Naira Resilience: Dollar Fund Allocation Plunges as Investors Chase 22% Local Yields

The landscape of non-pension asset management in Nigeria is undergoing a dramatic shift in 2026 and most notably, the “dollarization” of local fund investments is in full retreat.

Driven by a stabilized Naira and interest rates in the 22%–26% range, investors in mutual funds are swapping their greenbacks for high-yielding Naira instruments, causing the weight of dollar-denominated funds to collapse from a 2024 peak of 48% to just 28.3% today.

De-Dollarization: The Return of Naira Confidence

The cooling of “Naira-panic” has fundamentally reordered portfolio priorities:

• The Opportunity Cost: In 2024, holding dollars was a survival strategy. In 2026, with the currency stable and Naira CPs yielding 25%, the cost of holding a 6%–8% yielding dollar fund has become too high.

• Sustained Decline: The drop in dollar fund allocation—from 48% to 28.3%—reflects a massive re-entry into local currency assets as the official-to-parallel market premium narrowed to below 3%.

• Valuation Shift: The SEC’s introduction of Mark-to-Market (MTM) valuation for fixed-income securities in September 2025 has improved transparency, further encouraging investors to trust Naira-denominated reports.

Yield Dynamics: The 20% Floor

The current dominance of domestic money market instruments is fueled by a rate environment that finally beats inflation:

• Real Returns: With inflation trending toward 16% and Money Market Funds offering 22%–26%, investors are securing their first significant “real” (inflation-adjusted) profits in nearly a decade.

  Non-Pension Fund Hierarchy:

  • Money Market (58.9%): Treasury Bills and Commercial Papers.

  • Dollar Funds (28.3%): Eurobonds and USD bank placements.

  • Equity Funds (1.04%): Blue-chip stocks (banking, cement, telcos).

“From a broad asset allocation perspective, we recommend overweight equities, overweight money market, neutral bonds, underweight dollars. Expectations of further improvements in economic growth as reforms consolidate, reduction in inflation and stability in the currency are key motivators of our view,” SBG Securities analysts said.

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