Potential Effects of COVID-19 on Money Market Funds
Staff Writer  |  Mar 22, 2020
       

Last week, we discussed the Impact of Coronavirus to the Kenyan Economy, covering how the pandemic started, the current state of affairs, noting that despite the virus spreading, emotional contagion also played a significant role in amplifying the effects of the pandemic on the global economy.

Following last week’s Focus Note, several of our readers requested us to focus on the effect on Money Market Funds.


Consequently, this week, we revisit the topic, with our focus being on the possible effects the Coronavirus might have on Money Market Funds. Under this, we shall be discussing the following;

Money Markets Funds in Kenya account for 87.0% of all the funds under management by Collective Investments Schemes.

We expect the following on each of the asset classes:

  • Bank deposits- Owing to favorable liquidity conditions in the money markets, the prevailing environment and flight to safe havens such as bank deposits, government instruments and gold, we do not expect any changes in deposit rates,
  • Bond Yields- Yields on government papers are expected to stay the same, despite the expected cut on the CBR, with a likelihood of increasing because of expectations of heightened inflationary pressures, and
  • Listed Securities Excluding Gok/ Other Unlisted Securities/ CISes- Investments in listed securities excluding Gok, any other unlisted securities, and other Collective Investment Schemes exposes money market funds to higher returns while providing diversification, however, we foresee little to no additional allocation away from bank deposits and government securities due to uncertainty.

The table below highlights the composition for the above-mentioned asset classes for the current MMF industry and our expectations on the effects potent to them from the current ongoing pandemic:

Money Market Funds Investment Instruments

 

Asset Class

Impact

Effect

*Investment Limits

**Actual Exposure

Cash, Demand Deposits and Fixed Deposits

·  Owing to favorable liquidity conditions in the money markets, the prevailing environment and flight to safe havens such as bank deposits, government instruments and gold, we do not expect any changes in deposit rates.

·  With reduced monetary policy effectiveness, we do not foresee any cut in the Central Bank Rate (CBR) affecting bank deposit and lending rates.

Neutral

100.0%

31.2%

Securities Issued by the GoK (Government T-Bills and Bonds)

·  We expect the yields on government securities to remain stable despite the expected cut on the CBR, with a bias to an upward readjustment in the yield curve.

·  With the expectations of heightened inflationary pressures, we believe that investors will continue demanding higher yields to compensate for the inflation risk

Positive

80.0%

55.7%

Securities Listed on NSE Excluding GoK

&

Any Other Unlisted Securities

&

Other Collective Investment Schemes

·  Investments away from bank deposits and government securities exposes money market funds to higher returns while providing diversification. During this period of uncertainties, however, we foresee little to no additional allocation away from bank deposits and government securities.

Neutral

25.0% for Each

13.1%

*Investment Limits are the maximum allowable limits for Money Market Funds as per the Capital Markets Regulations.

** Source: CMA, Q4’2019 Collective Investment Schemes Report

 

Conclusion:

Based on the above-mentioned factors, we expect that for Money Market Funds:

  1. Returns for Money Market Funds will remain stable with a bias to a slight increase upwards should rates on government securities increase, and,
  2. They will remain the most liquid of all mutual funds providing a short-term parking bay that earns higher income yields compared to deposits and savings accounts.

Below is the table of current MMFs, ranked by yields as published on 21st March 2020;

Fund Managers' Money Market Fund Yields as Published on 21/03/2020

Rank

Fund Manager

Daily Yield

Effective Annual Rate

1

Cytonn Money Market  Fund

10.41%

10.96%

2

Zimele Money Market  Fund

9.56%

9.91%

3

Nabo Africa Money Market Fund                      

9.46%

9.89%

4

Alphafrica Kaisha Money Market Fund

9.19%

9.81%

5

CIC Money Market  Fund

9.40%

9.75%

6

Sanlam Money Market  Fund

9.23%

9.67%

7

Madison Money Market  Fund

9.11%

9.54%

8

Dry Associates Money Market  Fund

8.66%

9.02%

9

Co-op Money Market Fund

8.51%

8.85%

10

Apollo Money Market Fund

9.31%

8.72%

11

GenCapHela Imara Money Market  Fund

8.20%

8.52%

12

NCBA Money Market  Fund

8.18%

8.49%

13

British-American Money Market  Fund

8.02%

8.32%

14

Amana Money Market  Fund

8.00%

8.20%

15

ICEA Lion Money Market  Fund

7.87%

8.19%

16

AA Kenya Shillings Fund

7.21%

7.45%

17

STANLIB Money Market  Fund

6.15%

6.32%

18

Old Mutual Money Market  Fund

4.91%

4.80%

 

Average

8.41%

8.69%

 Source: Daily Nation Newspaper Publishing for Money Market Fund Yields

To access CMMF, dial *809#. For a more detailed analysis, Potential Effects of COVID-19 on Money Market Funds.


May 31, 2020 | By Cytonn Research Team
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