Effect of gross domestic product on financial performance of collective investment schemes in Kenya

Abstract

Collective investment schemes are pools of investments which bank their relevance on management ability to cause investments to be done through them. The main motivation for investment is to increase wealth and therefore fund managers are gauged on their ability to add value to the assets under their stewardship. Like any other investment project, they are affected by conditions within and outside themselves. GDP, which is a macroeconomic factor is one of the key conditions expected to impact of CIS performance. Macroeconomic factors are those factors which can potentially affect the CIS performance but are external to the entities. With their nature, macroeconomic factors are expected to have a varying effect on financial performance and growth of CIS depending on their favorability. This study’s objective was therefore to determine the impact of gross domestic product on the financial performance of collective investment schemes in Kenya. The research was based on the financial intermediation theory, agency cost theory, modern portfolio theory and the financial inclusion and development theories. The study adopted a casual research design and the population comprised of the nineteen licensed CIS in Kenya. The study used quarterly secondary data which was obtained from the Capital Market Authority, Central Bank of Kenya and the Kenya National Bureau of Statistics for a period of 10 years between 2010 and 2019. The collected data was first summarized in an excel sheet and descriptive statistics used to summarize it. A regression technique was then applied using STATA software version 14.2 and results interpreted in line with the research objectives. The analysis was done at four levels based on specific unit trusts which entail Money Market Funds, Balanced Funds, and Equity Funds and Fixed income Funds. The results revealed GDP had a positive and significant relationship with money market funds returns while stock returns had a positive and insignificant relationship with the money market fund returns whereas interest rates had a positive and significant relationship with money market fund returns. The study also found that GDP and interest rates had a positive and relationship with the balanced funds returns respectively while stock returns had a positive and significant relationship with the balanced funds. Further, the study found that GDP and interest rates had a positive and insignificant relationship with the equity funds returns respectively while stock returns had a positive and significant relationship with the equity funds returns. Finally, the study documented GDP, stock returns and interest rates had a negative and insignificant relationships with fixed income funds yields respectively. The study concluded that GDP and interest rates significantly influences the performance of money market funds while stock market performance significantly influences the performance of balanced and equity funds respectively.