Could these listed companies be classified as foundational stocks?

If you have keenly been following the series on ‘get to know your mutual funds’, you would realise that in each post, the top 5 equity holdings of the fund’s portfolio are highlighted. Interestingly, of the few mutual funds covered so far, there appears to be much similarity in their various top 5 equity holdings. In other words, most of the mutual funds list similar companies as their top 5 equities. Out of curiosity, other mutual funds were also looked into to find out if the similarity trend would remain unchanged. To achieve this, some of the most recent annual reports (where available) of major mutual funds were examined. In all, 19 annual reports were studied, which covered 7 different mutual funds (both equity and balanced funds). The main purpose was to figure out if the topmost equities repeating more frequently in the various mutual funds could be considered as foundational stocks. In doing so, these stocks could become a sort of principal, key or foremost stock picks for investment portfolios. Many would agree, to some extent, that mutual funds are managed professionally by fund managers. Hence, following in the footsteps of these fund managers by replicating some of their top stock picks can be useful.

Why foundational stocks?

Investing in stocks is one of the most proven means to build wealth. However, picking the right stocks from the market can be challenging, especially for the novice investor. One requires a good portfolio mix comprising the right stocks in order to be successful. Just like building a house requires strong foundation to ensure its robustness, building wealth with stocks may equally require careful selection of stocks, in particular, starting with good foundational stocks. A poor foundation can cause your building to tremble or worse, topple down, so do poor foundational stocks can cause to your investment portfolio. Arguably, maintaining strong foundational stocks in your investment portfolio comes with some benefits such as good investment returns. Moreover, strong foundational stocks can somehow protect an investor from the impacts of market falls.

Summary procedure for selecting foundational stocks

As stated earlier, the top 5 equity holdings of seven (7) different mutual funds were compared. The mutual funds were Databank Epack, Databank Bfund, SAS Fortune Fund, HFC Equity trust, HFC Future Plan, CDH Balanced Fund and FirstBanc Heritage Fund. To ensure the use of up-to-date data for decision making, data covering the latest three years (2016, 2015 and 2014) were utilised. The topmost equities frequently appearing in the various mutual funds were preliminary grouped, followed by brief background study of their performances. The table below provides comparison between the top 5 equity holdings of the seven different mutual funds. For detailed (raw) data of the top equity holdings compilation, click on this link: Top five equity holdings of selected mutual funds.


Table 1: Comparison of top 5 equity holdings of selected mutual funds


Mutual fund

Top 5 Ghanaian equity holdings




6 *CDH Balanced Fund CAL, FML, GCB CAL, FML, GCB Fund was not yet established
7 FirstBanC Heritage Fund Annual report not available EGL, EGH, GCB, SCB, SOGEGH EGL, SOGEGH, GCB, TOTAL, GOIL

*CDH invested in only three (3) stocks.

Observations and analysis

From the table above, GCB bank Ltd. (GCB) occurs 18 times out of the 19 studied annual reports. This is followed by Standard Chartered Bank (GH) Ltd. (SCB) which can be counted 13 times out of the 19 annual reports. The rest, in descending order, are Fan Milk Limited (FML), 12 times; Enterprise Group Limited (EGL), 12 times; Ghana Oil Company Limited (GOIL), 10 times; Ecobank Ghana Limited (EGH), 8 times; Total Petroleum Ghana Limited (TOTAL), 7 times; Societe Generale Ghana Limited (SOGEGH), 3 times. CAL Bank Limited (CAL), 3 times; Ecobank Transnational Incorporated (ETI), 2 times; HFC Bank (Ghana) Limited (HFC), 2 times; Mega African Capital Limited (MAC), once.

In total, 12 different stocks could be found in the top five equity holdings of the mutual funds. However, considering the comparatively low occurrences of SOGEGH, CAL, ETI, HFC and MAC, they were delisted, leaving the rest of the seven stocks as the preliminary group for further studies.


Table 2: Preliminary group of foundational stocks

Stock Number of occurrences in top 5 holdings
SCB 13
FML 12
EGL 12

To study further on the above stocks, their historical performance trends were looked into. Simply, two main performance indices were examined- annual returns and dividend yields. It must be noted that stocks with fairly good returns can be indication of investors’ confidence in the companies. Furthermore, while dividend pay-outs provide regular income source, they also signal financial stability of companies. The latest 5-year annual returns and dividend yields of the stocks can be seen in the tables below.


