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Why Are Money Market Funds Performing Better Than Equities And Real Estate?

BY Soko Directory Team · January 21, 2022 10:01 am

KEY POINTS

Money market funds are regulated by CMA oversee all operations of the fund and ensure that the funds are invested in line with the stipulated regulations and guidelines.

KEY TAKEAWAYS

Money Market Funds (MMFs) are a type of Unit Trust Funds (UTFs) that pool funds from different investors and mainly invest in short-term debt instruments such as Treasury Bills and Commercial Papers, and also in Money Market Instruments such as Call and Fixed Deposits.

As the year 2022 starts to take shape, anyone who cares about making extra cash this is year is thinking of where to place their money. This being a general election year, it is even more difficult to know exactly an investment vehicle that is safe.

Historically, Kenyan general elections are bad for business. This year, many investors are likely to adopt the wait-and-see approach as they study the political wind. President Uhuru Kenyatta is set to pave way for a new regime hence the uncertainty.

Despite the uncertainty, where can one put their money this year? Analysts from Cytonn Investments think that money market funds are the best bet for Kenyans despite the election being in the offing.

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According to Cytonn, money market funds performed better than other sectors including equities and real estate in Kenya in 2021. The same trend is expected to continue this year. The question is, why are money market funds doing better than other sectors?

When Covid-19 first hit the country, virtually every sector was hit. Businesses shut down en masse and people lost their jobs. But those who had trusted their funds in money markets were least affected by the sweeping pandemic. Why?

The analysts at Cytonn attributed the good performance of the Money market funds to their higher returns as compared to the returns offered by the other asset classes. The analysts said that many people were attracted to MMFs than other assets.

“Money market funds offer 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,” said Cytonn in a statement.

In 2021, the Cytonn Money Market Fund (CMMF) had the highest effective annual yield of 10.5 percent compared to an industry average of 8.8 percent. The Fund has sustained the lead among other market players even as the year kicks off.

At the same time, other asset classes recorded improvements from 2020 with NASI being the largest gainer having increased by 14.1 percentage points to a return of 5.5 percent, from a decline of 8.6 percent in 2020.

Understanding Money Market Funds

MMFs are managed by professional Fund Managers who invest the pooled funds in a portfolio of securities with the aim of generating returns in line with the specific fund objectives.

Given the low initial investment amount required in most Money Market Funds and the fact that most youths are just starting off their investment journey, investing in a money market fund provides a good starting point.