Tuesday, December 21, 2021 / 09:45 AM / by Coronation Research / Header Image Credit: iStock
How does active portfolio management work? The best way to answer this question is to show a performance attribution model, comparing a passive investment approach with an active one. Our Model Equity Portfolio has such performance attribution. As readers will read below, we have had ups and downs in 2021; fortunately, more up than down
FX
Last week, the exchange rate at the Investors and Exporters Window (I&E Window) weakened by 0.01% to close at N415.07/US$1. The continued interventions of the Central Bank of Nigeria in the FX markets have brought about a further, albeit modest, decline in its foreign exchange (FX) reserves by 0.48% on the week to US$40.69bn – the lowest level since 20 October 2021. However, the level of FX reserves remains high in historical terms, and therefore the position of the CBN looks strong. It seems likely that stability will be maintained in the I&E and NAFEX rates going into next year.
Bonds & T-bills
Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market was mixed but with a bullish tilt. While investors remained mainly on the sidelines in the secondary market, the bond primary auction took center stage. As a result, the average benchmark yield for bonds fell by a marginal 2bps to 11.55%. Hence, the yield on the 3-year (- 3bps to 9.28%) bond tightened while the 10-year bond (+3bps to 12.59%) yield expanded; the yield on the 7-year bond (12.44%) closed flat. At the Bond primary auction, the Debt Management Office (DMO) allotted N98.80bn (US$238.23m) to investors across the January 2026 and April 2037 bonds. The marginal yield on the January 2026 bond settled at 11.65%, while the yield on the April 2037 bond expanded by 15bps to 13.10%. However, demand at the auction was weak, as a total subscription of N132.61bn – lowest since December 2020 – was recorded, implying a bid-to-offer ratio of 1.32x (versus an average of 1.97x at prior auctions in 2021). Both the monetary authorities and the DMO appear content with these yields, and we do not see any significant rises on the horizon.
Similarly, trading in the Treasury Bill (T-Bill) secondary market was mixed, as the average benchmark yield for T-bills was flat at 4.49%. The yield on a 342-day T-bill shed 1bp to close at 5.63%. […]