Slight Improvement In Unit Trust’s Growth But A Lot Needs To Be Done

As per the Capital Markets Authority (CMA) Quarterly Statistical Bulletin – Q2’2021, the industry’s overall Assets Under Management (AUM) grew by 6.1% to Kshs 111.1 bn as at the end of Q1’2021, from Kshs 104.7 bn as at the end of FY’2020.

Assets Under Management:

Assets Under Management of the Unit Trust Funds have grown at a 4-year CAGR of 18.8% to Kshs 111.1 bn in Q1’2021, from Kshs 55.8 bn recorded in Q1’2017, as shown in the graph below:

Approved Collective Investment Schemes:

According to the Capital Markets Authority, as of the end of Q1’2021, there were 25 approved Collective Investment Schemes in Kenya of which only 19 were active while 6 were inactive. The table below outlines the performance of the Fund Managers:

Key to note from the above table:

• Assets Under Management: CIC Asset Managers remained the largest overall Unit Trust Fund Manager with an AUM of Kshs 44.8 bn in Q1’2021, from an AUM of Kshs 43.0 bn as at FY’2020, translating to a 1% AUM growth,

• Market Share: CIC Asset Managers remained the largest overall Unit Trust with a market share of 3%, a decline from 41.1% in FY’2020. Key to note, Britam recorded the highest increase in its market share with the market share increasing to 12.7%, from 11.8% in FY’2020, and,

• Growth: In terms of AUM growth, Co-op Trust Investment Services Limited recorded the strongest growth of 36.2%, with its AUM increasing to Kshs 1.4 bn, from Kshs 1.0 bn in FY’2020. Cytonn Asset Managers recorded a growth of 2%, with its AUM increasing to Kshs 960.2 mn, from Kshs 819.5 mn in FY’2020. Amana Capital recorded the largest decline, with its AUM declining by 44.2% to Kshs 75.6 mn in Q1’2021, from Kshs 135.4 mn in FY’2020.

Metropolitan Cannon Asset Managers, FCB Capital Limited, Fusion Investment Management Ltd, Standard Investment Trust, NatBank Trustee & Investment Services, and ABSA Asset Management Ltd remained inactive as of the end of Q1’2021.

Comparison with other markets and asset classes:

Unit Trust Funds assets recorded a q/q growth of 6.1% in Q1’2021, while the listed bank deposits recorded a weighted growth of 21.8% over the same period.

According to World Bank data, in well-functioning economies, businesses rely on bank funding for a mere 40.0% with the larger percentage of 60.0% coming from the Capital markets. Closer home, CMA notes that in 2020, businesses in Kenya relied on banks for 95.0% of their funding while less than 5.0% came from the capital markets. Additionally, our Mutual Funds/UTFs to GDP ratio at 5.4% is still very low compared to the global average of 61.8%, indicating that we still have room to improve and enhance our capital markets.

The table below shows some countries’ mutual funds as a percentage of GDP:

Over the past 4 years, the UTFs AUM has grown at a CAGR of 18.8% to Kshs 111.1 bn in Q1’2021, from Kshs

55.8 bn recorded in Q1’2017. However, even at Kshs 111.1 bn, the industry is dwarfed by asset gatherers such as bank deposits at Kshs 4.0 tn and pension industry at Kshs 1.4 tn as of the end of 2020. Below is a graph showing the sizes of different saving channels and capital market products in Kenya as of December 2020:

In order to improve our Capital Markets and stimulate its growth, we recommend the following actions:

1. Allow for sector funds: The current capital markets regulations require that funds must diversify. Consequently, one has to seek special dispensation in the form of 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,

2. Reduce the minimum investments to reasonable amounts: Currently, the minimum investment for sector-specific funds is Kshs 0 mn, while that for Development REITS is currently at Kshs 5.0 mn. The high minimum initial and top-up investments amounts are unreasonably high given that the national median income for employed individuals is estimated at around Kshs 50,000, it, therefore, locks out a lot of potential investors. Additionally, these high amounts discriminate against most retail investors giving them fewer investment choices,

3. Eliminate conflicts of interest in the governance of capital markets: The capital markets regulations should enable a governance structure that is more responsive to market participants and market growth,

4. Create increased competition in the market by encouraging different players to set up shop and offer different services such as the opening up of Trustees to non-financial institutions: Competition in capital markets will not only push Unit Trust Fund managers to provide higher returns for investors but will also eliminate conflicts of interest in markets and enhance the provision of innovative products and services, and,

5. Improve fund transparency to provide investors with more information: Each Unit Trust Fund should be required to publish their portfolio holdings on a quarterly basis and make the information available to the public so as to enhance transparency for investors. Providing investors with more information will help both investors and prospects make better-informed decisions and subsequently improve investor

For more information, kindly see our topical on Unit Trust Fund Performance Q1’2021.