Nov 6, 2022
Unit Trust Funds (UTFs) are Collective Investment Schemes that pool funds from different investors and are managed by professional fund managers. The fund managers invest the pooled funds in a portfolio of securities with the aim of generating returns to meet the specific objectives of the fund. Following the release of the Capital Markets Authority (CMA) Quarterly Statistical Bulletin-Q3’2022, we analyze the performance of Unit Trust Funds, as the total Assets Under Management (AUM) have been steadily increasing and they are among the most popular investment options in the Kenyan market. We will further analyze the performance of Money Market Funds, a product under Unit Trust Funds. In our previous focus on Unit Trust Funds, we looked at the Q1’2022 Unit Trust Funds Performance by Fund Managers. In this topical, we focus on the Q2’2022 performance of Unit Trust Funds where we shall analyze the following:
Section I: Performance of the Unit Trust Funds Industry
Unit Trust Funds are investment schemes that pool funds from investors and are managed by professional Fund Managers. The fund manager invests the pooled funds with the aim of generating returns in line with the specific objectives of the fund. The Unit Trust Funds earn returns in the form of dividends, interest income, rent and/or capital gains depending on the underlying security. The main types of Unit Trust Funds include:
As per the Capital Markets Authority (CMA) Quarterly Statistical Bulletin-Q3’2022, the industry’s overall Assets under Management (AUM) grew by 23.1% to Kshs 145.0 bn as at the end of Q2’2022, from Kshs 117.8 bn as at the end of Q2’2021. Assets under Management of the Unit Trust Funds have grown at a 5-year CAGR of 21.2% to Kshs 145.0 bn in Q2’2022, from Kshs 55.5 bn recorded in Q2’2017. The chart below shows the growth in Unit Trust Funds’ AUM;
Source: Capital Markets Authority Quarterly Statistical bulletins
The growth can be largely attributed to:
According to the Capital Markets Authority, as at the end of Q2’2022, there were 32 approved Collective Investment Schemes in Kenya, up from 25 recorded at the end of Q2’2021. Out of the 32, only 20, equivalent to 62.5% were active while 12 (37.5%) were inactive. The table below outlines the performance of the Collective Investment Schemes comparing Q2’2022 and Q1’2022:
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Cytonn Report: Assets Under Management (AUM) for the Approved Collective Investment Schemes |
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No. |
Collective Investment Schemes |
Q1’2022 AUM |
Q1’2022 |
Q2’2022 AUM |
Q2’2022 |
AUM Growth |
(Kshs mns) |
Market Share |
(Kshs mns) |
Market Share |
Q1'2022 –Q2'2022 |
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1 |
CIC Unit Trust Scheme |
56,919.1 |
40.5% |
57,126.4 |
39.4% |
0.4% |
2 |
NCBA Unit Trust Scheme |
19,757.2 |
14.0% |
20,152.1 |
13.9% |
2.0% |
3 |
British American Unit Trust Scheme |
14,527.8 |
10.3% |
13,868.3 |
9.6% |
(4.5%) |
4 |
ICEA Unit Trust Scheme |
13,669.2 |
9.7% |
13,669.2 |
9.4% |
0.0% |
5 |
Sanlam Unit Trust Scheme |
10,205.1 |
7.3% |
12,676.3 |
8.7% |
24.2% |
6 |
Old Mutual Unit Trust Scheme |
6,713.2 |
4.8% |
6,883.6 |
4.7% |
2.5% |
7 |
Coop Unit Trust Scheme |
3,294.8 |
