The effect of portfolio size on the financial performance of Portfolios of investment firms in Kenya

Abstract

The purpose of this study was to determine the effect of portfolio size on the financial performance of portfolios of investment firms in Kenya. The research question therefore was; what is the effect of portfolio size on the financial performance of portfolios of investment firms in Kenya. The research design was descriptive survey study in nature since it focused on all investment firms in Kenya. The population of the study was all the investment firms in Kenya. This implied that the total population of this study is 90 firms as given by the Kenya Association of Investment Groups (KAIG). For representativeness purposes, the current study took a sample size of 50% of the population. This was 45 firms. This sample size was justified since this study could not anticipate how good the response rate would be. The 45 firms must have been in existence for 5 years. The study used secondary data from the financial statements of the investments firms. The selected period was 5 years. The researcher used frequencies, averages and percentages in this study. The researcher used Statistical Package for Social Sciences (SPSS) to generate the descriptive statistics and also to generate inferential results. Regression analysis was used to demonstrate the relationship between the portfolio size and the performance of investment firms The finding reveal that investments firms in Kenya had put the biggest allocation of funds in stocks, followed by real estate portfolio and the least holding was in bond and money market funds. The findings also reveal that that the stocks portfolio generated the highest returns followed by bond and money market returns while real estate portfolio generated the least returns. The first objective of the study was to establish the optimal portfolio size for investment firms in Kenya. The findings in this study indicated that an optimal portfolio should hold between 16 and 20 stocks. The second objective of the study was to determine the effect of portfolio risk on the financial performance of the investment firms. Results indicate that there is a positive relationship between portfolio risk and return