The assets under management (AUM) of US dollar-denominated unit trust funds reached Sh41.7 billion in the quarter ended December 2024 as retail investors continue to raise their investment in foreign currency assets despite the recovery of the Kenya shilling.
The AUM of dollar funds grew from Sh34.9 billion in the preceding quarter to September 2024. The value of dollar funds, whose indicated returns is in the mid-single digits, has more than doubled from Sh19.4 billion recorded in March 2024.
The Capital Markets Authority (CMA) has approved 26-dollar funds including the Old Mutual USD money market fund, Etica USD money market fund and Arvocap Eurofix fixed income special fund.
Sanlam Fixed Income USD fund was the largest dollar fund at the end of last year with an AUM of Sh12.1 billion.
Growth for the dollar funds has been attained despite the stability of the Kenya Shilling, indicating investors’ desire to maintain diversification across multiple currencies.
The local currency had weakened substantially to hit lows of Sh163.4 against the dollar in January last year before staging a dramatic recovery that has seen it settle at Sh129.1 currently.
The depreciation of the shilling had sparked an interest in hard currencies, drawing in new investors in dollar denominated assets.
Investors have continued to pile into these assets despite the stability of the local currency, indicating a means of both chasing returns and hedging against future economic risks.
The local currency faces multiple risks, including a major foreign debt load and an import bill that is mostly paid for in hard currencies.
Investors in foreign currency assets have mostly been institutions and wealthy households but more asset managers are looking to make the products accessible to more people including by lowering the minimum investable sums.
Dollar funds only differ from other collective investment scheme funds for their currency denominations. This means that dollar funds can take the form of either a money market fund, a fixed income fund, an equities fund, a balanced fund, a shariah fund or a special fund.
The dollar funds primarily invest in US dollar assets, including commercial bank fixed deposits, offshore stocks and US Treasuries.
Most fund managers now offer different dollar funds in response to the ready market for foreign currency investments in the unit trusts space.
Most CISs assets however remain invested in Kenya shilling based instruments, including local bank deposits, Nairobi Securities Exchange stocks, properties, Treasury bills and bonds.
The total AUM of dollar funds is for instance just 10.7 percent of the industry’s assets implying nearly 90 percent of all investments into unit trusts are denominated in local currency.