2.3% |
3,725.4 |
2.6% |
13.1% |
8 |
Dry Associates Unit Trust |
3,215.7 |
2.3% |
3,611.9 |
2.5% |
12.3% |
9 |
Nabo Capital Ltd |
2,719.6 |
1.9% |
3,016.0 |
2.1% |
10.9% |
10 |
Madison Asset Unit Trust Funds |
2,794.6 |
2.0% |
2,734.3 |
1.9% |
(2.2%) |
11 |
Zimele Unit Trust Scheme |
2,165.8 |
1.5% |
2,165.8 |
1.5% |
0.0% |
12 |
African Alliance Kenya Unit Trust Scheme |
1,822.1 |
1.3% |
1,743.4 |
1.2% |
(4.3%) |
13 |
ABSA Unit Trust Scheme |
287.1 |
0.2% |
1,048.1 |
0.7% |
265.0% |
14 |
Cytonn UnitTrust Fund |
725.7 |
0.5% |
771.4 |
0.5% |
6.3% |
15 |
Apollo Unit Trust Scheme |
719.2 |
0.5% |
730.5 |
0.5% |
1.6% |
16 |
Genghis Unit Trust Funds |
593.5 |
0.4% |
575.1 |
0.4% |
(3.1%) |
17 |
Orient Collective Investment Scheme |
257.4 |
0.2% |
262.0 |
0.2% |
1.8% |
18 |
Equity Investment Bank |
249.6 |
0.2% |
199.5 |
0.1% |
(20.0%) |
19 |
Amana Unit Trust Funds |
29.5 |
0.0% |
27.3 |
0.0% |
(7.5%) |
20 |
Wanafunzi |
0.7 |
0.0% |
0.7 |
0.0% |
2.4% |
21 |
Genghis Specialized Funds |
- |
- |
- |
- |
- |
22 |
Standard Investments Bank |
- |
- |
- |
- |
- |
23 |
Diaspora Unit Trust Scheme |
- |
- |
- |
- |
- |
24 |
Dyer and Blair Unit Trust Scheme |
- |
- |
- |
- |
- |
25 |
Jaza Unit Trust Fund |
- |
- |
- |
- |
- |
26 |
Masaru Unit Trust Fund |
- |
- |
- |
- |
- |
27 |
Adam Unit Trust Fund |
- |
- |
- |
- |
- |
28 |
First Ethical Opportunities Fund |
- |
- |
- |
- |
- |
29 |
Natbank Unit Trust Scheme |
- |
- |
- |
- |
- |
30 |
GenAfrica Unit Trust Scheme |
- |
- |
- |
- |
- |
31 |
Amaka Unit Trust (Umbrella) Scheme |
- |
- |
- |
- |
- |
32 |
Mali Money Market Fund |
- |
- |
- |
- |
- |
|
Total |
140,667.0 |
100.0% |
144,987.5 |
100.0% |
3.1% |
Source: Capital Markets Authority: Quarterly Statistical Bulletin, Q3’2022, and Capital Markets Authority List of licensees
Key take outs from the above table include:
Section II: Performance of Money Market Funds
Money Market Funds (MMFs) in the recent past have gained popularity in Kenya driven by the higher returns they offer compared to the returns on bank deposits and treasury bills. According to the Central Bank of Kenya data, the average deposit rate increased by 10 bps to 6.6% in Q2’2022 from 6.5% recorded in Q1’2022. During the period under review, the 91-Day T-bill and the average deposit rate continued to offer lower yields at 7.9% and 6.6%, respectively, compared to the average MMF yields of 8.9%.
Source: Central Bank of Kenya, Cytonn Research
As per the regulations, funds in MMFs should be invested in liquid interest-bearing securities which include bank deposits, fixed income securities listed on the Nairobi Securities Exchange (NSE) and securities issued by the Government of Kenya. The fund is best suited for investors who require a low-risk investment that offers capital stability, liquidity, and require a high-income yield. The fund is also a good safe haven for investors who wish to switch from a higher risk portfolio to a low risk portfolio, especially in times of uncertainty.
Top Five Money Market Funds by Yields
During the period under review, the following Money Market Funds had the highest average effective annual yield declared, with the Cytonn Money Market Fund having the highest effective annual yield at 10.5% against the industry average of 8.9%.
