An evaluation of investor returns under active vs passive equity portfolio management strategies
Abstract
The study set out to evaluate investor returns under active vs. passive equity portfolio
management strategies and to analyze which strategy offered the highest risk adjusted
returns. Returns were evaluated by calculating returns of investing in a market index,
for a passive strategy, and calculating returns of investing via a fund manager for an
active strategy. These returns were then compared using graphs, charts and tables
Portfolio performance analysis was then carried out using coefficient of variation that
measures relative dispersion and Sharpe ratio that measures mean excess returns per
unit of risk.
The study covered the period from 1st January 2003 to 31st December 2006. The funds
under consideration in this research were British American Equity Fund, Old Mutual
Equity Fund, African Alliance Managed Fund and Commercial Bank of Africa Equity
Fund. The stock market indices under consideration in this study were the NSE 20
share market index and the AIG (EA) 27 share market index.
The study entailed a census of all Fund managers with equity funds that are
authorized to operate as fund managers in Kenya by the CMA. Extensive library
research was used to collect data for the purpose of this study. This entailed
contacting both fund managers, AIG (EA) and the Nairobi Stock Exchange to collect
data relevant for this research.
The research findings showed that with regards to mean excess returns per unit of risk
as computed using the Sharpe ratio, the market indices returns ranked higher than the
fund managers and with regards to relative dispersion as computed using coefficient
of variation, with the exception of British American Equity Fund, the fund managers
ranked higher than the market indices. This therefore implies that market indices
generated higher risk adjusted returns than fund managers and hence, the passive
strategy of indexing offered better returns than the active fund managers.
Publisher
University of Nairobi
Description
MBA Thesis