Unit Trust Funds In Kenya: What Makes Them Tick?
KEY POINTS
MMFs are the most common type of Unit Trust Funds and have generally accounted for over 75% of all the funds under management over the years. They are suitable for both individuals and institutional investors seeking safety, liquidity, and competitive returns on their short-term investments.
KEY TAKEAWAYS
In a Unit Trust, investors purchase units or shares in the fund, and the fund's assets are divided into equal units. The value of the units, known as Net Asset Value (NAV), fluctuates based on the performance of the underlying assets.
A Unit Trust Fund is the main type of Collective Investment Scheme in Kenya. It allows investors sharing the same financial objective to pool their money and invest in a diversified portfolio of assets, managed by a professional fund manager or investment company.
In a Unit Trust, investors purchase units or shares in the fund, and the fund’s assets are divided into equal units. The value of the units, known as Net Asset Value (NAV), fluctuates based on the performance of the underlying assets.
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There are 5 major types of unit trusts in Kenya namely;
- Money market funds
- Fixed Income funds
- Equity funds
- Balanced funds
- Real Estate Investment Trusts
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As of 30th June 2023, the total UTFs assets under management (AUM) amounted to KES 176.0 bn. The AUM has grown at a compound annual Growth Rate of 25.4%, from KES 56.8 bn in June 2018. See below the evolution of unit trusts’ AUM over the last six years;
UTFs typically invest in a variety of asset classes but the specific investment strategy and asset allocation depends on its objectives, as outlined in its offering documents or by the Capital Markets Authority.
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The asset classes in which the funds invest include fixed deposits, government securities, cash & demand deposits, listed & unlisted securities, immovable property, and offshore investments.
See below the asset allocation by UTFs:
UTFs have over the years concentrated their investments in fixed deposits and government securities. The two asset classes are generally considered low-risk investments as they are backed by government guarantees or the financial stability of banks and financial institutions, providing a high level of safety to investors’ money.
The top 5 Unit Trust Funds in Kenya are;
The five control almost 80% of the market share.
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Detailed Analysis of the Types of Unit Trusts
- Money market funds (MMFs)
MMFs are the most common type of Unit Trust Funds and have generally accounted for over 75% of all the funds under management over the years. They are suitable for both individuals and institutional investors seeking safety, liquidity, and competitive returns on their short-term investments.
MMFs provide a short-term parking bay for surplus funds, particularly in times of market volatility. Institutions in Kenya offer either or both a Kenyan shilling-denominated MMF or a US Dollar US-denominated fund. The advantages of MMFs include;
- Liquidity
- Competitive Returns
- Safety & Stability
In addition to the above, USD-denominated money market funds provide a sense of security, particularly during periods of currency volatility or economic uncertainty. Given the global applicability of the Dollar, USD-denominated MMFs help mitigate exchange rate risks.
Money market funds typically mai