Unit trusts fund returns drop further in quarter two

A majority of money market fund returns have continued to drop in the second quarter of the year in line with the decline of government securities yields to a three-year low.

A sample of 12 funds shows that investors in nine will receive lower annualised returns over the last three months, continuing a trend that emerged in the first quarter of the year.

Among those showing a decline in annualised returns include Stanlib, with returns declining from 12 per cent in March to 8.2 per cent this month.

Others are ICEA Lion whose returns fell to 10 per cent from 15 per cent, and Pan Africa Pesa fund whose return is at 13.9 per cent from 18.4 per cent.

Others seeing declines are Madison, from 14 per cent to 12.9 per cent, CBA from 11.2 to 8.5 per cent, Equity money market fund from 8.8 to 6.9 per cent and UAP from 5.7 to 4.7 per cent.

Money market funds invest in short-term government and corporate debt, allowing investors who would not otherwise afford the high denomination securities individually to pool their resources and invest under the umbrella of the unit trust manager.

“The 91-day T-bill is trading at 270 basis points below its five-year average of 10 per cent having been coming down steadily over the past two months,” said Cytonn Investments in a market report.

“Yields have remained relatively low and stable on account of eased pressure on domestic borrowing, with the government having exceeded its domestic borrowing target, and increased liquidity as evidenced by a decline in the interbank rate.”

READ: Unit trust investors now face leaner times as treasuries fall

The funds published returns are those already earned by investors, averaged over a period of one year. Investors buying into the funds now will therefore likely get even lower returns based on the current interest rates trend of the government securities.

The interest rate on the 91-day Treasury bill has declined from its 2016 high of 11.7 per cent recorded in January to 7.1 per cent in last week’s auction.

On the 182 and 364-day papers, the rates have fallen from 14.3 per cent each to 9.5 per cent and 10.7 per cent respectively. Recent T-bill auctions have attracted heavy bids from investors, indicating a highly liquid market that would see investors compete more fiercely for the few viable investments available.

Impulsive movements

The returns on the money market fund are still higher than what investors would get from other short term investments such as equities and bank deposits, while the funds themselves are not given to impulsive movements in the market.

A number of funds also invested significant amounts in October last year in one-year government securities, when interest rates were high.

The interest rates on bank deposits for instance are still below what the funds have been paying, at about eight per cent on fixed deposit and 1.6 per cent on savings accounts.

In the equities market, returns have not been promising either.

The NSE 20 share index is 5.6 per cent down year to date, having recorded a 21.9 per cent decline the whole of last year after three years of growth.