Investment experts have said, currently, investing in equities gives superior returns on investment (RoI).
In a research report tagged ‘Equities for a superior return’ released by Coronation Asset Management. at the weekend, its managing director/CEO,, Aigbovbioise Aig- Imoukhuede, said: “Nigerian listed equities, if properly selected, can deliver an adequate return to investors over the long term.”
The research report, written by Guy Czartoryski and Adebayo Adebanjo of the Research department of the firm, had studied equity returns during the period from 1 January 2016 until now, stating that, “while the performance of the NGX All-Share Index was not strong, the performance of a selection of the most profitable NGX-listed companies has provided superior and inflation-beating returns.”
The return of the NGX All-Share Index from 1 January 2016 to 30 September 2021, the report said, was 40.5 per cent or a compound annual growth rate (CAGR) of 6.15 per cent, noting that, with gross dividends reinvested, that rose to a CAGR of 12.44 per cent.
“But neither return would have beaten inflation over the same period, which averaged 14.26 per cent per annum. However, a basket of 10 NGX-listed companies, each with a long-term and sustainable Return on Equity (RoE) of 20.5 per cent or more, would have delivered an investment return with a CAGR of 16.36 per cent from 1 January 2016 to 30 September 2021. With dividends reinvested, this would have risen to a compound annual growth rate of 24.71 per cent.
“ This basket would have easily beaten inflation of 14.26 per cent giving a compound annual growth rate, in inflation-adjusted terms, of 8.29 per cent. And in US dollar-equivalent terms, the compound annual growth rate would have been 9.71 per cent,” it pointed out.
In the report, Coronation Research highlights the big difference between the performance of the NGX All-Share Index and the same return calculated when dividends are reinvested, the total return. Only with total returns can investors begin to make meaningful long-term gains, it stressed.
For a truly superior return, the experts in the research said. investors need to identify listed companies whose internal Return on Equity (RoE) is high, stressing that, “we stipulate a minimum of 20.5 per cent per annum. Furthermore, this return on equity needs to be sustainable. We found 10 NGX-listed stocks with these characteristics and created a hypothetical portfolio with these stocks in equal weight.”
Coronation Research is a division of Coronation Asset Management which offers full-fledged investment services across various asset classes.