Kenyan unit trusts are boosting their annual returns to remain competitive with the heightened rates offered on government treasuries and bank fixed deposits. The move aims to sustain their attractiveness to investors and maintain investment inflows. An analysis of shilling-denominated money market funds reveals a rise in returns, ranging from 11.6 percent to 15.96 percent as of December 15, with an average of 13.5 percent across 14 funds reviewed.
Key Points:
- Increased Annual Returns: Shilling-denominated money market funds have raised their annual returns to counter elevated rates on government treasuries and fixed deposits. The average return across the reviewed funds is 13.5 percent, up from the previous year’s range of eight percent to 9.5 percent.
- Competing with Treasury Bills: The movement of unit trusts’ returns mirrors that of Treasury bills, which currently offer investors between 15.77 and 15.92 percent gross of withholding tax across three tenors (three, six, and 12 months). A year ago, T-bills provided an average return of 9.3 to 10.3 percent.
- Top Performers: Three fund managers—Nabo, Cytonn, GenAfrica, and Lofty Corban—are offering returns of at least 15 percent on their money market funds, placing them in close competition with Treasury bills.
- Growing Bank Deposit Rates: Bank deposit rates have also increased, averaging 8.64 percent in September 2023 compared to 6.82 percent a year earlier, as per Central Bank of Kenya statistics.
- Asset Allocation: Unit trusts primarily invest in money market funds, with around 75 percent of their assets under management allocated to these funds. The funds typically invest in Treasury bills and bank deposits.
- Total Assets Under Management (AUM): As of June, unit trusts held Sh175.97 billion in AUM, with money market funds comprising 75 percent (Sh131.6 billion). Fixed deposits accounted for the largest share of assets at 44.4 percent (Sh78.14 billion), followed by government securities at 42.8 percent (Sh75.32 billion).
- Inflation Hedge: The higher rates provided by unit trusts and government securities have helped beat inflation, which retreated to 6.8 percent in November 2023 from 9.6 percent in October 2022.
- Accessible Investment: Unit trusts in Kenya allow individuals to invest with as little as Sh1,000. These funds are overseen by licensed fund managers and custodians, making them accessible to a broad range of investors.
Conclusion: The move by Kenyan unit trusts to increase annual returns reflects a competitive response to elevated rates in government securities and fixed deposits. This strategy aims to maintain the appeal of unit trusts to investors, providing an alternative investment avenue and helping beat inflation while catering to a diverse range of savers in the country.
