Investment Portfolio and Financial Performance of Collective Investment Schemes in Kenya

Abstract

The collective investment schemes in Kenya have witnessed increased volatility in their earnings, resulting in irregular growth in the industry. This necessitates the need to understand the factors contributing to poor financial returns from collective investment schemes. Empirical evidence shows that decision on investment portfolio composition positively affects financial outcomes. This evidence on the nature of the relationship between investment portfolio and financial performance of collective investment schemes is inconclusive in the Kenyan context. Consequently, this study investigated the effect of investment portfolio on financial performance of Kenyan Collective Investment Schemes. The specific objectives were: To assess the effect of equity investments, bond investments and money market investments on financial performance of collective investment schemes in Kenya. The study further assessed the moderating effect of firm size on the relationship between investment portfolio and financial performance of collective investment schemes in Kenya. The study was anchored on: modern portfolio theory, the efficient market hypothesis, the prospect theory and stakeholder’s theory. The positivism philosophy was applied, with the firm adopting an explanatory research design. The target population was 17 Collective Investment Schemes registered by the Capital Markets Authority and were operational in the period 2010 to 2018. The time scope was 9 years (year 2010 to year 2018). Secondary data was sought from the Capital Markets Authority Annual reports and from the respective websites of the Collective Investment Schemes. Data was analyzed using descriptive statistics, correlational analysis and panel regression analysis. Hypotheses were tested at a significance level of 0.05. Findings indicate that equity investment, bond investments and money market singly have an insignificant effect on Collective Investment Schemes’ return on assets. Further, equity investments had a positive and significant effect on liquidity whereas bond and money market investments singly had an insignificant effect on liquidity. The study found that investment portfolio had a significant effect on the liquidity of the collective investment schemes. Further, it was found that firm size had a positive and significant moderating effect on relationship between investment portfolio and liquidity of Collective Investment Schemes in Kenya. The study further found that firm size had no significant moderating effect on the relationship between investment portfolio and return on assets of Collective Investment Schemes in Kenya. The study recommends that Collective Investment Schemes actively revise their equity investments and bond investments to stimulate financial returns. Further, the firms should engage in emerging money market opportunities as a source of income. The firms, through alliances, can shore up their size which can limit systemic risk and enhance their capacity to improve on the quality of their investments.