Where to invest N100 million today

With the current inflation rate at 18.60%, a 65-month high, fund managers and investors alike have a tall order to at least make returns at par with the current inflation rate in a bid to push the quantity of money to maintain the same value of money.

In a bid to combat the ever-increasing inflation rate, the Central Bank of Nigeria (CBN) has gone into full gear in implementing contractionary monetary policies. Just recently, the CBN, through its Governor, increased the Monetary Policy Rate (MPR) to 14% from 13%. This is the second increment in just two months, indicating the CBNs objective to combat the current inflationary crisis the economy is facing. The CBN has increased the MPR rate by 250 basis points in just two months.

Due to these current economic realities, many are wondering what asset classes they could invest in that would at least match up with the current inflation rate. Nairametrics reached out to investment banks and also experts to help answer this question.

Norrenberger

Norrenberger is an Integrated Financial Services Group that provides individuals and institutions with a range of financial products and services in asset management, investment banking and securities trading tailored to meet our diverse investors needs and expectations.

Nairametrics was able to speak to Dr. Oladipupo Tijani, who heads the Business Advisory arm of the company and Abigail Utomi, who is the Head of the Asset Management arm of the company.

According to Dr. Oladipupo Tijani, he explained that investors should look to dollar-denominated assets such as sovereign and corporate Eurobonds, Eurobonds denominated mutual funds, and stocks. He stated, With the further hike in the CBN Monetary Policy Rate (MPR) by 100 basis points to 14%, the second straight increase this year, the cost of borrowing is expected to rise further. Given that the lending situation is already very tight, cost of credit to the few beneficiaries of the banks will increase, and in turn, impact operating costs, product prices and profit margins.

“While the equities market may be adversely impacted, yields had been trending higher lately due to dearth of liquidity in the market on the fixed income side. With Naira recording the second worst quarter of depreciation in Q2 2022, inflation and currency risk are twin realities now. Investors should look to dollar-denominated assets such as sovereign and corporate Eurobonds, Eurobonds denominated mutual funds and stocks.”

He further mentioned that fixed income yields are likely to go higher. He explained, “Even though coupon payments are expected within the week which might temporarily moderate the expected hike, the market is likely to react with yields trending higher. Hence, keeping your money in short-term bonds is a similar strategy to maintaining cash or savings accounts. Your money is safe and accessible. As the rise in inflation fuels higher interest rates, short-term bonds are more resilient whereas long-term bonds will suffer losses. For this reason, it is best to stick with short- to intermediate-term bonds and avoid anything long-term-focused. Investors can also reinvest short-term bonds at higher interest rates as bonds mature.”

For real estate investments, Tijani opined that “traditionally it (real state) does well during periods of higher inflation, as the value of a property can increase. Rent rates are already on the uprise in most parts of the country, on the back of increased raw materials inputs. This in turn increases their income so it is on pace with the rising inflation. Beyond home ownership, real estate investments can be made through REITs (also known as Real Estate Investment Trusts) or through mutual funds that invest in REITs.”

He also spoke on other assets and he explained, Prices for raw materials like oil, metals and agricultural products usually increase along with inflation, so stock ownership in these sectors can be a good hedge against it.

Digital marketing (SEO expertise, content writing, professional blogging, amongst others) is increasingly becoming popular in creating dollar-denominated assets while maintaining living standards in Naira. This form of personal development-based investment is a good hedge against inflation and currency exchange risks.

“Cash is often overlooked as an inflation hedge. While cash is not a growth asset, it will usually keep up with inflation in nominal terms if inflation is accompanied by rising short-term interest rates as currently experienced. We encourage keeping some cash in high-yield money market funds. Setting aside six to nine months for single-income households and six months of cash for two-income households will be a good hedge.”

Abigail Utomi also favoured dollar-dominated and fixed-income investments, giving them a weight of 30% each. He stated, Rising Inflation and currency devaluation is a major consideration for anyone investing in Naira. With inflation currently at 18.62% and the weakening of the Naira, investment choices should be centred around protecting the value of money against the adverse effect of inflation and currency devaluation.

• Equities: The global market has seen prices of stocks plunge over the last few months. Picking stocks that are seemingly undervalued with good dividend yields would provide good returns for investors. Recommended allocation, 20%.

• Real Estate/REITs: Real estate is generally classified as an inflation-indexed investment. A portion/investment in high-quality real estate could provide steady income and increased future value. Recommended allocation; 10%.

• Fixed Income: Currently, yields on fixed income instruments are on the rise. FGN Bonds yields have increased significantly compared to the previous year. This could serve to reduce the overall risk of the portfolio as returns are guaranteed. This should include CPs and short tenor bonds. Recommended allocation of 30%.

• “Mutual Funds: It is important to have some emergency fund. It is advisable to have some positions in near cash/risk-free investments such as mutual funds. This will serve as liquidity as well. Recommended allocation is 10%.”

