Rise in government borrowing boosts unit trust funds

As fireworks lit the skyline from UAP-Old Mutual tower in Nairobi, 2018 proved to be a good year. FILE PHOTO | NMG 

In Summary

• UAP-Old Mutual Financial Services Uganda offers three unit trust products: A money market fund, an umbrella trust fund and a balanced fund.
• Total assets increased from Ush52,051,564,935 ($13.9 million) to Ush88,012,950,989 ($23.6 million) during the same period.
• Total assets held by the fund rose from Ush567,276,818 ($152,133) in December 2017 to Ush620,003,855 ($166,273) by the end of December 2018

By BERNARD BUSUULWA
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A rise in government borrowing last year and an almost-tripling of contributors from 652 in 2017 to 1,524 in 2018, played a key role in the performance of unit trust funds managed by UAP-Old Mutual Financial Services Uganda Ltd.

UAP-Old Mutual Financial Services Uganda offers three unit trust products: A money market fund, an umbrella trust fund and a balanced fund.

Figures published by the fund management firm show total assets held by its money market fund grew from Ush3,483,912,952 ($934,319) in 2017 to Ush5,077,299,454 ($1.36 million) by end of December 2018.

Total assets increased from Ush52,051,564,935 ($13.9 million) to Ush88,012,950,989 ($23.6 million) during the same period.

Total assets held by the fund rose from Ush567,276,818 ($152,133) in December 2017 to Ush620,003,855 ($166,273) by the end of December 2018.

Overall assets held by the firm’s unit trust funds jumped from Ush56,102,754,705 ($15 million) to Ush93,710,254,298 ($25 million).

Return on assets slightly increased from 9.44 per cent in 2017 to 9.85 per cent in 2018 while for the balanced fund, the figure was 11.08 per cent in 2018 from 6.54 per cent in 2017.

Performance dropped in from 11.14 per cent to 10.85 per cent due to sharp declines in share prices.

“Due to the tough environment prevailing in the stock markets, we have opted to buy cheaper stocks whenever available to us in the market and are also trying to diversify the portfolio further in order to cut our losses,” said Simon Mwebaze, the general manager at UAP-Old Mutual Financial Services.
Whereas government set a domestic borrowing target of Ush1.7 trillion ($455.9 million) for 2018/19, Uganda’s debt issuance ceiling was raised by Ush320 billion ($85.8 million), according to figures compiled by the IMF.

This pushed interest rates earned on some Treasury bonds to more than 16 per cent as investors sought to benefit from the government’s need for cash, under pressure from revenue deficits.

In comparison, interest rates earned on the 91 day Treasury bill stood at around 14 per cent during the same period, triggering higher investor appetite for more rewarding five-year and 10- year treasury bonds.

Faced with gloomy regional stock markets hit by foreign capital flight, shrinking share prices and low trading activity, the firm is also considering venturing into the Nigerian and South African stock markets for its equity portfolio, The EastAfrican has learnt.

…”Locally, on a full year basis, banking stocks posted gains with BOBU, SBU and DFCU going up by 24 per cent, 14 per cent and 21 per cent respectively. While NVL and UCL were the worst performing stocks on a full year basis both falling by 34 per cent in the year”… reads the firm’s unit trust performance report for 2018.

Other players in Uganda’s unit trust market include Stanlib Uganda Ltd and ICEA Investment Services Ltd but comparative performance figures were not available by press time.