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Unit trusts sell bonds to buy stocks as interest rates drop
Unit trusts have proved a popular investment class in the country with 1.2 million Kenyans signing up to the CIS as of June, according to data from the CMA.
Collective investment schemes (CIS) or unit trusts have sold part of their bond holdings, to invest in Nairobi Securities Exchange-listed stocks amid a decline in returns from government securities including Treasury bills and bonds.
Data from the Capital Markets Authority (CMA) third quarter statistical bulletin, published yesterday shows the proportion of listed securities held by unit trust funds increased by more than five-fold or 523 percent to Sh23.7 billion in the quarter ended June from Sh3.8 billion in March this year.
Unit trust funds holdings of securities issued by government meanwhile fell seven percent in the quarter to Sh99.6 billion from Sh107.6 billion in three months ended March, revealing the portfolio shift.
The accumulation in NSE stocks comes amid declining yields on government securities with interest rates on Treasury bills for instance, falling for 13 consecutive weeks as of last week.
The prominence of equities by the funds which primarily favour fixed deposits and government securities, has been attributed to schemes taking advantage of low stock valuations at the NSE even as the stock market sentiment improves.
“Listed securities are mainly shares on the Nairobi Securities Exchange (NSE) which are significantly undervalued, and funds are taking advantage of this by accumulating securities at cheap valuations,” noted Kenneth Maina, a portfolio manager at Etica Capital Limited said in a previous interview.
Unit trusts have equally raised their holdings of immovable property in the same period by 77 percent to Sh914.8 million, from Sh517.1 million previously.
Listed securities now comprise 9.3 percent of the unit trusts total Sh254 billion assets under management, compared to just two percent in March.
The CIS trimmed their holdings of securities, issued by the government which make up 39.2 percent of the funds’ portfolio by seven percent in the period to Sh99.6 billion, from Sh107.6 billion previously.
The funds have equally trimmed holdings in other asset classes including cash and demand deposits, unlisted securities, offshore investments and investments in other CIS schemes.
CISs’ have nevertheless increased investments in fixed deposits by 77 percent in the period, to Sh84.8 billion from Sh66.9 billion in March.
Fixed deposits are unit trusts’ second largest portfolio investments after government securities at 33.4 percent of assets, ahead of cash and demand deposits at 13.9 percent.
Money Market Funds (MMFs) which primarily invest in cash and near-cash assets, remain the most popular category of unit trusts, making up 67.4 percent of all funds under management or Sh171.1 billion. Fixed income funds which invest primarily in Treasury bills and bonds hold about 20.5 percent of unit trusts assets at Sh52 billion.
Other types of unit trust funds include equity funds, balanced funds and other funds which cover vehicles prioritising other asset classes such as dollar-denominated investments.
Unit trusts have proved a popular investment class in the country with 1.2 million Kenyans signing up to the CIS as of June, according to data from the CMA.
Higher returns, increased awareness and regulation has been credited to the growth of unit trusts as an investment vehicle in the country.
“This can be attributed to increased awareness around the regulated investment space, double digit returns as well as more players being licensed by the regulator in the growing capital markets space,” added Mr Maina.
