Capital Markets

Pension scheme returns double on resurgent NSE

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Zamara chief executive Sundeep Raichura. FILE PHOTO | NMG

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Summary

  • The rally in large stocks at the Nairobi bourse doubled returns of pension funds in the second quarter.
  • Returns from their equities investments grew by 11.7 percent during the quarter, boosting the overall returns to 5.2 percent from 2.6 percent in the first quarter of the year.

The rally in large stocks at the Nairobi bourse doubled returns of pension funds in the second quarter, offering relief to contributors whose savings have been ravaged by inflation.

Returns from their equities investments grew by 11.7 percent during the quarter, boosting the overall returns to 5.2 percent from 2.6 percent in the first quarter of the year, analyses by fund administrator Zamara and the Actuarial Services East Africa shows.

Average month-on-month inflation growth in the quarter stood at 0.01 percent, while annualised inflation averaged 5.98 percent in the period.

The top four listed companies by market capitalisation — Safaricom, Equity Bank, EABL, and KCB — have seen their share prices rise by between 16 and 35 percent since January. They account for 78.5 percent of all the investor wealth at the stock market and the bulk of pension fund investments in the equities sector.

“The positive returns were as a result of an increase in the equities returns majorly as a result of the gradual economic recovery as investor sentiment improved due to the distribution of the Covid-19 vaccine,” said Actuarial Services East Africa in their report.

The pension funds, therefore, increased their exposure to equities while cutting back slightly on fixed-income investments, which however remain the largest investment class on their portfolios.

Zamara’s analysis found that the average scheme has increased its equities exposure to 22.5 percent of the total assets. In quarter one, they averaged 21.8 percent.

Zamara surveyed 424 schemes with a total of Sh976.8 billion of assets under management, while Actserv’s survey covered 426 schemes with a total fund value of Sh1.015 trillion.

Fixed-income assets, which account for 71.2 percent of all assets, gave the pension funds a return of 3.3 percent during the quarter.

They mainly consist of government securities and have kept flat in the growth of returns due to the stable rates on long-term bonds, which are a favourite of pension funds.

Shares have proven a volatile investment option for pension funds over the past 10 years, with annualised returns as of June, ranging from -17 percent (in 2016) to 50 percent (in 2013), hence the allocation of a large part of the assets to the more stable fixed income.

Offshore investment returns in the quarter were also relatively high at 10.7 percent on average but exposure to this line of investments remains very low among Kenyan pension funds at just 1.2 percent of total assets under management.