Fund managers expect the continued growth of unit trust assets under management (AUM) despite a drop in interest rates, with investors being seen to favour protecting their initial investment in the asset class over chasing higher returns.
Returns from the unit trusts or collective investment schemes (CISs) have been on a gradual decline in recent months as domestic interest rates mark a downward trend from reduced macroeconomic risks.
The unit trusts AUM grew by 25 percent in the quarter ended December 2024 to Sh389.2 billion from Sh316.4 billion in September 2024 amid the fall in returns.
This was the second fastest quarter of growth for the scheme’s AUM since the Capital Markets Authority (CMA) began sharing data on the unit trusts in 2018.
Retail investors or individuals who form the bulk of unit trust investors are expected to keep funds in the schemes based on their largely low-risk profile.
“The risk appetite for unit trust investors is very low. Most people would rather stay in a place where capital preservation is guaranteed,” said Etica Capital co-founder Kenneth Maina.
A unit trust is a pool of funds run by a professional manager on behalf of investors.
The fund manager may choose to invest in bonds or shares on the stock market, and the fund is split into units, which investors purchase—granting them access to mortgages, securities, mortgages, and cash equivalents.
Many unit trust investors are viewed mostly as risk-averse with the greater motivation being capital preservation over making higher returns in alternative asset classes.
This suggests that an individual investing Sh1,000 in a unit trust will likely be content with making a single-digit return over taking a risk that would potentially lose them part of the principal investment.
Other asset classes such as equities are subject to market swings, which present the chance of eroding part or all of the principal investment.
Unit trust investors are however cognizant of the falling rate of return, which has required fund managers to enhance education around interest rate trends.
The return earned from various unit trusts has come down in tandem with declining yields on commercial bank fixed deposits and Treasury bills, which CISs primarily invest in.
Annual rates of return on select unit trust funds saw the deceleration of earnings by the scheme investors.
The annual rate of return on CIC, Britam, and Kuza money market funds (MMFs) has fallen from 12.67.13.06 and 15.7 percent on December 30, 2024, to 11.2, 12.61, and 14.18 percent as of March 11.
“There are questions daily, how come the rates are coming down? A client will ask come I’m adding more money, but my return is coming down?’” Mr Maina added.
Falling interest rates on the asset class have also not deterred the entry of fund managers as the CMA continues to approve both new players and products.
The CMA has approved at least two new fund managers so far this year including Kenya Alliance Asset Management Limited and Tradiam Investments Services Limited.
The markets regulator has also granted approval to Gufcap Investment Bank to register the Ziidi Shariah Money Market Fund, a product backed by telecoms operator Safaricom.
“There has been substantial growth in the assets under management of collective investment schemes. This has driven the significant interest in the fund management license category,” said CMA chief executive Wycliffe Shamiah previously.
