The Effect of Asset Allocation on the Financial Performance of Unit Trust Schemes in Kenya

Abstract

The main purpose of the study was to establish the impact of asset allocation on the performance of Unit Trust Funds in Kenya. More specifically, the study sought to determine how weight of cash in the fund, weight of bank deposits both fixed and call deposits, weight of treasury bills in the fund, weight of corporate bonds in the fund, weight of treasury bonds in the fund, weight of equity, weight of commercial paper in the fund affected performance of Unit Trust Funds in Kenya. Descriptive research analysis and multi factor model is the type of research design that was employed in the analysis of data. The study collected data between the years 2012 to 2016. The entire population of the 45 registered unit trust schemes was used in the analysis. Data was collected by the use of a data collection form. Regression analysis was performed on the data to determine the nature of the relationship. Additionally a correlation analysis will also be done in order to analyze the significance of the relationship. The study employed the use of regression and correlation analysis to establish the relationship between the various asset classes and the performance of unit trust funds in Kenya. The study results and the tests of significance employed concluded that the various asset classes had an impact on the performance of the unit trust funds in Kenya. The study recommends that Unit Trust Scheme Trustees in Kenya should strike a balance between amount of money held in cash and the one invested in other investments, top management of Unit Trust Funds in Kenya should keep sufficient amount of their investments in bank deposits as this is safer as compared to cash, money Funds in Kenya should invest tactically while allocating funds among the asset classes and within the investment guidelines provided for by the regulator who is the Capital Markets Authority. The Capital Markets Authority should work hand in hand with other stakeholders in the market to introduce new investment platforms that will enhance diversification, flexibility and higher returns while impacting positively in the economy.