Pension Fund Index Soars to 44% Year-to-Date Gains in Stock Market Rally

The Nigerian Pension Fund Index increased by 16% in June, as optimism among investors pushed stocks rising. According to the NGX statistics, the Pension Fund Index has gained a stunning 44% YTD or 88% in annualized earnings.

The Nigerian NGX Pension Fund Index is a benchmark that tracks the performance of the assets of pension funds under management (AUM) in Nigeria. Its goal is to serve as an indicator for assessing the results of pension fund investments in Nigeria.

The index is made up of well-capitalized and readily traded stocks that are common in the pension fund business. Big names such as the FUGAZ, SWOOTs, and others are among them.

The NGX pension follows the top 40 businesses in terms of market capitalization and funding, according to the NGX. The index's strong performance is expected to assist pension fund contributors, particularly those who choose strong fund categories.

Pension fund performance in Q1 2023 could also result in a gain for pension fund administrators who collect fees on assets under management.

This outcome is expected given that about 116 equities out of 157 achieved positive returns in the month YTD June 30th, 2023. Approximately 103 of the 116 equities that had positive increases posted double-digit gains. Another 84 equities prevailed over inflation, the majority of which are represented in the pension fund index.

While this performance will improve pension fund returns and AUMs, data from Pencom for the month of March reveals that just around 6.69% of the N15.5 trillion in the total assets of all pension funds in Nigeria is invested in the stock market.

According to Pencom data, PFAs contributed N127 billion to invest in stocks in the first quarter of 2023, an increase of 16%. The allocation is anticipated to grow in Q2 2023 in the second quarter of the year, as investors anticipate a change in leadership.

However, it is less likely to have topped 10% since the majority of their money is committed to secure fixed-income products, which give lower rates. Fixed-income rates have also been yielding lower returns as the inflation rate has risen to 22.4%, according to data.

Pension funds are restricted in how much of their assets they may invest in stocks. According to Pencom rules, Funds I, II, III, IV, V, and VI may only invest a total of 30%, 25%, 10%, 5%, 5%, and 25%, respectively.

According to Pencom statistics, the RSA Fund II, which is the default RSA Fund under the Multi-Fund Structure, retained the biggest ratio of the Active RSA Funds, accounting for 60.15% of the RSA Active Funds. The RSA Fund III follows with 38.74%. While the more aggressive RSA Fund I had just 0.79%.

That means Fund I, which is right for youthful contributors with a long-term investment horizon and the ability to bear substantial fluctuation, would most likely lose out on the June gains.