Centum Investment Company reduced its exposure to equities in its marketable securities portfolio (MSP) in the fiscal year ending March 2022 to protect returns from share price erosion on the stock exchange.
According to Centum’s annual report, the MSP portfolio of cash securities, which is managed by Centum’s asset management subsidiary Nabo Capital, returned 14% during the period, up from 13.1% in 2021.
The exposure to equities was reduced from 7% in the previous year to around 1% in the period under review, reflecting a shift from the bourse, whose benchmark NSE 20 Share index lost 4% during the period.
“The marketable securities portfolio was valued at Kes7.2 billion at the 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 percent, outperforming the NSE 20 index by 18 percent,” 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.”
Cash and cash equivalents, as well as investments in other unit trusts, are also included in this portfolio mix.
During this time, investments in corporate paper increased from 32% to 40%, while investments in government bonds decreased from 45% to 35%.
Cash and cash equivalents increased from 11% to 16% of the total portfolio, while unit trust investments increased from 5% to 8% of the total portfolio.
The stock market has been underperforming since 2020, and it has come under additional pressure this year as a result of capital flight from emerging markets in response to a rise in interest rates in developed markets such as the United States, which is dealing with high inflation.