Factors Affecting the Performance of Unit Trust Funds in Kenya

Abstract

This study aimed at identifying the factors affecting the performance of unit trusts in Kenya. A unit Trust is an arrangement whereby property (shares, bonus and real estate) is held on trust for a large number of investors. This makes unit trust funds the ideal alternative, providing cost effective access to a wide variety of local and international shares / equities (companies listed on a stock exchange), bonds, and money market instruments such as fixed deposits, treasury bills and call accounts. The study focused on registered unit trusts in Kenya from January 2008 to December 2011 categorized as money markets , equity and balanced funds due to the fact that that this were the predominant category of funds representing the extreme ends of the investment spectrum. In the analysis of the factors affecting performance, growth in assets, expense ratio, size of fund, age of fund and the initial investment amount as factors affecting performance of equity, money market and balanced funds were analyzed using Jensen‟s Alpha model. The findings of the study show that growth of fund is a critical determinant of performance of unit trusts. As funds grow larger, they tend to become less efficient in their operations. The study also found that expense ratio, age of fund, fund size, and initial investment amount do not have a key influence on performance.