Effect of Asset Allocation Decisions on Portfolio Performance of Unit Trusts in Kenya
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Date
2023Author
Njoroge, Francis N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The financial landscape of Kenya, like many emerging economies, is characterized by
a diverse array of investment instruments, with unit trusts becoming increasingly
significant. Understanding how asset allocation decisions impact the performance of
these trusts is critical for both investors and policymakers. This need has been
underscored by the growing prominence of unit trusts in the investment portfolios of
many Kenyans. The tprimary tobjective tof tthis tstudy twas tto tascertain how asset allocation
decisions influence the portfolio performance of unit trusts in Kenya, measured by riskadjusted
ROI. The tstudy twas tbased ton tmodern tportfolio ttheory, tarbitrate tpricing ttheory
tand tcapital tasset tpricing ttheory. The study assessed portfolio performance (Y) using
risk-adjusted ROI. The independent variables under consideration were: Investment in
real estate (X1), measured by the natural logarithm of investments held in real testate;
tInvestment tin tgovernment tsecurities t(X2); tInvestment tin tfixed tdeposits t(X3);
tInvestment tin tshares t(X4); and Fund size (X5), all measured using the natural logarithm
of their respective values. Secondary data was collected from various unit trusts
spanning a period of five years (2018 to 2022). This data was subjected to rigorous
descriptive statistics, correlation analyses, and regression analyses to discern patterns
and relationships. Regression results underscored several noteworthy insights.
Investments in real estate had a coefficient of 0.093 (p=0.001), while government
securities recorded 0.044 (p=0.008). Notably, fund size emerged as a prominent
determinant with a coefficient of 0.114 (p=0.001). Conversely, investments in fixed
deposits and shares did not demonstrate a statistically significant impact on ROI. The
regression model accounted for about 22.46% of the variability in ROI (R-squared
=0.2246), indicating the existence of other influential factors not captured in the study.
The study concludes that asset allocation decisions, particularly in real estate,
government securities, and the overall fund size, play a pronounced role in influencing
the portfolio performance of unit trusts in Kenya. Regulatory bodies and financial
institutions in Kenya should emphasize financial literacy to help investors make
informed decisions. Enhanced reporting and transparency in asset allocations,
especially in impactful sectors like real estate and government securities, should be
mandated. Future research endeavors should explore other potential determinants of
portfolio performance, given the substantial unexplained variability observed in this
study.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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