In the recently released monthly report of the National Pension Commission (PENCOM) for the month of August 2021, Net Asset Value grew 0.9% m/m. There were however some re-arrangements in the portfolio of assets held by Pension Fund Administrators in August. While positions in equities (down 1.5% m/m) and mutual funds (down 69.8% m/m) declined between July and August, PFAs increased their holdings in FGN securities (up 1.1% m/m), corporate debt securities (up 0.3% m/m) and local money market funds (up 0.7% m/m) in the period. We observed that the improved traction for Fixed Income (FI) Instruments in Q3 2021 was driven by the expectation of contracting yields within the space.
Analysis of investments in FGN Securities, showed that of the six securities under the segment, only Agency Bonds recorded a marginal (up 7.1% m/m) growth from N13.54bn in July to N14.51bn in August. In addition, investments in the local money market were mixed. While bank placements reduced by 2.3% m/m from N2.11bn in July to N2.12bn in August, PFAs ramped up their commercial paper position, up 101.1% m/m from N62.26bn in July to N125.17bn in August. For Mutual Funds, the PFAs significantly divested from the Real Estate Investment Trusts (REIT) positions, evidenced by the 96.8% m/m slide in their holdings to N2.63bn. The PFAs also reduced their positions in open/close-end funds by 1.2% m/m from N32.87bn to N32.49bn in the period.
Looking ahead, we expect the September report to show the same trend as seen in August, given that market conditions have remained relatively stable - expectations of yield contraction are still rife making the FGN securities even more attractive. Specifically, we expect PFAs to tilt towards holding long term FGN Securities for trading.