Effects of Asset Allocation on Portfolio Performance of Unit Trusts During Covid-19 Pandemic Era in Kenya

Abstract

This study aimed to investigate the impact of asset allocation on the portfolio performance of unit trusts in Kenya during distinct periods surrounding the Covid-19 pandemic. The primary objective was to assess how the variables of diversification, fund size, volatility, and liquidity influenced portfolio performance before, during and after the pandemic (2019- 2021). The research undertaking made use of a descriptive research design where data was collected from all licensed unit trusts that were in operation for the period 2019, 2020 and 2021. Quarterly secondary data was collected from quarterly reports obtained from the official website of Capital Markets Authority (CMA) and other websites. Descriptive statistics, correlation analysis, and regression analysis were undertaken to explore the relationships between these variables and portfolio performance. The findings revealed a dynamic pattern of portfolio performance, with returns reflecting the evolving risk exposure of investments. Notably, diversification and liquidity exhibited significant impacts on portfolio performance before the pandemic, while the influence of these factors diminished during and after the pandemic. Liquidity emerged as a consistent positive contributor to performance across all periods. The study's implications recommended that investors recognize the changing dynamics of asset allocation factors, adapt strategies to current market conditions, and maintain optimal liquidity levels to navigate uncertainties. Policymakers were urged to foster a flexible regulatory environment that supports prudent asset allocation practices while acknowledging the evolving nature of risk and returns in dynamic market scenarios.