Pension schemes benefit from rising returns on government securities

Pension schemes saw returns from government securities, including Treasury bonds and bills, rise in the third quarter of the year.

This compensated flat growth in returns from equities and falling income from offshore investments.

A report by Alexander Forbes Financial Services (AFFS) shows that annualised average returns from fixed income investments — mostly government securities — stood at 13.5 per cent in September compared to 8.7 per cent in June.

In comparison, returns from equities grew modestly from 23.7 per cent in June to 24.9 per cent in September, while offshore returns fell from 19.9 per cent to 12.1 per cent. The survey covered 383 schemes with a total of Sh524.9 billion in assets under management. The June survey covered 381 schemes.

According to ABC Capital corporate finance manager Johnson Nderi, the higher returns from fixed income could have been informed by a shift of investment to corporate bonds, which offer rates of up to 13 per cent which is higher than the rate on government securities.

“A lot of corporate bonds have come through this year, and particularly accelerated in the third quarter.

‘‘When you consider the offshore investments, the shilling has since 2013 strengthened against all the hard currencies except the dollar, and so anyone making an investment in these other currencies will have lost value,” said Mr Nderi.

Yields on Treasury bills have remained largely within a tight range of 10 and 11.7 per cent over the past six months for the one year issues, while those of the 91-day paper have averaged between 8.1 and 11 per cent over the period.

READ: Lower yields depress uptake of 6-month T-bills

According to data from the Retirements Benefits Authorities (RBA), blue-chip counters in manufacturing, banking and telecommunications comprise the bulk of pension scheme equity investments, taking up two-thirds of the entire equities portfolio.

Mr Nderi said that those holding on to stocks over a longer term, such as the case of pension schemes, would have seen little appreciation in their holdings over the third quarter.

Some of the counters popular with the schemes, such as Safaricom, EABL and KCB, have largely settled within a narrow price band over the third quarter, where price rallies came largely from the mid and small cap counters.

“With other external developments such as capital gains tax coming in January and uncertainty in the equity market, we anticipate resurgence of the fixed-income market in the mid-term,” said Genghis Capital analyst Silha Rasugu.