Amid recent declines of the Ghana Stock Exchange (GSE) benchmark Composite Index (GSE-CI), pension funds’ share of the market has declined from an earlier position in August 2021, the latest data from the exchange have shown.
The November 2021 report to fund managers shows the participation of pensions dropped from the about-seven percent [cumulative] recorded as of June 2021, to four percent as of November 2021.
Chief Investment Officer with Axis Pensions, Nana Boamah, said that despite the low appetite of pension funds for equities, this may not be an issue – given that some pension funds indirectly invest on the market through mutual funds. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of underlying investments.
“Few pension funds have an appetite for equities. What I fear is that a lot of the pension funds are buying indirectly through the mutual funds, especially the balanced mutual funds,” the Chief Investment Officer said.
“So, you may not see direct trades by pension funds, but they may be investing in mutual funds like the EDC Mutual Fund and Databank Mutual Fund. So that, probably, could account for the decline in direct participation on the market.”
Seemingly, the pension funds in Ghana shy away from equities largely due to liquidity of the market – but find mutual funds as the best investment vehicle for their funds. The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.
Mr. Boamah explained this option of investment as one that makes liquidity easily accessible.
“Largely, this is because of liquidity; these pension funds want to get in and out of the market as and when they would want to – which the mutual funds provide easily. But with direct investing on the market, when you want the stocks you may not even get them,” he explained.
“So, I think it has more to do with liquidity than anything else. Our market has always been relatively illiquid. For some stocks, it is difficult to buy shares – such as Fan Milk, Benso Oil Palm Plantation and Total. Liquidity obviously is a problem on our market,” he added.
The recent reversal of fortunes has seen the market lose some GH¢1.9billion in market capitalisation – a 3.19 percent drop from GH¢65.8billion in the middle of November to GH¢63.9billion at the close of trading in the third week of December.
Consequently, the benchmark Composite Index (GSE-CI) year-to-date return has shrunk by about 10 percentage points; from 55.07 percent to 45.18 percent for the past five weeks. This development has been marked by a fall in the share price of market leader MTN, as well as other top performers including oil and gas and financial stocks.