Measuring performance of equities investments
Selecting the right type of investment is just the beginning of your work as an investor. Keeping tabs on your portfolio is an important part of investing. Periodically, you will need to monitor the performance of your investments to see how they are working together in your portfolio to help you progress toward your goals.
Investors can measure performance of their equities investment based on market price return. Indices are common benchmarks used in assessing market return. Indices are statistical indicator of market performance. Market Indices often serve as barometers for a given market and benchmarks against measured financial performance. An index can track the performance of the overall market or it can have a sectorial inclination, focusing on the performance of stocks operating within specific sectors.
A common example from The Nigerian Stock Exchange is the All Share Index (ASI) Return.
Investors can also evaluate companies shares based on the following metrics:
Risk and Return Characteristics of Equities Investment
The relationship between risk and return is often represented by a trade-off. Equities rank high on the risk-return scale. Generally speaking, with Equities, the more risk investors take on, the higher the potential return.
Equities Investments on the Nigerian Stock Exchange
The Nigerian Stock Exchange (NSE) began operations as a platform for listing and trading of securities in 1961. The NSE only traded equities on its platform until 2011 and 2013, when Exchange Traded Funds (ETFs) and Retail bond trading were introduced respectively. Equities on The Exchange are currently classified into 12 sectors- conglomerate, Agriculture, Consumer Goods, Construction/Real Estate, Financial Services, Healthcare, ICT, Industrial Goods, Natural Resources, Oil and Gas, Services and Utilities. Part of the purpose for this classification is to aid investors in portfolio construction and diversification.
There are currently 168 listed companies, 3 REITs and 2 Closed-End Funds. Listed companies are grouped into three boards based on certain requirements- Premium, Main and ASeM boards. To trade equities on the NSE, an investor must go through a registered broker and have a CSCS account. Equity trades settle on day T+3 on The Exchange. Most of the equities listed on the NSE are ordinary shares (common shares), and such shares account for most of the turnover on the exchange.
The NSE provides a well regulated, liquid and efficient secondary market for investors to buy and sell shares of listed companies. To trade your shareholdings in listed companies on the NSE, investors must open a share trading account with a stockbroker who is a licensed dealing member of the NSE
Recent Initiatives on the NSE to Improve Equities Trading
•REITS and Closed-End Funds are being restructured to ensure visibility and tradability of these instruments on The Exchange.
•Market making commenced in 2012, to drive liquidity in the market place, such that investors can enter and exit the market with ease. There are Primary and Supplementary market makers on the NSE.
•Corporate disclosure by listed companies, where timely financial and information disclosures are made via the X-Issuer portal on the NSE’s website.
•The Investor Protection Fund was constituted to compensate investors with genuine claims of pecuniary loss against dealing member firms.
•Direct Cash Settlement was initiated in 2015, to protect investors and eliminate fraudulent activities. To address illegal sales of investors’ securities, nominated accounts are credited directly with the net proceeds of stock market transactions.
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