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Fixed income investments outperform equities in 2018

As trading on Ghana’s financial markets winds down as the end of year festivities commence, equity investors are looking at their counterparts who invested primarily in fixed income securities in 2018 with envious eyes.

This is because, fixed income securities, comprising government treasury bills, notes and bonds, as well as fixed deposits, commercial paper and bonds issued by banks and private sector enterprises have completely outperformed equities listed on the Ghana Stock Exchange.

The situation has been replicated among the licensed collective schemes – mutual funds and unit trust schemes – where money market and fixed income funds have far outperformed equity funds and balanced funds as well, the yields delivered by the latter having been dampened by their respective equity portfolio components.

As at December 17, only five out of the 40 equities listed on the Ghana Stock Exchange had delivered year to date capital gains (from appreciation of their respective share prices) which were higher than the yields on 91 and 182 treasury bills which currently are 13.6 per cent and 14.4 per cent respectively.

Those were Ghana Oil Company Limited (GOIL) with year to date returns of 18.96 per cent; Starwin Pharmaceuticals at 33.33 per cent; Unilever Ghana at 38.47 per cent; Mechanical Lloyd at 66.67 per cent; and Golden Star Resources at 400 per cent.

This reflects just how poorly equity investors on the GSE fared in general. By December 17, the stockmarket’s composite index had fallen by 1.41 percent from its level at the start of the year and the financial index had done even worse, falling by 9.04 per cent.

However, the seeming wide difference in performance between fixed income securities and equities was narrowed somewhat by the dividends payouts that shareholders in some of the listed companies received during the year.

The superiority of the performance of the fixed income market over the equities market reflected just as vividly in the fortunes of both mutual funds and unit trust schemes.

As at the beginning of December, only three equity funds out of the 11 tracked by Goldstreet Business had delivered year to date returns that beat the yields on 91 day and 182 day treasury bills, these being the Dalex Vision fund (24.38 per cent), the Gold Fund (19.87 per cent) and the Legacy Trust Fund (16.89 per cent).

Similarly, out of the 12 balanced funds tracked by Goldstreet, only three beat the yields on short term treasury bills; these being the CDH Balanced Fund (18.58 per cent), the CM Fund (18.57 per cent) and the UMB Balanced Fund (16.97 per cent).

Instructively though, all nine money market and fixed income funds tracked by this newspaper outperformed both the 91 day and 182 day treasury bill rates.

This means that as the year turns many equity investors will be looking to move into fixed income securities although some astute ones will be waiting for the equity market to bottom out and eventually begin rising again, providing the next round of strong capital gains for patient investors who take a long term position on the stock market.

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