Returns on offer for most unit trusts have either fallen or remained flat this year as fund managers adjust to the lower interest paid on government paper and bank deposits, as well as an underperforming stock market.
The majority of money market funds, which account for about 80 per cent of the Sh57 billion in total funds under management for the unit trust industry, have largely seen their annualised returns come down since January, mirroring the falling yields on government securities and bank deposit rates.
Four of the five largest fund managers by market share (controlling 77 per cent of the funds under management) have seen their money market yields come down in the 10 months, equity fund returns have also suffered due to the downturn in the stock market from Quarter Two.
“The factors are likely competition from government borrowing that has brought the yield curve lower, improved bank liquidity that has lowered cash deposit returns and high yielding corporate debt issues that had matured,” said Kestrel Capital head of fixed income Alexander Muiruri.
The effective annual yield on the money market fund for the CIC unit trust stands at 9.9 per cent compared to 10.13 per cent in January. CIC runs the biggest fund by market share, accounting for 27 per cent of total under management as per latest Capital Markets Authority (CMA) data from the end of March.
Britam Asset Managers, which is the second largest fund by market share at 17.4 per cent, is the only one among the top five to raise its money fund return, from 8.9 per cent to 10.1 per cent. Old Mutual, the third largest with a market share of 13.6 per cent, has seen its money fund return fall to 5.7 per cent from 6.1 per cent.
Money funds are heavily weighted to government securities (58 per cent), and bank deposits (29 per cent).
In the past 10 months, the interest rate on the 91-day paper has fallen from 8.08 per cent to 7.39 per cent, while that of the six-month paper has come down to 8.32 per cent from 10.65 per cent. On the 364-day paper, which has been popular with investors in recent months, the rate has fallen from 11.15 per cent to 9.52 per cent.
At the same time, the minimum bank deposit rate has come down this year, in line with the falling Central Bank Rate.
The amendments passed in this year’s Finance Bill have done away altogether with the minimum deposit rate, meaning that returns from deposits are likely to fall going forward.