Unit trust returns have held in a tight range in the first two months of the year, reflecting stable interest rates on government securities and bank deposits in the period.
This signals another good year for money markets investors in contrast to fortunes of share investment that has not changed much in the period.
Sector analysis done by Kestrel Capital shows that the effective annual returns from money market funds — which comprise three-quarters of the unit trust industry assets under management — stood at an average of 8.13 percent at the end of last month, compared to 8.49 percent at the beginning of the year.
Fortnightly analysis by the market intermediary shows that the return was range bound between the two rates throughout January and February.
Rates on short-term government paper, which the money market fund managers mainly invest in, have been relatively stable this year.
The rate on the 91-day Treasury bill currently stands at 8.6 percent, compared to 8.5 percent at the beginning of the year, while that of the 182-day paper has remained flat at 10.5 percent.
The one- year T-bill rate has come down slightly from 11 per cent to 10.9 per cent.
“Local interest rates have remained fairly stable in 2017 despite inflationary pressures from ongoing drought conditions and increases in crude oil prices due to disciplined borrowing by the Central Bank of Kenya (CBK).
The upcoming auction and Monetary Policy Committee meeting is expected to shed more light on the CBK’s commitment to low rates in the face of current global and local risks,” said Britam Asset Managers in their latest weekly money markets note.
Among the top money fund managers, CIC is offering an annual return of 11.56 percent compared to 11.39 percent at the beginning of the year, while Old Mutual is offering 6.12 per cent compared to 6.44 per cent.
Stanlib’s effective annual rate stands at 7.04 percent compared to 7.54 percent in January, Equity Investment Bank’s is at 5.54 percent from January’s 5.63 percent, and Britam’s stands at 8.42 per cent from 9.54 per cent in January.
The returns are, however, underperforming the rate of inflation, which stood at 9.04 percent last month.
They were higher than the average fixed deposit rate— which stood at 7.57 per cent last month on call deposits and 8.09 per cent on one-month fixed deposits.
Money market funds comprise the bulk of unit trusts, at 75.8 per cent of the total assets under management, which was estimated by Kestrel Capital to be valued at Sh50.6 billion by the end of June 2016.
Equity funds comprise 14.6 per cent, balanced funds 7.8 percent and bond funds 1.5 percent, and others 0.3 percent.
Returns from equity funds stood at a negative 3.2 per cent last month, but are likely to go up once the dividend yields on blue-chip stocks adjust upwards this year due to lower share prices.
“The accumulation of blue chip stocks is expected to start in the second quarter of 2017 given that some of the dividend yields available earn higher than money market fund returns namely: Barclays Bank (11.4 per cent), Nation Media Group (11.6 per cent), Bamburi Cement (8.9 per cent) and Standard Chartered (8.8 per cent),” said Kestrel capital head of fixed income Alexander Muiruri in the firm’s February fund manager survey.
Credit: Business Daily