The average return generated by money market funds (MMFs), net of fees, has fallen to 9.3 percent as of October 15 from a higher 9.9 percent at the same time last year, mirroring lower interest rates generated by schemes’ underlying assets.
Domestic interest rates including returns from Treasury bills and commercial banks fixed deposits have dropped further this year, reducing the return possible from MMFs which primarily invest in the cash and near cash assets.
The lower returns from the most popular class of unit trusts have coincided with the rise of alternative investments like special funds, underlining investors’ search for higher market yields.
From the 26 MMF returns tracked by this publication, 20 of the vehicles have seen a slump in their annualised return to unit holders, after fees, mirroring the broad dip in earnings from MMFs.
Only six MMFs have been outlied to post an increased annualised return including African Alliance Kenya MMF, Faulu, Genghis, KCB, Madison, and Sanlam Allianz. The number of MMFs with double digits annualised returns remain largely unchanged at 13 from 14.
Interest rates on underlying instruments like the one-year Treasury bill have fallen from 9.39 percent in the middle of October 2025 to 9.03 percent at present.
Returns from commercial bank fixed deposits have equally slumped from 7.5 percent in October 2025 to 6.91 percent as of August this year.
The over 4.1 million individual investors in collective investment schemes/unit trusts which include MMFs have marked a shift towards higher yielding special funds with the growth of assets exclusively in money market funds marking a slowdown.
MMFs as a share of total unit trusts assets fell below the 50 percent mark in the quarter ended June 2026 to 48.5 percent from 51.9 percent in March, while the portion of special funds has grown to 26.6 percent from 23.9 percent.
Assets under special funds grew the fastest in the quarter to June at 24 percent, dwarfing MMFs which posted a growth rate of 4 percent.
“The growth of special funds vis-à-vis MMFs is purely driven by investors chasing returns. Kenyans are synonymous with chasing higher yields,” said Linus Kang’ara, the chief executive officer of Capital A Investment Bank.
“The fact that these higher yields are now being delivered through a regulated product, you are going to see more people coming into the space.”
Special funds have largely delivered higher returns to MMFs by virtue of their multi-asset strategies and exposure to non-traditional asset classes like unlisted equities and offshore stocks.
The alternative funds however feature moderate to high risks as opposed to MMFs which have exposure in low-risk assets like bank deposits and short-term Treasury papers.
MMFs still remain the most popular type of unit trust scheme, but their dominance has been trimmed from as much as a 62.2 percent market share.
Special funds sit in second place ahead of fixed income funds, equity and balanced funds which had market shares of 24 percent, 0.6 percent and 0.2 percent respectively as of the end of June 2026.
The managers of collective investment schemes have favoured expanding into alternative vehicles like special funds over MMFs although the two major classes of unit trust are saturated with players.
The number of funds under both MMFs and special funds is expected to increase further, but the future of the industry is seen largely as offshore thematic funds which offer investors exposure to specific asset types like AI stocks, semiconductors, or metals.
“The more the merrier. The demand we are getting from Kenyans is that they are looking for more opportunities and would want to diversify their investments within special funds, so that they are not just holding all their assets in just one special fund,” added Mr Kang’ara.
Most special funds currently focus on multiple asset classes, but the market has begun to see more specialised funds.
For example, Lofty-Corban Investments Limited pioneered the region’s first private debt-focused special fund in February this year.
