The top-five foreign mutual funds investing in Kenya have seen their returns decline by an average of 11 per cent year-to-date, a new report by consultancy PricewaterhouseCoopers shows.
Investor returns have taken a hit from the negative returns in the equities market, while a weaker shilling has simultaneously eroded the dollar returns as they get fewer dollars per shilling on exiting their portfolios.
According to the PwC report on Africa assets management, Luxembourg-based funds St. Galler Kantonalbank-African Dawn fund, Alquity SICAV-Alquity Africa fund and Silk – African Bond fund have seen returns of -17.6 per cent, -9.7 per cent and -1.3 per cent respectively.
The Nile Pan Africa Fund of the US and Finish fund OP-Afrikka A, have seen returns of -6.76 per cent and -22.3 per cent respectively.
“The top five funds investing in Kenya are focused on Africa, with about 80 per cent of their assets invested there, but Kenya forms just one quarter of the allocation. Returns have been negative over the past two years,” said PwC in the report.
“The mutual fund industry in Kenya is relatively newnevertheless, Kenya has ambitious plans and has managed to take the lead in the fund industry of the East African region.”
Mutual funds are investment schemes which pool money from many investors and invest in stocks and other types of securities, with the investment handled by professional fund managers.
The equities in particular have hit the returns of the funds hard, with the main NSE 20 Share Index 12 per cent down in the year.
Prices of large counters with the necessary liquidity to attract foreign and institutional investors have trended downwards.
READ: London fund’s Africa equity returns hurt by NSE decline
Pan African investment firm Allan Grey Africa Equity Fund recently reported a 10 per cent fall in returns from African equities, partly attributing this to its investment in the NSE.
Allan Grey which has holdings in 43 companies across the continent has invested 6.4 per cent of its $247 million (Sh25 billion) fund in the NSE mainly in the CfC Stanbic stock.
The funds could move towards fixed-income investments which are looking up as yields on bonds rise but positive effect on the bottom-line is unlikely to reflect soon.
Locally, pooled investments are done under the banner of collective investment schemes including unit trusts, investment clubs, employee share ownership plans and mutual funds.
However, unequal distribution of wealth in Kenya means that the fund market relies almost entirely on institutional investors.
According to PwC, the recent proposal for developing an alternative market with real estate investment trusts and private equity funds, as well as the ongoing plans to establish Islamic Sukuks and Sharia compliant mutual funds should further deepen the financial market. This could turn around fortunes of the underperforming funds.
“Oil discoveries will drive economic growth which will bring more of Kenya’s citizens into the middle class, which will give quite a boost to the fund industry,” said PwC.