Are Higher Returns in Money Market Funds (MMFs) Linked to Higher Risk? A Look into Kenya’s MMFs by Asset Allocation 

In recent months, Money Market Funds (MMFs) have gained popularity among Kenyan investors as a preferred low-risk, interest-earning investment. But with dozens of licensed MMFs in the market, how do we evaluate not just the returns—but the underlying risk? 

We tried to answer this question by comparing the returns (Year-to-Date, 2025) of various MMFs against a risk score based on how their funds are allocated across different asset classes. 

How We Arrived at the Risk Scores 

To keep our analysis objective and data-driven, we built a risk assessment framework using publicly available data from the Capital Markets Authority (CMA) on how fund managers allocate their investments. 

Here’s a breakdown of our methodology: 

1. Asset Allocation Data: We reviewed the asset allocation disclosures for each MMF as reported to the CMA. 

2. Risk Weights Assigned: Each asset class was assigned a risk weight based on standard investment risk principles: 

3. Scoring Each Fund: We calculated the weighted average risk score for each MMF based on their actual portfolio allocations. 

4. Categorizing Risk: Based on the resulting scores, we categorized funds along a risk scale to help identify those with relatively higher or lower exposure to riskier assets. 

What Did We Find? 

We plotted each fund’s 2025 Year-to-Date Return against its risk score by asset allocation. 

Key Observations 

1. Performance vs. Risk 

• Cytonn Money Market Fund has the highest YTD return (16.4%) but also a relatively higher risk level (2.3). This suggests that higher returns may come with slightly increased risk. 

• CIC Money Market Fund has one of the lowest risk levels (1.6) but still delivers a competitive return (12.1%), indicating efficient risk management. 

• Ziidi Money Market Fund has the highest risk level (3.0) but only delivers a 10.5% return, which is relatively low compared to its risk. This makes it less attractive from a risk-return perspective. 

2. Risk Distribution 

• Most funds have a risk level between 1.9 and 2.4, indicating that the majority of money market funds in Kenya operate within a moderate risk range. 

• Only Ziidi Money Market Fund stands out with a significantly higher risk level (3.0), which may indicate a more aggressive investment strategy. 

3. Top Performers 

• The top 5 funds (Cytonn, Lofty-Corban, Etica, Mali, and Kuza) all have YTD returns above 15%, with risk levels ranging from 1.9 to 2.4. 

• Etica Money Market Fund stands out as a top performer with a relatively low risk level (2.0), making it an attractive option for risk-averse investors seeking high returns. 

4. Consistency in Risk Levels 

• Funds like Mali, Genghis, Co-op, ICEA, and Stanbic have risk levels of 1.9, indicating a consistent and conservative approach to risk management. 

• These funds may appeal to investors who prioritize stability over high returns. 

5. Underperformers 

• Equity Money Market Fund has the lowest YTD return (7.1%) despite a moderate risk level (1.9). This suggests inefficiency in generating returns relative to its risk profile. 

• Stanbic Money Market Fund also has a relatively low return (9.8%) with a risk level of 1.9, making it less attractive compared to other funds with similar risk levels. 

6. Risk-Return Tradeoff 

• The analysis reveals a clear tradeoff between risk and return. Funds with higher risk levels tend to deliver higher returns, but this is not always the case. For example, Cytonn and Lofty-Corban achieve high returns with moderate risk, while Ziidi takes on significantly more risk for lower returns. 

• Funds like Arvocap (13.9% return, 1.7 risk) and CIC (12.1% return, 1.6 risk) demonstrate that it’s possible to achieve competitive returns while maintaining low risk. These funds are ideal for conservative investors. 

• On the other hand, Dry Associates Money Market Fund has a higher risk level (2.6) but only delivers a 13.3% return, which may not justify the additional risk. 

7. Market Trends 

• The data suggests that most Kenyan money market funds are clustered around a 12-15% return range with risk levels between 1.9 and 2.4. This indicates a relatively stable and competitive market. 

• Funds that deviate significantly from this range (e.g., Ziidi with 3.0 risk or Equity with 7.1% returns) may need to reevaluate their strategies to remain competitive. 

8. Final Remarks; 

• For Risk-Averse Investors: Funds like Arvocap (1.7 risk, 13.9% return) and CIC (1.6 risk, 12.1% return) are ideal due to their low risk and competitive returns. 

• For Balanced Investors: Funds like Etica (2.0 risk, 15.3% return) and Mali (1.9 risk, 15.2% return) offer a good balance of risk and return. 

• For Aggressive Investors: Cytonn (2.3 risk, 16.4% return) and Lofty-Corban (2.4 risk, 15.4% return) may be suitable, but investors should be aware of the slightly higher risk. 

Beyond Asset Allocation: Other Factors to Consider 

While asset allocation is a critical factor in determining risk, it is not the only one. Investors should also consider the following when evaluating money market funds: 

1. Reputation and Track Record of Fund Managers: A fund manager with a strong reputation and a proven track record of delivering consistent returns is often a safer bet. 

2. Lock-In Periods: Some funds may have lock-in periods during which you cannot withdraw your money. This can affect liquidity and should be considered based on your financial goals. 

3. Minimum Investment Amounts: Funds with high minimum investment amounts may not be accessible to all investors. Ensure the fund aligns with your budget. 

4. Fees and Charges: Management fees, withdrawal fees, and other charges can eat into your returns. Always compare the total cost of investing in a fund. 

5. Regulatory Compliance: Ensure the fund is regulated by the Capital Markets Authority (CMA) to safeguard your investment. 

6. Transparency and Reporting: Funds that provide regular, transparent reporting on their performance and asset allocations are generally more trustworthy. 

We will explore these factors in more detail in future analyses to provide a more comprehensive view of money market funds in Kenya. 

Stay informed and make smarter investment decisions!

Disclaimer 

The contents of this post are for informational purposes only and should not be construed as financial advice. The analysis is based on publicly available data and the writer’s interpretation of risk and return metrics.

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