According to a new report by Cytonn, Money market funds continued to perform better than all the other asset classes such as equities and real estate in 2021, for the second year in a row.
The analysts at Cytonn attributed the good performance of the Money market funds to their higher returns as compared to the returns offered by the other asset classes.
“Money market funds offer a good safe haven for investors who wish to switch from a higher risk portfolio to a low-risk portfolio, especially in times of uncertainty,” said Cytonn in a statement.
During the period under review, the Cytonn Money Market Fund (CMMF) had the highest effective annual yield of 10.5 per cent compared to an industry average of 8.8 per cent.
Notably, the other asset classes recorded improvements from 2020 with NASI being the largest gainer having increased by 14.1 percentage points to a return of 5.5 per cent, from a decline of 8.6 per cent in 2020, as investors sought to profit from the recovery in stock prices from last year’s lows.
Additionally, the gradual economic recovery following the reopening of the economy contributed to the improvement.
Further, the returns by the various asset classes improved in 2021, with the 364-day, 182-day and 91-day Government papers recording yields of 9.4 per cent, 8.1 per cent and 7.3 per cent, respectively, while real estate yield and NASI recorded returns of 7.1 per cent and 5.5 per cent respectively.
However, the average returns of the top five Money Market Funds recorded a 0.2 percentage points decline to 9.5 per cent in December 2021, from 9.7 per cent recorded in December 2020.
In 2021, there was relatively low demand for Treasury-bills auctions as the average subscription rate came in at 94.1 per cent, down from the 130.9 per cent subscription rate recorded in 2020.
This was due to investors shifting their interest to the bond market in search of higher yields.
On the other hand, primary Treasury-bond auctions in 2021 were on a high demand, with the subscription rate averaging 147.6 per cent, which was higher than the 130.6 per cent average subscription rate recorded in 2020, partly attributable to the ample liquidity in the money market.
The market preferred the medium-term bonds, in a bid to hedge against duration risk.
“We expect the economic recovery seen in 2021 to continue in 2022. Additionally, we expect the interest rates environment to remain stable as the government continues to reject expensive bids in the auction market in an effort to keep the rates low,” said Stellah Swakei, a research and investment assistant at Cytonn Investments.
In the year, the Kenyan equities market gained, with NASI, NSE 25 and NSE 20 increasing by 9.5, 9.8 and 1.6 per cent, respectively.
The equities market performance during the year was shaped by gains recorded by stocks such as, Equity Group, ABSA Bank Kenya, British American Tobacco Kenya, Kenya Commercial Bank and Safaricom Plc.
The gains were however weighed down by losses recorded by banking stocks such Diamond Trust Bank Kenya, Standard Chartered Bank and NCBA Bank.
“We are “neutral” on the equities markets in the short term as the market remained weak in 2021 with NASI’s Price to Earnings (P/E) ratio of 11.3x trading below its’ historical average of 12.9x, and below the most recent peak of 15.9x in April 2018, showing that pockets of value still exist.” said Justin Mwangi, an Analyst at Cytonn.
“We believe that investors should reposition towards companies with a strong earnings growth and are trading at discounts to their intrinsic value,” added Mwangi.
As for the real estate sector, it witnessed increased development activities with a general improvement in real estate transactions, attributed to the improved business environment.
The reopening of the economy also facilitated numerous expansion and construction activities by investors, in addition to various businesses also resuming full operations.
Consequently, the real estate sector grew by 4.9 per cent in Q2’2021, 0.3 percentage points higher than the 4.6 per cent growth recorded in Q2’2020, according to the Quarterly GDP Report by the Kenya National Bureau of Statistics.
“We expect the real estate sector performance to increase, supported by government’s focus to implement affordable housing projects coupled with the improved investor confidence in the country’s housing market,” said Linah Onyango, a real estate research assistant at Cytonn.
“However, factors such as financial constraints, oversupply in the commercial office and retail sectors, as well as low investor appetite in Real Estate Investments Trusts (REITs) are expected to continue dragging the performance of the sector,” added Onyango.
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