The Cytonn Equation: What Lies In The Roots?

Cytonn Investments Limited has been trending for more than 24 hours. But the sentiments accompanying the trend are not that encouraging. The brand has been trending because of its high-yield fund product.

A look at the sentiments flying behind the trend and one will know that most of those talking about the subject have no idea what it is all about. Here are some of the questions that people are missing out on; what is a high yield fund? What is the investment portfolio? What is the interest rate? What are the risks? What are the terms and conditions? Which legal issues guide it?

What is the Cytonn High Yield Fund?

On Cytonn’s website, they have defined this product as a “Collective investment scheme that has a high allocation towards investment in real estates, which have consistently demonstrated the ability to deliver high returns than those from traditionally available assets.”

Cytonn is trending because of its high yield fund. Let us analyse it from from a business/ financial perspective. Thread🧵
Things to consider:
1)Basic/what is it?
1)investment portfolio
2)Interest rate
3)Type of risk
4)Terms and conditions
5)Legality

— Wanjiru Natasha (@WanjiruNatasha_) June 17, 2021

What is the Investment Portfolio?

An investment portfolio is basically where the investor’s money goes to. A portfolio should be diverse – invest in different things for security purposes in case of an abrupt shift in the economy at large, a pandemic as in the case of Covid-19.

For the Cytonn High Yield Fund, 80 percent of the investment is in real estate. Therefore, their main portfolio was/is in real estate.

Read More: A Beginner’s Guide On How To Invest In The Kenyan Stock Market

The real estate

The truth is, real estate has always been a booming investment with good returns. But somewhere from the year 2017, returns started being comsi comsa. For instance, in the third quarter of 2019, prices for detached houses fell by 7 percent. This was a sharp fall after an 8.8 percent growth in 2018. During the same period, prices for apartments dropped by 1.7 percent compared to a growth of 1.3 percent the previous year.

In 2020, the residential sector recorded a decline in performance with an average total return of 4.7 percent, a drop from 6.1 percent in 2019. Rental yields dropped o.1 percent to 4.9 percent while the average annual uptake stagnated at 19.3 percent.

The coming of the Covid-19 in 2019 made things even worse.

Why the high interest?

Well, given that the portfolio was in real estate, one with estimated high returns, the 14 percent interest is justified. It works for the brand to bring more investors on board. In fact, their money market fund, which is of low risk as compared to the high yield one, has constantly been oscillating between 10.5 and 11 percent.

Most thoughts in this piece are courtesy of Wanjiru Natasha, a Business Analyst.