Portfolio Returns Using Different Portfolio Management Styles at the Nairobi Stock Exchange

Abstract

The Study exammes and compares portfolio mean return differentials between Active and Passive portfolio management styles/strategies at the Nairobi Stock Exchange (NSE) from April 1996 to December 2001; and determines whether there is a management style that dominates over the other in terms of return performance. This is determined by modelling past performance of actively and passively managed portfolios over the period of study. NSE 20 share index constituent securities were used as surrogate for passively managed portfolio, and top 5 and bottom 5 securities in terms of Price Earnings (P/E) ratio as surrogate for actively managed portfolio. PIE ratio was used to pick securities included in top 5 and bottom 5 securities during the monthly rebalancing of actively managed portfolio. Without factoring in transaction cost, and adopting sensitivity analysis approach and paired t-test at different confidence levels of 90%, 95% and 99%, the study indicates that there is no significant mean return difference between active portfolio management style and passive portfolio management style; hence an investor can opt for any of the portfolio management styles in Nairobi Stock Exchange.