Unit trust funds managed by UAP-Old Mutual Financial Services Uganda Ltd posted strong asset growth last year, but higher operating expenses are worrying investors as the firm seeks to review professional fees and trading activities.

Unit trust funds, commonly known as collective investment schemes, are financial products that allow small investors to pool their savings in a single basket, minimise risk through diverse investments and secure strong returns on their funds by employing financial experts.

These products are regulated by the Capital Markets Authority under the Collective Investment Schemes Act 2003. UAP-Old Mutual launched its unit trust business in 2014 and currently offers three products.

The UAP Money Market Fund, a highly conservative investment window that mainly concentrates on low-risk assets like Treasury bills and bonds plus fixed deposits in commercial banks, saw its total assets drop from Ush3.9 billion ($1.02 million) in 2016 to Ush3.5 billion ($904,913) in 2017. This was partly because of the high number of exits by members during the period.

Investor withdrawal

Smooth entry and exit rules attached to the company’s unit trust funds and fairly harsh economic conditions last year are blamed for the high investor withdrawal rate.

The fund’s annual compounded return stood at 10.88 per cent between 2014 and 2017, according to results released by the company.

The Umbrella Trust Fund, which is an investment window that offers almost even exposure to low-risk assets and high risk assets such as shares and financial derivatives, grew from Ush19.3 billion ($5 million) in 2016 to Ush52 billion ($13.5 million) in 2017.

Its compounded annual return amounted to 11.8 per cent between 2014 and 2017.

The Balanced Fund, a liberal investment channel that offers generally larger exposure to high-risk investments saw its total assets grow from Ush475 million ($123,413) in 2016 to Ush567 million ($147,345) in 2017, while its compounded annual return grossed 8.96 per cent during 2014-17, attributed to poor performance in the region’s stock markets last year.

The combined assets of unit trust funds maintained by the firm increased from Ush23.7 billion ($6.15 million) in 2016 to Ush56 billion ($14.6 million) in 2017.

However, one-off transaction costs and currency losses tied to new investments in the Tanzanian market and significant stock market trading triggered a surge in operating costs by the Money Market Fund and Umbrella Trust Fund during 2017.

The firm invested in Tanzanian government securities and fixed deposits held in local banks collectively valued at less than Ush5 billion ($1.3 million).

This asset portfolio is scheduled to mature by the end of 2020.

Shilling depreciation

These investments were subject to local bank charges and trading fees of 0.58 per cent charged on the value of each transaction done at the Dar-es-Salaam Securities Exchange.

A foreign currency loss of Ush83.1 million ($21,584) was incurred by the Umbrella Trust Fund due to depreciation of the Uganda shilling against the Tanzania shilling.

Trading at the Uganda Securities Exchange also contributed to higher operating expenses recorded by the unit trust funds.

Total investment income by the Money Market Fund fell from Ush531 million ($137,936) in 2016 to Ush474.9 million ($123,361) in 2017 while its overall expenses rose from Ush97.8 million ($25,401) to Ush109.9 million ($28,566).

Total investment income recorded by the Umbrella Trust increased from Ush2 billion ($556,053) in 2016 to Ush4.7 billion ($1.2 million) in 2017 while its total costs surged from Ush381.8 million ($99,156) to Ush1.05 billion ($273,576) during the same period.