Where and when to invest are the two biggest decisions one can make today, and risk tends to be at the top of it.

In an engaging “Virtual Office Hours” session hosted by The Kenyan Wall Street, leading financial experts convened to demystify the often-complex world of asset classes, offering practical insights for both seasoned and novice investors in Kenya. 

In the discussion, featuring Bansri Pattni Chief Executive Officer of AIB AXYS Limited Africa, Solomon Nzomo, Chief Finance Officer at Mi Vida Homes and George Njung’e Senior Portfolio Manager, Britam Asset Managers, shed light on the nuances of real estate, money market funds, equities, and more, emphasizing diversification as a cornerstone of wealth building.

According to Nzomo, Mi Vida Homes’ CFO, real estate is a remarkably resilient asset class, particularly within the residential sector.

“Regardless of how bad the economy is, how good things are, people still need shelter,” Nzomo explained. He further explained that rental yields and capital appreciation are the primary avenues for returns in real estate.

Rental yield offers a predictable monthly income, typically ranging from 6% to 12%, and acts as an inflation hedge, adjusting upwards with the cost of living.

“Capital appreciation: driven by a shortage of well-planned developments and proximity to infrastructure, provides an average appreciation of 5% to 13%. Rental yield and capital appreciation combined can lead to total returns of 11% to 20%.” 

While acknowledging real estate’s lower liquidity compared to other asset classes, Nzomo stressed its vital role in diversifying portfolios and reducing volatility. He also addressed the traditionally high barrier to entry, noting that off-plan purchase schemes now allow for longer payment plans, making real estate more accessible with units starting from as low as Ksh2.5 million. 

Investors are increasingly diversifying their real estate holdings geographically and even through different utilization models, such as Airbnbs and long-term rentals, to gain exposure to various market segments.

Bansri Pattni of AIB AXYS Limited Africa provided a comprehensive overview of money market funds (MMFs), a product that has seen significant growth in Kenya. MMFs, managed by Capital Markets Authority-licensed fund managers, primarily invest in interest-bearing instruments with tenures typically not exceeding 13 months, such as government securities, fixed deposits, and commercial papers. This short-term nature contributes to their high liquidity.

“In the recent past, it’s probably been the most popular unit trust product,” Pattni stated, revealing that MMFs now account for approximately 65% of assets under management in unit trusts.

Regarding their safety, Pattni emphasized the comfort derived from MMFs’ underlying investments, especially government securities, given Kenya’s track record of not defaulting. The strict regulation of the banking industry, where MMFs also place fixed deposits, further enhances their perceived safety. MMFs are highly accessible, with entry points as low as Ksh1,000 to Ksh2,500, offering consistent, predictable long-term returns amidst economic and political shifts.

George Njung’e, the Senior Portfolio Manager at Britam Asset Managers, underscored the critical importance of diversification and understanding one’s risk appetite before investing. Britam offers a wide array of investment solutions, including various unit trust funds (money market, bond, equity, and even USD-denominated options), pension products, and discretionary funds for high-net-worth clients.

Njung’e defined investment risk as the “variability of your level of returns in a certain investment product.” He illustrated this by comparing the predictable returns of MMFs (low variability, low risk) with the potentially higher but less certain returns of investing in a hardware shop (high variability, high risk).

When advising clients, he said Britam focuses on Investment Objective: What are you trying to achieve, Time Horizon: Short-term or long-term goals, Ability and Willingness to Take Risk: Understanding both the capacity for loss and the psychological comfort level, Liquidity Needs: Do you need access to funds at short notice? andTax Implications: Considering the tax efficiency of different products.

Njung’ e cautioned against the misconception that higher risk always equates to higher returns, emphasizing that high-risk products also carry the potential for significant losses. The goal is to align client needs with suitable products, or even customize solutions for corporate and high-net-worth clients.

Bansri Pattni reflecting on her own investment journey, revealed that she began in the equities market. The lower barrier to entry (as little as 100 units of a share) made it an accessible starting point, especially for a new investor with limited capital. While acknowledging personal losses in the equities market, Pattni highlighted the valuable lessons learned about risk management and diversification. Her experience echoed the sentiment that while individual stock picking can be risky, the guidance of fund managers or ETFs can alleviate some of the “hard work” for investors.

A recurring theme throughout the discussion was the evolving investor mindset. It’s no longer just about seeking the highest returns; investors are increasingly prioritizing safety, diversification, and resilience in their portfolios.

“The growing public interest, even in morning shows discussing investment options, signals a rising financial literacy and a proactive approach to wealth management among Kenyans,” noted Njunge.