A Look At The Performance Of Unit Trusts For The Q2 Of 2020

In line with Capital Market Regulations (2002) Part IV (32), Unit Trust Funds Managers released their Q2’2020 results.

As per the results, the industry’s overall Assets Under Management (AUM) grew by 15.1 percent to 88.1 billion shillings as at the end of Q2’2020, from 76.5 billion shillings as at the end of Q1’2020.

CIC Asset Managers remained the largest overall Unit Trust Fund Manager with an AUM of 36.3 billion shillings in Q2’2020, from an AUM of 29.7 billion shillings as of Q1’2020 translating to a 21.9 percent AUM growth.

In terms of AUM growth, Co-op Trust Investments recorded the strongest growth of 10,568.3 percent, with its market share increasing to 1.31 percent from 0.01 percent in Q1’2020.

During the period under review, Money Market Funds continued to be the most popular product in terms of market share, accounting for 78.9 billion shillings equivalent to 89.6 percent of all the funds under management by Collective Investment Schemes for the quarter ended 30^th June 2020.

The total AUM for the fund grew by 17.2 percent to 78.9 billion shillings in Q2’2020, from 65.7 billion shillings in Q1’2020.

The highest yielding Money Market Fund was the Cytonn Money Market Fund with an average yield of 10.8 percent, followed by Zimele Money Market Fund, which recorded an average yield of 9.9 percent.

Unit Trust Funds assets recorded a growth of 15.1 percent in Q2’2020, compared to a growth of 1.1 percent in Q1’2020, while the listed bank deposits grew by 18.5% in Q2’2020 compared to a growth of 14.3 percent recorded in Q1’2020.

Bank deposit growth at 18.5 percent outpaced UTFs growth of 15.1 percent, and save for the year 2019, bank deposit growth usually outpaces UTFs growth, an indication that our capital markets potential and growth remains constrained.

Kenya’s Mutual Funds / UTFs to GDP ratio at 5.4 percent is still very low compared to the global average of 61.8 percent, showing that we need to improve and enhance our capital markets.

According to World Bank data, in well-functioning economies, businesses rely on banks for just 40.0 percent of their funding with a larger percentage of 60.0 percent coming from Capital Markets.

In Kenya businesses rely on banks for a staggering 99.0 percent of their funding; with less than 1.0 percent coming from Capital Markets. Therefore, in order to improve our Capital Markets and stimulate its growth, we recommend the following actions;

Expand eligibility of Trustees of Unit Trust Funds to include non-bank Trustees such as Corporate Trustees. The current situation where all Trustees are banks, severely constrains capital market growth because of; (1) The inherent conflict of interest where banks are Trustees in a market where they are also competing for funds, and (2), Banks are not best suited to be Trustees in complex financial products, hence this restrains the market to plain vanilla investments such as bank deposits and government debt,

Remove conflicts of interest in the governance of capital markets and create a governance structure that is more responsive to market participants and market growth, and,

Allow for sector funds: The current capital markets regulations require that funds must diversify. Consequently, one has to seek special dispensation in form sector funds such as a financial services fund, a technology fund or a real estate UTF fund. Regulations allowing unitholders to invest in sector funds would expand the scope of unitholders interested in investing.

As Money Market Funds continue to lead among unit trust products accounting for 89.6 percent of the total Unit Trust Funds in Q2’2020, there is a need to leverage more on innovation and digitization in order to further propel the growth of MMFs in Kenya.

“We believe that amidst the Coronavirus pandemic, returns for Money Market Funds will remain stable with a bias to a slight increase upwards should rate on government securities increase. They will also 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,” said analysts from Cytonn Investments.

For more information, please our Unit Trust Funds Performance – Q2’2020 topical.