Cytonn Report: Top 5 Money Market Fund Yield in Q2'2022 |
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Rank |
Money Market Fund |
Effective Annual Rate (Average Q2'2022) |
1 |
Cytonn Money Market Fund |
10.5% |
2 |
Zimele Money Market Fund |
9.9% |
3 |
Nabo Africa Money Market Fund |
9.7% |
4 |
Sanlam Money Market Fund |
9.4% |
5 |
Madison Money Market Fund |
9.3% |
|
Industry average |
8.9% |
Source: Cytonn Research
Section III: Comparison between Unit Trust Funds AUM Growth and other Markets
Unit Trust Funds’ assets recorded a q/q growth of 3.1% in Q2’2022, while the listed bank deposits recorded a growth of 5.2% over the same period. For the Unit Trust Funds, this was slower than the growth recorded as at the end of Q2’2021 of 6.0%. However, for the bank deposits, it was an improvement compared to a growth of 4.4% recorded in Q2’2021. The chart below highlights the Unit Trust Funds AUM growth vs bank deposits growth over the last five years;
Source: Cytonn Research
Unit Trust Funds’ (UTF) growth of 3.1% was outpaced by the listed banking sector’s deposit growth of 5.2% in Q2’2022. We note that the 3.1% growth rate was slower than the 6.0% growth recorded in Q2’2021, while listed banks deposits growth increased by 0.8% points to 5.2% from 4.4% in Q1’2021, an indication of a relative slowdown and constraints in our capital markets. According to the World Bank data, in well-functioning economies, businesses rely on bank funding for 40.0%, with the larger percentage of 60.0% coming from the Capital markets. Closer home, the World Bank noted that businesses in Kenya relied on banks for 99.0% of their funding while less than 1.0% come from the capital markets. Notably, our Mutual Funds/UTFs to GDP ratio at 1.1% is still very low compared to an average of 69.6% amongst select global markets, indicating that we still have room to improve and enhance our capital markets. The chart below shows some countries’ mutual funds as a percentage of GDP:
Source: World Bank Data
Over the past 5 years, the Unit Trust Funds AUM have grown at a 5-year CAGR of 21.2% to Kshs 145.0 bn in Q2’2022, from Kshs 55.5 bn recorded in Q2’2017. However, even at Kshs 145.0 bn, the industry is dwarfed by asset gatherers such as bank deposits at Kshs 4.6 tn and the pension industry at Kshs 1.5 tn as of Q2’2022. Below is a graph showing the sizes of different saving channels and capital market products in Kenya as at June 2022
*Data as of December 2021
Source: CMA, RBA, CBK, SASRA Annual Reports and REITs Financial Statements
On a REITs to Market Cap Ratio, Kenya still has a lot of room for improvement. The listed REITs capitalization as a percentage of total market cap in Kenya stands at a paltry 0.1%, as compared to 3.0% in the US and 1.0% in South Africa, as of 4th November, 2022. Below is a graph showing comparison of Kenya’s REITs to Market Cap Ratio to that of United States (US) and South Africa:
Source: Online research, Nairobi Securities Exchange (NSE)
Section IV: Recommendations
In order to improve our Capital Markets and stimulate its growth, we recommend the following actions:
In May 2022, the Capital Markets Authority (CMA) publicized the Draft Capital Markets Public Offers Listing and Disclosures Regulations 2022, meant to replace the Public Offers Listing and Disclosures Regulations 2002, which have been in effect since 2002, with the only amendments done in 2016. The Draft Regulations main objective is to create a more favorable environment in Kenya’s Capital Markets so as to encourage more listings on the Nairobi Securities Exchange. As highlighted in our Cytonn weekly#18/2022, we anticipate that more corporations and State Owned Enterprises will take advantage of this opportunity and seek capital markets funding through IPOs, which will further increase the percentage of funding for businesses provided by the Capital Markets. Additionally, In June 2022, the Capital Markets Authority (CMA) published the final draft regulations; Capital Markets (Collective Investment Schemes) Regulations 2022 and the Capital Markets (Alternative Investment Funds) Regulations 2022. Given the changes in market dynamics, the proposed regulations seek to update the current Collective Investment Scheme and Alternative Investment Funds Regulations while also addressing emerging issues.
We believe that in order to further propel the growth of UTF’s in Kenya, there is a need to leverage more on innovation, digitization and product development in the capital markets. Due to the high demand of innovative and convenient products by consumers in the retail market, the use of technology as a distribution channel for mutual fund products opens up the funds to the retail segment. Furthermore, instead of restricting UTF growth and diversification, regulators should encourage and facilitate it. This will boost the development of the capital markets and encourage the entry of new players.
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.