Money Markets
Britam Asset Managers chief executive Kenneth Kaniu. PHOTO | DIANA NGILA |
NATION MEDIA GROUP
By CHARLES MWANIKI
In Summary
Unit trust returns in 2016 dropped on the back of
lower interest rates of government securities compared to 2015 and a
poorly performing stock market.
Analysis of returns of a sample of money market funds shows
that the fall in effective annual return was 5.3 percentage points on
average to 9.8 per cent, although this class of collective investment
scheme is still one of the higher paying in the financial sector if
compared to bank deposits and equities.
Money market funds comprise the bulk of unit
trusts, at 75.8 per cent of the total assets under management and were
estimated by Kestrel Capital to be valued at Sh50.6 billion by the end
June.
Equity funds comprise 14.6 per cent, balanced funds 7.8 per cent and bond funds 1.5 per cent, and others 0.3 per cent.
“The heavy bias on money market funds was
attributed to a dearth in bond investment opportunities, poorly
performing equity markets and a divestiture out of investment property
into fixed income,” said Kestrel Capital head of fixed income Alexander
Muiruri.
Money funds invest mainly in short-term government
securities, where rates have oscillated between seven and 12.5 per cent
in the second half of the year, unlike in 2015 when they would rise up
to 24 per cent.
Among the individual unit trust funds, Sanlam, CIC
and Madison Asset money market funds are offering higher effective
annual rates in the market at between 11 and 11.5 per cent, while a year
ago they were offering rates of between 16.7 and 18.8 per cent.
Others are currently offering single-digit
annualised returns, such as Old Mutual (6.4 per cent), British American
(8.9 per cent), CBA (7.8 per cent), ICEA (9.5 per cent) and Dry
Associates (8.2 per cent). A year ago they were offering between nine
and 16 per cent in returns.
Going into 2017, the money market funds will be
looking to take advantage of the recent changes in bank interest rates
to grow their assets under management.
This class of investments was in the last quarter
of the year a beneficiary of the rate-capping law, which also introduced
a rule stipulating that banks must pay a minimum of 70 per cent of the
prevailing Central Bank Rate (CBR) in interest on earning deposits.
This requirement, alongside that on capping
interest chargeable on customer loans at four percentage points above
CBR, has shrunk bank interest margins.
Also this means that banks are no longer in a
position to offer higher deposit rates as an incentive to attract
customer money, which plays into the hands of the collective investment
funds.
“Money market funds have seen increased inflows.
This is because the money market funds compete with the rates that
commercial banks give in deposits.
“While the returns for the money market funds have
been under pressure they are, however, higher than what most commercial
banks are giving on call and fixed deposits,” said Britam Asset Managers
CEO Kenneth Kaniu.
He added that there has also been an increase in
inflows to bond funds, whose returns improved from the third quarter of
the year.
“In the medium term we expect investors to favour bond funds
and money market funds as their returns remain competitive,” said Mr
Kaniu.
cmwaniki@ke.nationmedia.com
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