Effects of Asset Allocation on the Portfolio Performance of Mutual Funds in Kenya

Abstract

This study was aimed at assessing the effect asset allocation has on the portfolio performance of mutual funds in Kenya, to increase the literature on this particular subject of study. For this purpose, secondary data was utilised from the annual reports of 36 mutual funds in Kenya that were either licensed by CMA for four years between 2012 and 2015 from this comprehensive data was collected from 34 bring the response rate to 94%. The study focused on the 7 major variables this included; the ratio of cash in the fund, the ratio of fixed deposit in the fund, the ratio of Government security in the fund, the ratio of equities in the fund, the ratio of debt securities in the fund, the ratio of other investment in the fund (off shore investments, real estate investments trust and other unit trusts) and the size of the mutual fund (control variable) measured as a natural log of total assets in the fund. Preliminary statistical tests were then undertaken, this included descriptive statistics that is the standard deviation, the mean, kurtosis, skewness, sharpe ratio and correlation analysis. Thereafter multiple linear regression model used to assess the effect of asset allocation on the portfolio performance. The findings of the study showed that there was a slight effect of asset allocation on the portfolio performance of mutual funds, the significance value from the study was 0.135 which indicates that really there was a slight significant effect of the various asset allocation characteristics and the portfolio performance of mutual funds in Kenya. More so there was no specific assets which could be considered a superior asset from the analysis since all assets showed a P>0.05. The result of this study add to the existing knowledge that fund managers need to not only concentrate on the asset allocation characteristics but also need concentrate other things such as strategies to increase the fund value and also reduce the research costs that are incurred in the management of this funds. Therefore fund managers should seek to frequently review the assets characteristics to ascertain their effect on the fund returns to ensure that investors are earning maximum returns from investing in mutual funds.