Pension Fund Index record 44% gains YTD in stock market rally

The Nigerian Pension Fund Index gained a whopping 16% in the month of June as investor sentiments sent stocks soaring to record highs.

The NGX data also shows the Pension Fund Index has returned a whopping 44% YTD or 88% in annualized returns one of the best six months since we started tracking the index performance.

The NGX Pension Fund Index in Nigeria is a benchmark that monitors the progress of pension fund assets under management (AUM) in the country. Its purpose is to serve as a standard for evaluating the performance of pension fund investments in Nigeria.

The index comprises highly capitalized and easily tradable stocks that are prevalent in the pension fund industry. They include heavyweights like the FUGAZ, SWOOTs, etc.

According to the NGX, The NGX pension tracks the top 40 companies in terms of market capitalization and liquidity. The positive performance of the index is likely to benefit pension fund contributors, especially those who select aggressive fund categories.

The performance of the pension funds in the first half of the year is also likely to lead to a windfall for pension fund administrators who earn fees from their assets under management.

This performance does not also come as a surprise as about 116 stocks out of 157 posted positive gains in the month YTD June 30th, 2023. Out of the 116 stocks that posted positive gains, about 103 posted double-digit gains. Another 84 stocks beat inflation most of which are captured in the pension fund index.

Will Fund I gain?

Whilst this performance will boost returns and AUMs for pension funds, data from Pencom for the month of March shows only about 6.69% of the N15.5 trillion in net asset value of all pension funds is invested in the stock market.

Records from Pencom also show PFA’s added N127 billion to invest in equities in the first quarter of 2023 up by 16%. It is likely that the allocation may have increased in the second quarter of the year as investors anticipate a smooth transition of power.

However, it is unlikely to have surpassed 10% as most of their funds are allocated to safe fixed-income instruments, despite offering lower yields. Records also show yields for fixed-income securities have been delivering negative real returns as the inflation rate jumped to 22.4%.

Pension Funds have a limit to how much of their funds they can allocate to equities. According to the Pencom regulations Funds I, II, III, IV, V, and VI can only allocate a maximum of 30%, 25%, 10%, 5%, 5%, and 25% respectively.

Pencom records also show the RSA Fund II, which is the default RSA Fund under the Multi-Fund Structure, maintained the largest share of the Active RSA Funds as it represented 60.15% of the RSA ‘Active’ Funds. The RSA Fund Fund III is next with 38.74%. Meanwhile, the more aggressive RSA Fund 1 had just 0.79%

Thus, Fund I which is suitable for young contributors who have a long-term investment horizon and can tolerate high volatility, will likely miss out on the gains recorded in June.