CIC Asset Managers remained the largest overall Unit Trust Fund Manager with an AUM of Kshs 40.5 bn in Q3’2020, from an AUM of Kshs 36.3 bn as at Q2’2020 translating to an 11.6% AUM growth. Additionally, CIC Asset Managers remained the largest overall Unit Trust with a market share of 41.4%, an increase from 41.2% in Q2’2020. Key to note, Sanlam Investments recorded the highest increase in its market share with the market share increasing by 1.0% points to 5.9% from 4.9% in Q2’2020. In terms of AUM growth, Wanafunzi Investments recorded the strongest growth of 316.9%, with its AUM increasing to Kshs 0.7 mn, from Kshs 0.2 mn in Q2’2020 due to the low base effect. Genghis Capital recorded the largest decline of 15.2%, with its market share declining to 0.6% from 0.7% in Q2’2020. During the period under review, Cytonn Money Market Fund had the highest effective annual yield at 10.6% against the industrial average of 8.8%.

Unit Trust Funds’ growth of 11.2% outpaced the listed banking sector’s deposit growth of 5.8% in Q3’2020, an indication that there is increasing investor confidence in our capital markets. Since Q2’2020, UTF AUM growth has outpaced bank deposits’ growth, attributable to improved investor knowledge coupled with the liquidity and higher yields offered by Unit Trust Funds over bank deposits. The 0.5% growth recorded in Q1’2020, which was 3.6% points lower than the listed banking sector’s growth of 4.1% is attributable to investor flight caused by the onset of the pandemic in the country which impacted the disposable income of individuals due to the subdued economic environment.

Despite Unit Trust Funds’ AUM growth outpacing that of listed banks, their AUM as at Q3’2020 stood at 2.8% of the listed banking sector’s deposits, which translates to the fact that businesses locally are still largely funded by banks which is not in line with the World Bank data, that shows that in well-functioning economies, businesses should get only 40.0% of their funding from banks and the larger percentage of 60.0% from Capital Markets. In Kenya, businesses rely on banks for a staggering 99.0% of their funding; with less than 1.0% coming from Capital Markets, an indication of the stifled capital markets.

In order to improve our Capital Markets and stimulate its growth, we recommend a reduction of the minimum investments to reasonable amounts. Currently, the minimum investment for sector specific funds is Kshs 1.0 mn, while that for Development REITS is currently at Kshs 5.0 mn. With the national median income for employed people estimated at around Kshs 50,000, these high minimum initial and top up investments amounts are unreasonably high, and therefore lock out a lot of potential investors. Additionally, the Capital Markets Authority and Unit Trust funds should increase their efforts in training investors on the various products offered in the market so as to increase investor knowledge and consequently increase investments in Unit Trust Funds.

The Capital Markets Authority’s move to be more accommodative and expand the eligibility of trustees to include non-bank trustees such as corporate trustees is a step in the right direction for the growth of capital markets, since it eliminates the conflict of interest that existed where banks were mandatory trustees in a market where they are also competing for funds. For continued growth of the capital markets, there is need to leverage more on innovation and digitization in order to further propel the growth of UTFs in Kenya.

For more information, kindly see our topical on Unit Trust Fund Performance Q3’2020