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Capital Markets

Offshore investments and equities lift pension returns

Guests during the launch of Zamara pension product at a Nairobi hotel last year
Guests during the launch of Zamara pension product at a Nairobi hotel last year. PHOTO | SALATON NJAU | NMG 

Improved performance from equities and offshore investments in the second quarter of the year lifted the average returns of pension schemes from the negative position seen in the first quarter.

Analysis by fund administrator Zamara shows that the average return for the second quarter of the year improved to 4.1 per cent in contrast with the negative return of 4.2 per cent in the first quarter.

Zamara surveyed 421 schemes with a portfolio of Sh902 billion in assets under management.

“The median return of the participating schemes was 4.1 per cent compared to negative 4.2 per cent in March 2020.

“The improved performance has been attributed to the recovery of the equities market,” Zamara said in its report.

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The Nairobi Securities Exchange (NSE) experienced a slight recovery in the second quarter with its All Share Index (NASI) gaining by 4.4 per cent despite the sustained uncertainty brought about by Covid-19 pandemic.

The NSE recovery during the quarter under review as well as strong performance on offshore investments helped support overall returns.

Three-month equity returns averaged 5.5 per cent while that of offshore was 26.8 per cent. Fixed income, which is popular with pensions because of low risk, had a return of 3.3 per cent.

Pension funds had put 67.6 per cent of their assets in fixed income, a slight drop from 68.4 per cent in the corresponding quarter last year.

Equities, which also see value reduction as NSE shares drop in prices, accounted for 19.9 per cent of the assets under management.

About 11.8 per cent was in property while offshore had 0.7 per cent.

Returns from NSE investments however look set to come under pressure in the current quarter unless the market pulls a recovery.

The NSE 20 share index on Tuesday hit a 17-year low as most stocks continued to suffer losses as Covid-19 control measures continue to hurt the outlook of many companies.

Investment diversity has remained narrow among pension schemes due to the fear of high risks associated with emerging classes such as private equity and the budgets required for analysing new portfolios.

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