Nigerian pension funds took a major hit in May from the month’s volatile stock markets, suffering a drop in their performance for the first time in a very long while, analysts at Quantitative Financial Analytics have said.
The NSE All Share index fell a record 3,163.43 points or 7.67% to end the month at 38,104.58 from previous month-end value of 41.268.01. This represents the highest month decline for the index this year. Volatility also picked up in May as the market witnessed many gyrations.
Although the Quantitative Financial Analytics NSE Realized volatility index, which stood at 12.6 points by the end of April fell marginally to 11.39 points in May, price movements were much smoother in April than they were in May making the effect of volatility in May to be more telling. Advance/Decline ratio shows that out of the 97 stocks that witnessed price changes in the month, 28 advanced while 69 declined, pointing further to the direction of the market in May.
Unfortunately, that market trend got transmitted into the pension fund space causing pension funds with seemingly high equity exposure to perform poorly. Out of the 19 Retirement Savings Accounts (RSA) being tracked by Quantitative Financial Analytics, 6 of them saw their monthly performance in the red in May while only one out of the 18 Retiree funds suffered a loss.
According to the analysis, the pension funds that suffered the loses are those with equity market exposure of greater than 11% as pension funds that allocated less than 11% of their asset to equities were spared the pain. Though the loses were marginal, the greatest was suffered by Stanbic IBTC RSA pension fund which recorded a performance of -0.58%, followed by APT RSA pension’s -0.48% performance and then ARM RSA pension which had -0.38% return.
While Stanbic IBTC and ARM pension managers allocated an average of 12% of its assets to Equities in May, APT pensions allocated 18% on the average. Though some of the pension funds generated negative performance during the month, they ended up beating the pension index which recorded a whopping negative 9.13% return.
The Good news is that the fund managers know where the issue is coming from and are ready to make amends to ensure that pension funds deliver good performance to their clients. As noted by a representative from APT pension funds, “the Bond portfolio is not marked to the market yet, so the issue is not the falling bond yields. The equities market hasn’t helped our course”.
In agreement with APT pensions’ assertion, a representative from Stanbic IBTC also blamed it on equity market performance as follows, “the SIBTC RSA Fund started the year very strong, posting an annualized return of 22.41% as at 30 April 2018, which was the 2nd best performance in the pension industry for the period.
During the month of May 2018, the Nigerian Pension Index (“ASI”) fell by 9.13%, which is also reflected in the performance of the RSA Funds of PFAs with slightly higher equity exposure, including the SIBTC RSA Fund. However, we believe the drop witnessed in the Pension Index in the month of May 2018 is temporary as the fundamentals of many companies on the index remain strong”
YTD Performance still on Track
The headwind of May might not be much to worry about as the pension funds are still recording good performance on a year to date, (YTD) basis. According to Quantitative Financial Analytics, Stanbic IBTC pension fund managers leads the pack in both the RSA and Retiree fund categories with 6.25% and 7.72% YTD return respectively.
All the pension funds have positive YTD returns that beat the NSE Pension index in almost all the funds. Currently, RSAs have a median YTD return of 5.24% while Retiree Funds show a median return of 5.78%, translating to about 15% in annualized terms. As we move along in the month of June, it is hoped that no month in the year will be like May.