risks again. Yet the priority now is for them to understand what those risks are, and how they can be managed. ‘Navigating the Capital Market’ is their guide to these challenging times.
Coronation Asset Management Limited, incorporated on 2 October 2015, is registered with the Securities and Exchange Commission (SEC) to provide fund and portfolio management services to institutions and individuals. Coronation Asset Management offers full-fledged investment services across various asset classes to the entire spectrum of investors: major institutions, smaller niche institutions & corporates, public sector family offices, cooperatives and high net-worth individuals.
Our Services include fund solutions (money market fund, fixed income fund and balanced fund), portfolio management (discretionary and non-discretionary), advisory services as well as fund administration and trustee services offered through its subsidiary, Coronation Trustees Limited.
Coronation was recently awarded the Fastest Growing Fund Management Company in Nigeria at the 2020 Global Banking & Finance Awards.