Assessing The Investment Returns Across Various Investment Vehicles Available In Kenya

By Stellar Swakei / Published September 29, 2023 | 5:04 pm

Assumptions:

An individual invests KES 700,000 in any of the assets above at the beginning of 2021,
Dividend payments are not included in stock market returns,
Coupon payments are not included in Treasury Bond returns, and,
The decision to apply the NSE 25 index is supported by the fact that the index covers the majority of banking, insurance, telecommunications, and manufacturing stocks – the companies that trade the most on the NSE.

Key Take-outs:

Mansa X had the highest growth rate among the evaluated investment vehicles. As at the end of 1H23, the initial investment had accumulated to KES 1.0mn – The fund invests in a wide range of financial instruments both locally and globally, including fixed-income securities, equities, derivatives, ETFs, currencies, stock indexes, and commodities. It also does short-term corporate lending, which brings in an extra return (interest income),
Money market funds were the second-best performing investments, demonstrating the power of compounding. This demonstrates an exponential growth of the initial investment over time, with both the initial capital and accrued interest earning additional interest in subsequent periods,
Fixed deposit investment was the third best-performing vehicle. The returns are mostly guaranteed and the interest rate is fixed. As such, fixed deposits are a conservative investment option suitable for individuals and organizations looking for a secure and predictable way to earn returns on their savings,
Among the analyzed investment assets, real estate investment was the fourth best-performing asset. An investor would be confined to satellite settlements in the Nairobi Metropolitan Area, notably Athi River, at the specified amount (KES 700,00). A higher sum would be necessary for other rapidly growing locations. However, considering the growth prospects of a given area is a key factor when buying land as this is a long-term investment. For instance, the development of Konza City is likely to drive real estate and property development in the Athi River area. There may be increased demand for residential, commercial, and industrial properties in the vicinity, leading to potential property value appreciation in the near term.
Treasury bonds sustained losses over the evaluation period. Due to unrealized losses, the present portfolio value of an investor who decides to hold government bonds to maturity is less than the initial investment value – If/when the market rebounds, he may be able to recover his initial investment. If a person decides to sell their bond holdings, the proceeds will be less than the initial investment, with no opportunity of recovering the loss at a later point. It is important to note that the rising interest rates continue to push bond prices lower, and,
Stocks were the worst-performing assets over the same period. The slump in stock prices was mainly due to lower demand for Kenya’s equities investments due to unique company fundamentals, macroeconomic factors, and increasing demand for new fixed-income instruments with significantly higher yields and coupons. An investor who chooses to sell would incur losses while one willing to hold for a longer term will most likely recover all or part of their investment.

However, in such bearish seasons, there are always pockets of value with stocks that are trading at discounts to their intrinsic value and are likely to appreciate in the near term.