Centum Investment Company scaled back its exposure to equities in its marketable securities portfolio (MSP) in the year ending March 2022 as it sought to protect returns against the erosion of share prices at the stock exchange.
The investment firm said in its annual report that the MSP portfolio of cash securities, which is managed by Centum’s asset management subsidiary Nabo Capital, yielded a return of 14 per cent in the period, up from 13.1 per cent in 2021.
The exposure to equities was cut from seven per cent in the previous year to about one per cent in the period under review, reflecting a shift from the bourse whose benchmark NSE 20 Share index shed four per cent in the period.
“The marketable securities portfolio was valued at Sh7.2 billion at close of the 2022 financial year. The portfolio allocation during the financial year was strongly biased towards fixed-income securities (government and corporate debt). The portfolio yielded a return of 14 per cent, outperforming the NSE 20 index by 18 per cent,” said Centum in its 2022 annual report.
“The rationale of this portfolio is to generate recurrent and consistent cash income that supports the liquidity requirements of the company given that the significant source of return from the growth portfolio is in the form of capital uplifts at the point of exit as opposed to annuity income….A core tenet is that majority of the cash generated by the portfolio is uncorrelated with cash flows of other businesses.”
Other investments in this portfolio mix include cash and cash equivalents and investments in other unit trusts.
In the period, investments in corporate paper rose from 32 per cent to 40 per cent, while those in government bonds were cut from 45 per cent to 35 per cent.
Cash and cash equivalents rose from 11 per cent to 16 per cent, while investments in unit trust went up from five per cent to eight per cent of the total portfolio.
The stock market has been underperforming since 2020 and has come under further pressure this year due to capital flight from emerging markets following a rise in interest rates in developed markets such as the US which are battling high inflation.