Equity funds trail NSE returns in tough market

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Unit trust funds putting investor funds into select listed stocks have trailed returns of the Nairobi Securities Exchange (NSE) as the schemes struggle to deliver market-beating returns.

Equity funds have posted an average return of 16.6 percent since the start of the year compared to Nairobi bourse gains of 26 percent over the same period.

The performance of the schemes reveals the challenge of beating the market through select stock picks even as unit trusts offer portfolio diversification to retail investors eyeing the Nairobi bourse.

NCBA equity fund delivered the highest return among peers on a year-to-date basis at 21.1 percent, with the price of its unit trust rising to Sh276.41 from Sh228.24 at the end of 2025.

Other equity funds that publish daily pricing data posted varying returns, including Britam at 18.8 percent, CIC at 17.8 percent, African Alliance at 15.2 percent and ICEA at 10 percent.

Equity funds invest mainly in listed shares for long-term capital appreciation.

Issuers of equity funds package selected individual stocks into a single basket with a set price for investors.

A unit holder generates a gain or loss from the fund when the price of the basket changes, depending on the cost of the selected individual stocks.

An equity fund offers investors an opportunity to have exposure to multiple stocks without buying directly into each counter or multiple stocks directly.

Equity funds offer low entry hurdles for retail investors, including a minimum investment of as low as Sh500 with fees ranging from two to three percent.

Low entry points give investors exposure to a variety of counters at affordable rates.

Industry players reckon the performance of equity funds can trail the main bourse for a variety of factors, including price movement of constituent stocks and weighting of shares in the pool.

These funds focus on long-term growth but carry higher risk than money market funds due to market ups and downs.

“Some equity funds may be holding high cash amounts and may have sold off holdings in stocks having assessed the market as overvalued. Smaller funds are also likely to have marked huge client withdrawals,” said Richard Muriithi, a portfolio manager at ICEA Lion Asset Management (ILAM).

“Asset allocation becomes a big differentiator when looking at the performance of an equity fund before delving into underlying holdings, their weighting within the portfolio and how they performed.”

Retail investors buying shares directly at the Nairobi bourse made higher returns compared to the equity fund unit trusts, which pool money from many investors to buy company shares.

The top five counters at the NSE on gains are Car & General, whose share appreciated 247.5 percent since the start of the year, Britam Holdings (102.7 percent), Agrica Mega Agricorp (76.9 percent), Shri Kishana Overseas (70.9 percent) and EA Portland Cement (63.2 percent).

However, the NSE had laggards in the middle of the boom such as Eveready East Africa whose share price fell 27 percent, WPP ScanGroup (-18 percent), Home Africa (-11.1 percent), Umeme Limited (-10.2 percent) and Kurwitu Ventures (-9.6 percent).

Equity funds pride themselves in being able to offer steady returns even in a market downturn scenario by setting aside cash which can be deployed in high-yielding cash instruments to offset losses.

The uptake of equity funds in the Kenyan market has nevertheless been subdued by largely risk-averse investors who would rather settle for stable returns from instruments such as money market funds (MMFs).

Equity funds only made up 0.6 percent of collective investment schemes (CISs)/unit trusts assets at the end of March this year or Sh4.75 billion, albeit a jump from Sh3.5 billion in December 2025.

MMFs contrasted sharply with a market share of 51.9 percent or Sh442.1 billion in assets, while special funds were second with a 23.9 percent market share or Sh203.5 billion in assets.

Equity funds remain the main tool for investor diversification into NSE-listed stocks as instruments like mutual/index funds and exchange-traded funds (ETFs) covering local equities remain absent from the market.

The Capital Markets Authority (CMA) had approved 15 equity funds as of March, compared to 58 MMFs and 38 special funds.

Reporting originally appeared via Business Daily. Read the full source for additional context.