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Why equity funds are struggling to attract investors
Equity funds face competition from investors directly taking stakes in the stock markets through brokerage accounts which allows them to pick individual stocks.
The fear of risk among retail investors and relatively stable returns from instruments such as money market funds (MMF), have seen equity funds struggle to pull in investors even as the stock market rallies.
The assets under management in equity funds –a class of collective investment schemes investing primarily in stocks— remain subdued at Sh2.8 billion, representing about one percent of the unit trust industry assets.
The number of equity funds also remains low at 15 as per data from the Capital Markets Authority (CMA) as of June 2025. In contrast, the number of MMFs, the most popular class of unit trusts, stands at 52 with assets of Sh372.8 billion over the same period.
According to analysts, investors have gravitated towards the much simpler MMFs, which ensure capital preservation and some returns depending on the level of interest rates in the economy.
Additionally, individual investors have shied from the stock market which is deemed as volatile, oscillating between booms and bust.
Most retail investors also choose to participate in equities by direct investments rather than through funds which charge a fee.
“For every Sh100 invested in unit trusts, only about Sh0.50 goes into equity funds,” said Richard Muriithi, a Senior Portfolio Manager at ICEA Lion Group told the Business Daily.
“The mentality that most investors have is that they want their money to earn more than what they achieve by putting their money in the bank and that’s the offering from a money market fund. An equity fund is a very different conversation as you are looking at a longer investment horizon, usually between three and four years.”
Equity funds also face competition from investors directly taking stakes in the stock markets through brokerage accounts which allows them to pick individual stocks.
Technological advancements and market innovations such as the ability of investors to buy a single share have democratised market participation allowing more individuals to own equities directly.
Equities have returned to the investment radar boosted by the recovery of the stock market which delivered average gains of 34 percent in 2024 and 51.7 percent year-to-date, lifting investors' paper wealth at the Nairobi Securities Exchange (NSE) by over Sh1 trillion.
The recovery of the market is expected to revitalise interest in not just direct share ownership but also indirect participation through proxies such as equity funds.
Fund managers expect to stand out from the expertise offered to investing clients where the professionals bet on themselves to deliver more steady return by picking winning stocks in both a bull and bear run.
Equity funds charge investors a fee of between 2 percent and 3 percent on average, while the price of a unit of the fund is based on the collection of stocks comprising each fund.
“A portfolio manager’s work is to combine stocks to be able to earn a return both in terms of capital appreciation and dividend income. The manager can play on both strengths to create a less risky basket,” added Mr Muriithi.
“You can see the benefit of the expertise offered during adverse market cycles as they can select stocks that will ride the wave, shifting the approach from seeking capital gains to more income-oriented counters.”
Equity funds’ managers also set aside cash allowing them to be agile by deploying funds to emerging opportunities including investing in high-yielding cash instruments, a move which can provide buffers in periods of a market downturn.
The stock centred funds have similarities to other types of unit trusts by offering low entry requirements including a minimum investment as low as Sh500 which gives investors exposure to a variety of counters at affordable rates.
Fund managers are betting on more investor education to popularize not just equity funds but also the stock market with the number of individual share accounts at the NSE remaining below 1.3 million as of September 2025.
“The conversation is not as easy to position while the understanding of cash products is much simpler. There is room for people to appreciate the role of equities in wealth creation,” Richard Muriithi said.
