Effect of Portfolio Mix on Financial Performance of Unit Trust Investments in Kenya

Abstract

Unit trust investments are separate, independent legal trusts set up to meet some stated investment objectives. They are collective investment schemes that pool money together from many investors to form a portfolio and are managed by professional fund managers who invest the funds in equity securities to achieve objectives of the trust. Therei are 26 fund managers, licensed by the Capital Markets Authority in Kenya. It is estimated that investment funds stand at Kshs 500 billion of which Kshs 50 billion are in unit trust funds. Currently the fund managers alone manage an average Kshs 140 billion worth of assets in KenyaThis study set out to determine the effect of portfolio mix on the financial performance of unit trust fund in Kenya. Six determinants of the financial performance were tested. Secondary data collected from 16 unittrust holders was analysed. Desriptive correlational analysis was conducted using SPSS v23. Fund size, expense ratio, market timing and return attribution were found to significantly influence performance of the unit trust funds. Management style and investment policy had no significant effect on the financial performance. From the inferencial analyses, four variables were significant at p-values less that 0.05. This shows that they significantly affect performance of unit trust fund at different intensities. All the Beta values were positive, implying that the influence is positive. The significant variables were: Fund Size (p=0.03), expense ratio (p=0.00), market timing (p=0.00) and return attribution (p=0.01). The beta values for each of the variables were 3.250, 0.195, 0.021, 0.444 for fund size, expense ratio, market timing and security selection respectively. From the research findings portfolio mix significantly affects the financial performance of a unit trust funds in Kenya. Based on these findings there is need for both investors and unit trust fund managers need to acquire some financial management knowledge in order to properly oversee the management of the of the unit trust funds. Investors need to bear in mind that knowlagable asset managers are able to predict future expected returns and use their market timing abilities to sound investment decisions for maximum returns. The study recommends investor education in order for them to acquire some financial management knowledge and properly oversee the management of the of the unit trust funds. There is also need for a push for fair tax systems to the investors in order to promote an investment culture in the capital markets. There is need for the regulator and industry palyers to introduce different investment options to encourage low and middle income earners to benefit from the investment opportunities presented by unit trust.