The Effect of Portfolio Size on the Financial Performance of Portfolios of Investment Firms in Kenya

Abstract

Purpose The purpose of this study was to determine the effect of portfolio size on the financial performance of portfolios of investment firms in Kenya. Methodology: The research design adopted a descriptive survey study. 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. 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.Results: 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. Unique contribution to theory, practice and policy: It was recommended that investment managers should consider increasing the number of stocks from the current average of 13 stocks to between 16 to 20 stocks. Such a portfolio size would be optimal since approximately 91% of risk would have been diversified. This will solve the question in mind of investment managers which has been as to how many individual stocks or investments are needed to compose an optimal portfolio. An optimal portfolio is preferred over a maximized portfolio due to the risk return tradeoff.

Equity Investments, Bond Investments and Financial Performance of Collective Investment Schemes in Kenya

“…Thus, the study fails to reject the null hypothesis. These results are contrary to Kimani and Aduda (2016) who revealed that Muema et al / International Journal of Finance & Banking Studies, Vol 10 No 3, 2021ISSN: 2147 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.…”

“…Despite the dip in the financial performance of the above CIS there is inconclusive evidence indicating the effect of equity investments, bond investments on the Financial Performance of collective Investment Schemes in Kenya making this study key in filling this knowledge gap. Kimani and Aduda (2016) looked at portfolio size and profitability of Kenyan investment firms and found that stock portfolio then bonds and money markets produced the best returns. Kimeu (2015) investigated portfolio composition and returns of NSE-listed investment firms and found that bond investment, real estate and equity positively affected fiscal performance.…”

“…Choi, Fedenia, Skiba, and Sokolyk (2017) in their study on portfolio concentration indicate that concentrated investment strategies yielded the highest returns to investors. Kimani and Aduda (2016) focused on portfolio size and profitability among Kenyan investment firms and found that stock portfolio then bonds and money markets produced the best returns. Kimeu (2015) investigated portfolio composition and its impact on returns of NSE-listed investment firms and reported that bond investment, real estate and equity improve return generating capacity.…”

“…Findings showed that unsystematic risk was positively related to returns among balanced mutual funds. The study failed to specifically indicate how equity investment influences CIS returns Kimani and Aduda (2016). studied effects of portfolio size on fiscal productivity of Kenyan investment firms, obtaining data from financial statements of 45 Kenyan investments firms over a five-year period with findings showing that the highest returns came from stocks portfolio, then bond and money market returns with real estate portfolios reporting the least profits.…”

The Combined Effects of Managerial and Operational Performance of Various Fundamental Components on Stock Selection

“…The proposed model was tested in East African Capital Market (EACMs) which comprise Nairobi Securities Exchanges (NSE), Dar es salaam Stock Exchanges (DSE), Uganda Securities Exchanges (USE) and Rwanda Stock Exchanges (RSE). The selection of the region were influenced by its growth compare to another region in the continent (ADB, 2019), equity is the best stock to trade in the region, although brokers are not competitive, local investors within the national stock markets are less confident on trading equity stock rather they invest on government bonds (Kimani, Aduda and Mwangi, 2017) also, there is an ongoing project sponsored by World Bank to integrate EACMs in one trading platform (Biau, 2018), most important this study is unique on its kind to be conducted in the region.…”