The Determinants of Performance of Unit Trusts in Kenya

Abstract

This study aimed at identifying and evaluating the determinants of performance of unit trusts in Kenya. Unit trusts mean any scheme or arrangements in the nature of a trust in pursuance where members of the public are invited to acquire an interest or undivided share (units of investment) in groups of specified securities and to participate proportionately in the income or profit. The study focused on registered unit trusts categorized as money market funds and equity funds as at 31st December 2010 mainly due to fact that this were the predominant category of funds representing the extreme ends of the investment spectrum. In the analysis and evaluation of the determinants of performance, forecasting ability and market timing and security selection ability of the fund managers as determinants of performance of the equity and money market sub-categories of funds was analyzed using the Jensen Alpha modified model. The findings of the study shows that forecasting ability, market timing ability as well as security selection techniques were critical determinants of performance for unit trusts. The equity fund managers possessed both forecasting ability and security selection ability however, they lacked market timing ability. Money market fund managers lacked forecasting ability, security selection ability as well as market timing ability despite the factors having key influence on their performance.