Pension funds started shifting their investments back to equities in the last quarter of last year following a recovery in the stock market, which outperformed all other investment classes in the period following the removal of the rate cap on bank loans.
An industry survey by funds administrator Zamara shows that the allocation to equities rose to 23.5 percent at the end of December from 20.4 percent at the end of September.
At the same time, the funds cut their allocation to fixed income from 67.6 percent to 64.9 percent between September and December, and that of property from 11.3 percent to 10.9 percent in the period.
Allocation to offshore investments remained unchanged at 0.7 percent. “Equities market had a strong performance over the quarter due to robust returns from banking stocks and Safaricom which account for more than 80 percent of the total market value. The banking stocks had a price rally that started in early November upon the repeal of the interest cap law,” said Zamara in their 2019 survey.
“The robust performance set up the equity asset class as the best performing asset class over the quarter and one-year periods.” The weighted average return from equities in the last quarter of 2019 stood at 17.5 percent, compared to 1.4 percent for fixed income and 6.2 percent for offshore investments.
For the whole year, the returns from equities stood at 33.3 percent, beating fixed income which returned 12.7 percent and offshore investments at 25.9 percent.
The higher returns from the riskier stock market investments thus benefited aggressive schemes more than their moderate and conservative counterparts. Zamara rates aggressive schemes as those which allocate less than 65 percent of their assets to the risk-free fixed income class. Moderates schemes allocate between 65 and 80 percent of their assets to fixed income, while the conservative schemes put in more than 80 percent.
Zamara surveyed 419 schemes with a total of Sh885 billion of assets under management.