Asset allocation to the money market took the shine off other asset classes in the three months to May 2014, portfolio managers’ asset mix shows.
Between February and May 2014, portfolio managers remarkably raised their bets in favour of the money market, followed by equities, bonds, and other asset classes.
Portfolio managers increased their allocation to the money market from 8.7 percent in February to 16.1 percent in May, while their allocation to equities which was 13.1 percent as at February was increased slightly to 13.9 percent in May, according to data from the Financial Derivatives Company Limited (FDC).
Analysts at FDC list the risks limiting the market to include the local currency which remains under pressure; economic and political uncertainty, which continues to limit deals; continued pessimism on the side of foreign investors, and the ongoing Boko Haram insurgency in parts of northern Nigeria, which is hampering consumer demand and increasing the cost of goods.
Other factors listed by these analysts are the slowing United States economy and stimulus tightening which may carry over emerging and frontier equities.
There was a decline in portfolio managers’ allocation to FGN bonds from 50.5 percent to 47 percent, while allocation to treasury bills (T-bills) was down from 18.8 percent of their total allocation to asset classes as at February, to 14.5 percent in May.
Also, allocation to mutual funds, which represented 0.7 percent of their February allocation to asset classes, was reduced to 0.5 percent.
According to FDC analysts, portfolio managers’ asset allocation to mutual funds and bonds declined following lower rates. They added that there still existed a disconnect between the equities market and the economy.
“In the just concluded month, about 16 percent of portfolio managers’ assets tilted towards money market instruments. This is on the back of attractive yields in that space and good economic fundamentals,” said Kayode Omosebi, market analyst at UBA Capital.
Furthermore, the asset mix of portfolio managers shows that their allocation to state bonds dropped from 5.5 to 4.9 percent, while that of corporate bond declined in the same three-month period from 1.8 percent to 1.6 percent.
Portfolio managers retained their bet in real estate assets by 0.5 percent, while the cash they held increased from 0.4 percent of their total investible fund in February to 0.7 percent in May.
Abiola Rasaq, analyst at Associated Discount House Limited, attributed the increased investment in money market instruments to stronger investment of fund contributors in money market funds, “given increased awareness on the higher yield and liquidity the funds offer (relative to plain vanilla savings account and/or term deposit offerings of banks)”.
“Interestingly, as the Nigerian public gets more sophisticated, we will see an increased shift from low-yield savings products to ‘proxy checkable’ investment offerings, like money market funds and direct instrument exposures, which offer higher yield and perhaps same or less risk profile, with relative liquidity,” said Rasaq.
“More so, concerns over the weakness of the equity market doused investment of funds in equity market, thus leading to higher exposure to money market assets, especially as most non-pension fund managers remain conservative on bonds, due to the relative illiquidity of bonds and relative challenge of low-volume investors in trading bonds on the secondary market,” he said.
Iheanyi Nwachukwu