Table 3: Latest 5-year performance results

Company Trading symbol Return, %
2012 2013 2014 2015 2016  Average
1 Enterprise Group Limited EGL 26.3 291.7 -6.9 37.1 0 69.6
2 Fan Milk Limited FML 50.4 86.5 -20.7 40 51.7 41.6
3 Ghana Oil Company Limited GOIL 93.8 43.5 19.1 33.3 -21.4 33.7
4 GCB Bank Limited GCB 13.5 131 13.4 -34.9 -6.1 23.4
5 Ecobank Ghana Limited EGH -6.3 87 35.5 7.6 -8.6 20
6 Standard Chartered Bank (GH) Ltd. SCB -74.7 29.9 36.2 -19.9 -25.2 -10.7
7 Total Petroleum Ghana Limited TOTAL 18.5 N/A 20.6 -16.4 -61.2 -9.6
GSE all-share-index 23.81 78.81 5.4 -11.77 -15.33 16.18


Table 4: Latest 5-year dividend yield

Company Trading symbol Dividend yield, %
2012 2013 2014 2015 2016 Average
1 Enterprise Group Limited EGL 3.33 0.00 1.43 1.04 2.1 1.58
2 Fan Milk Limited FML 1.13 0.00 1.71 0.00 1.4 0.85
3 Ghana Oil Company Limited GOIL 2.26 1.61 1.52 0.00 1.8 1.44
4 GCB Bank Limited GCB 3.33 2.94 3.96 8.44 8.7 5.47
5 Ecobank Ghana Limited EGH 8 5.18 5.66 11.27 12 8.42
6 Standard Chartered Bank (GH) Ltd. SCB 26.52 3.14 5.65 0.00 2.3 7.52
7 Total Petroleum Ghana Limited TOTAL 2.81 13.72 1.61 2.25 2.3 4.54

In terms of annual performance, with the exception of Standard Chartered Bank (SCB) and Total Petroleum Ghana Ltd. (TOTAL), the rest of the stocks show impressive positive results. Moreover, their average returns exceed that of the GSE (all-share index) in the same period. Enterprise group limited (EGL) beats the GSE index in 4 out of 5 years. Fan Milk and GCB similarly perform better than the market index in 4 out of 5 years while Ecobank and GOIL both exceed the index in 3 out of 5 years.

For dividend yields, Ecobank Ghana and Standard Chartered Bank lead with impressive average yields of 8.42% and 7.52% respectively.

It may also interest you that five of these stocks had even been commended in an earlier article recently. In the article by Kofi Busia Kyei (a financial analyst), EGL, EGH, FML, GOIL, and GCB were highlighted together with UNIL and BOPP as the few listed stocks that had offered great returns to investors in the past 10 years (Refer to the chart below).

foundational stocks _performance
Figure 1: 10-year return of selected stocks on the GSE Credit: Kofi Busia Kyei (a financial analyst)

Even though the performance trend of SCB doesn’t look so good, the high extent of its occurrence in the top five holdings of the various mutual funds may be due to positive future projections. The fund managers may have realised from their analysis, good earning or growth expectations of SCB, thus chasing its shares. Don’t forget that SCB is one of the few stocks that have recorded impressive returns in the current year so far. In fact, since the beginning of the year, its share price has appreciated by 115.52% as of 8th August 2017. Hence, considering it in our foundational stocks can be worth it. Unfortunately, because of the comparative low performance of TOTAL, in addition to its least number of occurrences in the top five holdings of the funds, delisting it from the group may be helpful for now. As a result, GCB, SCB, FML, EGL, GOIL and EGH can be finally listed as our proposed foundational stocks- six foundational stocks made up of three banking stocks, one insurance stock, one manufacturing stock and one petroleum stock (see Figure 2 below).

Foundational stocks
Figure 2: Proposed foundational stocks comprising six listed companies


The similarities between top 5 equity holdings of various mutual funds gave rise to this write-up. Through comparison and further background studies, six listed companies have been proposed as foundational stocks. These can be useful to investors in building their stock portfolios.

If you’re a new investor deciding on buying stocks from the exchange, you can think of starting with at least, one of these companies. Furthermore, investors who are already trading in stocks may also consider rebalancing their existing portfolio and perhaps buy more of these particular stocks.

Finally, if you’re yet to own shares of these stocks, my personal advice is to begin moderately with the ones that have already attained high appreciation in their share prices. For instance, the year-to-date returns of GOIL and SCB are currently 108.18% and 115.52% respectively, as of 8th August 2017. Even though they still have the potential to continue with their gains, the potential to fall is also inevitable due to the high prices already achieved.


