Centum Investment Company reduced its exposure to stocks in its marketable securities portfolio (MSP) in the fiscal year ending March 2022 in order to preserve returns from share price depreciation 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% over the year, up from 13.1% in 2021.
The exposure to equities was cut from seven per cent in the previous year to about one per cent in the period under review, reflecting a shift from the bourse whose benchmark NSE 20 Share index shed four per cent in the period.
“The marketable securities portfolio was valued at Sh7.2 billion at 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 per cent, outperforming the NSE 20 index by 18 per cent,” 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.”
Other investments in this portfolio mix include cash and cash equivalents and investments in other unit trusts.
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 overall 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 been under additional pressure this year as a result of capital flight from developing nations in response to a rise in interest rates in developed markets such as the United States, which is dealing with rising inflation.
