Fund Characteristics and Performance of Unit Trusts in Kenya
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Date
2021
Authors
Namu, Nthimba Anderson
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
When investors take part in any investment, increasing their wealth is the main objective. The objective is achieved when there is increase in share prices. The performance of unit trusts in Kenya however, has been poor compared to the counterparts in the rest of the world. The poor performance is a discouragement to individual and corporate investors in addition to affecting the realisation of financial stability according to the Kenya vision 2030. Empirical literature from developed and emerging markets posits that fund characteristics explain the unit trust funds performance. There is limited empirical literature in Kenya explaining the effects of fund characteristics on the performance of unit trust funds. The study therefore investigated the effects of fund characteristics on the performance of unit trust funds in Kenya. The specific objectives of the study were to: determine the effect of operating expenses on performance of unit trust funds in Kenya; the effect of fund size on performance of unit trust funds in Kenya: the effect of systematic risk on performance of unit trust funds in Kenya and the effect of unsystematic risk on performance of unit trust funds in Kenya. The study also sought to establish the moderating effect of inflation on the relationship between operating expenses, fund size, systematic risk, unsystematic risk and performance of unit trust funds in Kenya. The underpinning theories of the study were modern portfolio theory, arbitrage pricing theory, capital asset pricing model and Fama and French model. Positivism philosophy and explanatory research design and were adopted in the study. The population comprised 16 unit trusts with 99 equity funds, 107 money market funds, 85 bond funds and 100 balanced funds in Kenya as at the end of the year 2017. The study used a census approach. Secondary data was collected from the audited financial statement of respective unit trusts for the period 2005 to 2017 using a data collection schedule. Descriptive analysis done included the mean and standard deviation. Inferential statistics which included panel regression was also performed aided by e-views version 9. Diagnostic tests conducted included normality, heteroskedasticity, multicollinearity, stationarity and model specification. The study upheld issues relating to the ethical conduct of research by seeking permission from relevant authorities before collecting data. The study found that, operating expenses have a significant negative effect on performance in equity fund and money market fund and a significant positive effect on performance in bond fund and balanced fund. On fund size, the study found a significant positive effect on performance in all funds. Further, the study found systematic risk to have insignificant effect on performance in bond fund and balanced fund and significant effect on performance in equity fund and money market fund. In the unsystematic risk, the study found a significant effect on performance in the equity fund and money market fund. Besides, the study also found inflation rate to have a significant moderating effect on the relationship between fund characteristics and performance of unit trust funds in Kenya. The study concluded that: increase in operating expenses decreases performance; increase in fund size increases performance; increase in systematic risk increases performance and decrease in unsystematic risk increases performance. The study contributes to methodology, finance theory and empirical literature. The recommendations of the study the regulator should come up with a threshold for operating expenses within which unit trusts can charge based on various funds. There should also be policies regulating the amount of investment to be made for each fund in order to capitalise on the returns. The limitations underlined included: inadequate empirical evidence in Kenya; nonexistence of a unified ordering of accounting items.
Description
A Thesis Submitted to the School of Business in Partial Fulfilment of the Requirements for the Award of Degree of Doctor of Philosophy in Business Administration (Finance) of Kenyatta University, August, 2021
Keywords
Fund, Characteristics, Performance, Unit Trusts, Kenya