She concluded stated, “In all of this, it is important to consider your risk appetite and horizon before making any investments decision.”

Planet Capital

Planet Capital Limited is a boutique investment banking firm duly registered and licensed by the SEC as an Issuing House, Financial Adviser, Underwriter, Broker/Dealer on NSE, Listing Member of FMDQ, and the NASD OTC Securities Exchange.

Nairametrics was able to speak to Dr. Paul Uzum (Phd Finance, ACCA, ACS), who is the Assistant Vice President and Head of Securities Trading at the firm.

In his opinion, he would invest all the money in the stock market and particularly, he would invest 60% of the N100 million in banking stocks. He explained, With N100m today, I will invest 60% in the most liquid segment of the stock market (Banking) spreading the investment among the four most profitable banks – GT CO (20%), Zenith Bank (20%), Access (10%) and UBA (10%). These stocks are poorly priced at the moment due to heavy sell pressure from Internationals. Despite the tough macroeconomic conditions these banks have shown resilience in performance posting fantastic profits which will only get better as economic conditions improve.

“They will give you an average of 13% dividend yield at current prices. More so the spike in MPR by the CBN by 250 bps is a plus for Banks with a huge pile of deposits, it means higher interest income. Again, given that they have a large stockpile of FX in their balance sheet, and having the first line access to CBN forex sales, it means they would be recording huge profits from FX translation gain when the Naira would eventually be floated by the post-Buhari regime.”

For the remaining 40%, he stated, The remaining 40% will be invested in Nigerian Breweries (15%), Wapco (10%) and Total (15%). The breweries sector has recorded significant improvement in recent times, returning to the performance levels pre-Buhari regime. In the last quarterly financials published by companies, Guinness posted about N7 as EPS in its Q3 financials, while NB posted N1.8 as EPS. International Breweries showed signs of exiting losses. I think these companies have taken advantage of the rising inflation rate in Nigeria to effectively increase margins whilst keeping costs under control. While Guinness has been fairly priced, NB and International Breweries would be right-priced by investors after the release of their Q2 and Q3 financials.

Wapco at N26 is poorly priced relative to the performance of other listed companies in that sector. Using the P/E ratio for Dangote Cement to value Wapco gives it a fair value in excess of N40. Therefore, I would be content with a 8% dividend yield on the stock pending when it is right priced by the market.

“Smart investors are also taking a long-term position in Total. Total Posted an EPS of about N49 last year and paid over N22 as a dividend. This year their Q1 has shown that they have the capacity to replicate a similar performance in 2022. The company has the second largest EPS in the market, only after Nestle. With the coming total deregulation in the downstream sector coming with the takeoff of Dangote Refinery, and a switch to a market-driven presidency from an Atiku, Tinubu or Obi in 2023, Totals profitability would expand significantly.”

Kudy Financials

Kudy Financials is a leading global digital asset management firm for clients seeking exposure to emerging and frontier markets. Powered by technology, they offer high-end investment products, services and solutions to meet the needs of all their clients.

Nairametrics was able to speak with Temisan Agbajoh, the Head, Digital Asset Desk at the firm and he had this to say about where to invest N100 million today. He stated, Let‘s say you have 100,000,000 Naira, in today’s market. In January this was equivalent to $200,000, today this is worth $161,290. That‘s a negative performance of -19.3%, but you already know that. Couple it with the recorded local inflation at 18% and the ever-increasing cost of living, because we are an import-focused nation and there aren’t many places to protect your savings in Naira anymore. However, there are some key investment strategies that dont fail and coupled with the current uncertainty in the macro environment, seem to matter even more.

Compound interest is the greatest wealth creator and factors, even more, when you understand the time concept of money. 100 Naira today is worth more than 100 Naira tomorrow. Invest in your future and find a decent investment vehicle that gives you Naira rates higher than the current rate of inflation to remain profitable. Mutual funds are great for this, just be with a portfolio manager that has shown consistent positive returns (even though past performances are no indicators of future performance).

Dollar Cost averaging into stocks and digital assets, especially in a period of downturn will yield you the best results in the long term. Invest when you‘re scared, Sell when you’re euphoric. Look out for companies and digital assets that have clear signs of growth with verifiable cash flow and projections of growth

“Diversify your Portfolio – Never keep all your eggs in one basket, discuss with your financial consultant on the best way to allocate your portfolio for the long term. There is a basket of investment vehicles that are secure stores of value. Gold, Real Estate, Stocks, Bonds, Treasury Bills. Each with varying degrees of risk and returns, your portfolio should be created with this in mind and capital protection should be the watchword as you begin your investment journey.”

He concluded by stating, “Protect your capital, accumulate and build out your portfolio with a clear understanding of the risks and hedge accordingly. This should help you sleep well at night, especially with the fight against inflation.”