Get to know your mutual funds: HFC Equity Trust

HFC equity trust

HFC equity trust was established in July 2004 by HFC Bank (Ghana) Limited. The fund is managed by HFC Investment Services Limited, a subsidiary of HFC bank. Just like most other funds, HFC equity trust is an open-ended investment scheme with a long-term investment goal. Started with an initial capital of about GH¢700,000 in 2004, the fund’s value currently stands at GH¢5.32milion as of the end of 2016.

Nature and investment strategy of HFC equity trust

Due to its long-term investment objective, HFC equity trust invest most of its portfolio in stocks on the Ghanaian market. Part of its portfolio is however invested in fixed income instruments to enhance liquidity of the fund. According to the portfolio composition displayed on its website, the fund mainly invest in 70-80% equities, 5-10% money market, 10-15% other schemes and 5% as cash in the bank. This composition however varies depending on the prevailing conditions of the economy, in particular, whenever there is a dramatic change in the performance of the exchange. In fact, there have been occasions when investment in equities was remarkably reduced to favour that of the fixed income instruments. Typical examples were the 2015 and 2016 financial years. At the end of 2015, equity portion of the fund constituted 31.30% (a reduction from 63.38% in 2014) while fixed income instruments formed a whopping 62.66%. Of the 62.66% fixed income allocation, corporate bonds constituted 17.05% while investment in other short-term instruments made up 45.61%. Likewise, in 2016, the fund’s assets portfolio was skewed in favour of the money and fixed income market. The fund’s portfolio allocation, during this period, was 23.18% equities, 54.42% money market instruments and 14.42% corporate bonds (Refer to the pie chart below).

HFC Equity Trust portfolio mix 2016
Portfolio allocation of HFC equity trust as of 31st December 2016. Source: HFC equity trust 2016 annual report

According to the fund’s 2016 annual report, HFC equity trust invested in 16 out of the about 40 companies listed on the GSE. This was a reduction from the 21 listed stocks it had previously invested in 2015. Some of the fund’s top equity holdings in the same period (2016) were GCB Bank Limited (GCB), Ghana Oil Company Limited (GOIL), Total Petroleum Ghana Limited (TOTAL), Enterprise Group Limited (EGH) and Fan Milk Limited (FML). This was not much different from its top equity holdings in the preceding year. At the end of 2015, the fund’s top five equities were GCB (constituting 5.59% of the fund’s value), GOIL (4.14%), TOTAL (3.85%), EGH (3.79%) and ETI (2.94%).

Performance of HFC equity trust

The price of HFC equity trust is updated by the fund manager on a regular basis, usually after each business day. The price of the fund reflects its net asset value which in turn depends on the performance of its portfolio on the market (For current prices of HFC equity trust and other mutual funds, click on this link). At the end of each financial year, the annual return of the fund is similarly published. In the past decade (since 2005), HFC equity trust’s best performance has been 70.43%, recorded in 2013. On the other hand, its worst performance in the same period is -21.25%, which was recorded in 2005. As noted earlier, HFC equity trust alters its investment mix (in favour of fixed income instruments) whenever the equity market performs poorly. This, in some way, cushions the fund from the effects of huge market losses. For example, when HFC equity trust reduced its equity portfolio to 31.3% in 2015, it recorded an annual return of 14.49% even though the GSE lost by -11.77%. Similarly in 2016, HFC equity trust recorded 7.35% as against GSE return of -15.33%. The fund, by then, had as low as 23.18% of its portfolio in stocks. The table below shows the annual performance trend of HFC equity trust since 2005, compared with GSE returns over the same period. For performance comparison of HFC equity trust and other investment funds, refer to this link.

Performance trend of HFC equity trust
Year HFC equity trust return, % GSE return, %
2005 -21.25 -29.72
2006 12.46 5.21
2007 34.19 31.21
2008 38.89 58.16
2009 -19.94 -46.58
2010 25.12 32.25
2011 2.85 -3.1
2012 0.11 23.81
2013 70.43 78.81
2014 8.23 5.4
2015 14.49 -11.77
2016 7.35 -15.33

(Credit: Compilation of HFC equity annual returns was partly contributed by ARG)

HFC equity trust’s awards

HFC equity trust is recognised for the following awards:

·         Equity fund of the year, 2013 (Ghana Investment Awards)

·         Portfolio manager of the year, 2013- Genevieve Abban, HFC equity trust’s portfolio manager (Ghana Investment Awards)

Investing in HFC equity trust

HFC equity trust is opened to both individuals and groups. Prospective clients can contact the fund manager, HFC Investment Services Limited, through the various HFC bank branches across the country. Opening an HFC equity trust account attracts no charges. However, withdrawals made before one year attract a fee of 2.5%. For details on investment fees and commissions, refer to this link.