Kenya’s money market funds (MMFs) accounted for a significant 65.5% of all assets under management (AUM) in the country’s unit trust funds (UTFs) industry in Q4’2023, highlighting their growing popularity among investors seeking low-risk returns in excess of bank deposit rates, according to a new report by Cytonn Investments.
The report found MMFs, which invest in short-term government securities, saw AUM growth of 2.8% in Q4’2023 to reach KES 140.8 billion. This growth comes as MMFs offer average returns of 13% compared to bank deposit rates of just 10.1%, making them an attractive option for yield-hungry investors.
“Money market funds in Kenya accounted for KES 140.8 bn which makes up 65.5% of all the funds under management by Collective Investment Schemes for Q4’2023,” the report stated.
Topping the rankings for highest MMF returns was GenAfrica Money Market Fund, which delivered an average annual yield of 15% in Q4, well above the industry average of 13%.
“During the period under review, GenAfrica Money Market Fund registered the highest average effective annual yield at 15.0% against the industry Q4’2023 average of 13.0%,” according to the report.
The growth and popularity of MMFs also signals a shift away from traditional bank deposits towards capital market products for some investors in Kenya.
“We note that there was a 1.0% points q/q increase in UTF growth which can be attributed to the relatively higher returns in the collective investment schemes, especially the MMFs, which have continued to gain traction among investors,” the report said.
Overall, assets under management in Kenya’s UTF industry grew 33.6% year-over-year, outpacing the 24.4% growth in bank deposits over the same period.
“Unit Trust Funds’ assets recorded a y/y growth of 33.6% in FY’2023, coming in above 24.4% cumulative deposit growth for the listed banks recorded as per the last released data in Q3’2023,” according to the Capital Markets Authority data.
Despite the rapid growth, experts say Kenya’s UTF industry remains small relative to GDP compared to other countries, indicating significant room for expansion going forward.
“Kenya’s Mutual Funds/UTFs to GDP ratio at the end of Q4’2023 came in at 3.8%, significantly lower compared to an average of 57.5% amongst select global markets an indication of a need to continue enhancing our capital markets,” the report stated.
To further catalyze growth of UTFs, industry leaders are calling for increased product innovation and diversification, new rules allowing non-bank trustees, attracting diaspora investment, boosting competition, creating specialized sector funds, and ramping up investor education.
“As witnessed by the penetration of Money Market Fund apps resulting in MMFs leading among the unit trust products, there is a need to leverage more on innovation and digitization to improve the coverage and convenience for unit trust investors in Kenya,” the report recommended.
Read the report here.
