PFAs Staked  N13.4trn on Undervalued Stocks, Long-term FGN Securities in 2023

Kayode Tokede

Driven by gains from undervalued stocks and yield on long-term/short Federal Government securities, Pension Fund Administrators (PFAs) increased their exposure in equities and government papers to N13.4trillion in 2023 from N10.55 trillion reported in 2022. 

This represents an increase of 28 per cent or N2.94 trillion in 2023, as revealed by National Pension Commission (PenCom) in its latest PFAs portfolio report

FGN Securities comprises of FG Bonds (HTM), Treasury Bills, Agency Bonds (NMRC), Sukuk Bonds and Green Bonds.

According to PenCom, PFAs exposure in stocks and FGN Securities contributed 73.5 per cent out of the N18.36trillion current net asset value as of December 2023.

Also, the PFAs exposure in the stock market impacted on the N13 trillion in market capitalisation and 45.9 per cent growth in Nigerian Exchange Limited All-Share Index (NGX All-Share Index) in 2023. 

Consequently, NGX Pension Index increased to 3,241.03 basis points in 2023, gaining 90.8 per cent or 1,792.58 basis points from 1,448.45 basis points it closed in 2022.            

The PFAs drove domestic participation in the stock market in 2023 to N3.17triillion while foreign investors stake stood at N410.62billion in the year under review.

Capital market analysts believe PFAs benefited from the undervalued stocks and renewed investors’ confidence in the stock market. 

They expressed fthat the pension industry has been recording significant growth in recent years, following several regulatory reforms by PenCom, which has seen the number of PFAs in the industry reduce as a result of some mergers and acquisitions.

Responding to PFAs exposure in the stock market, the CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka explained that PFAs and investors reacted to low prices of some fundamental stocks on the exchange.

According to him, “Prices had become too low to resist, and this happened because of prolonged repricing of securities across markets and instruments, pushing down stock prices below the levels they should ordinarily be.

“It also demonstrates improved earning capacities of some listed companies, as they continue to adjust to variability of costs and cost pressures in the short run, in order to stay afloat. Another factor is the usual positioning and repositioning for year-end rally by investors, as some companies begin to show strong earnings’ prospects ahead of full year results.”

On his part, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose told THISDAY that low pricing of some fundamental stocks and portfolio rebalancing contributed to PFAs renewed interest in stocks.

He said, “The PFAs do not take trade in the stocks with a speculative report as they trade long-term. Attractive revaluation led to PFAs renewed exposure in the stock market.”

Also speaking, the Vice President, Highcap Securities, Mr. David Adonri acknowledged the PFAs’ role in lifting the stock market, stressing that some PFAs opted to invest in the stock market.

He noted that, “As long as the Nigerian economy continues its current trajectory of stability and growth, the pension industry’s assets in the stock market are likely to remain robust. However, it’s essential to remain vigilant and take a cautious approach. Financial markets can be inherently volatile, and it’s crucial for PFAs to maintain a balanced and diversified. The surge in PFAs assets in Nigerian stock market, in tandem with the broader growth of the pension industry, suggests a positive outlook for both pension fund managers and the Nigerian stock market.”

On the backdrop of PFAs exposure, the management of the Exchange said it is collaborating with PenCom  to launched the NGX Pension Broad Index, meant to provide a broader benchmark for stocks investment by the pension industry.

The NGX Pension Broad Index is designed to track the performance of equity securities that adhere strictly to the profitability and dividend payment criteria, along with other parameters specifically tailored to the pension industry. With an all-encompassing approach, the index imposes no limits or caps on the number of stocks it can include as constituents.

Currently featuring 84 equities, the NGX Pension Broad Index aligns seamlessly with the provisions of the Pension Reform Act of 2014 and the Amended Regulation on the Investment of Pension Fund Assets proposed by PenCom.

The NGX Pension Broad Index has exhibited robust performance since its launch last year. The index stands out for its well-diversified composition, encompassing high-quality stocks across key sectors, including Banking, Insurance, Oil & Gas, Consumer Goods, and Industrial Goods.