Pension funds that carry a higher exposure to equities and offshore assets saw their returns in the first quarter of the year trail their fixed income-oriented peers by 2.4 percentage points after the sharp rise in bond prices rewarded those holding the securities.
Analysis by fund administrator Zamara shows that in the period, the average return from fixed income assets stood at 7.9 percent, with equities at 4.8 percent and offshore assets at negative 5.3 percent. The overall average return for the schemes stood at 7.1 percent.
Aggressive schemes—which form a minority in the traditionally risk averse sector—held 32 percent of their assets under management (AUM) in volatile quoted and unquoted equities, and offshore assets by the end of March, while allocating only 42 percent to fixed income securities.
The remainder was held in property, real estate investment trusts (Reits) and private equity investments.
On the other hand, conservative schemes held 84 percent of their assets in fixed income securities, while allocating 10 percent to quoted equities, four percent to property and the remaining two percent to Reits and offshore assets.
The aggressive schemes returned an average of 4.7 percent from their assets, while the conservative schemes had an average return of 7.1 percent. Those with a balanced mix of the two made an average return of 6.8 percent.
Zamara analysed the risk profile of the sector by sampling 409 schemes with Sh1.16 trillion in assets under management (excluding property).
Of these, 324 schemes with Sh734.6 billion in AUM adopted a conservative approach to investment, while four schemes with Sh16.8 billion in AUM were placed in the aggressive category. The remaining 81 schemes, which held Sh412.4 billion in assets, were deemed to have a moderate investment approach.
For schemes with a strong focus on fixed income, returns were amplified by rising bond prices—hence upward revaluation of the value of bond assets— in the secondary market at the Nairobi Securities Exchange (NSE), following a fall in yields as interest rates in the economy continued to decline.
In the secondary market, bond yields and prices have an inverse relationship, whereby an increase in one signals a decrease in the other.
The yield decline signals that new issuances are paying less compared to the ones floated previously, meaning that those holding the older, higher interest bonds demand a premium when selling them at the NSE.
In the equities market, growth in investor wealth slowed in the first quarter compared to the corresponding period in 2024, reflecting the high base effect of the sharp gains the market made last year.
In the period, the NSE added Sh116.3 billion in market capitalisation (the measure of investor wealth) to Sh2.06 trillion. By comparison, in the first quarter of last year, the NSE made a gain of Sh327.9 billion, having started from a low base in 2023 when the market was in a bear run.
Offshore returns, meanwhile, went negative following a dip in interest earnings on foreign financial assets after major economies cut their rates after a fall in inflation.
