The effect of investment strategies on financial performance of investment funds in Kenya

Abstract

Investment strategy is so crucial for any investment funds manager as it sets of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Usually the strategy will be designed around the investor's risk-return tradeoff: some investors will prefer to maximize expected returns by investing in risky assets, others will prefer to minimize risk, but most will select a strategy somewhere in between. Investment strategies are adopted at organizational, industry and market level and serve as a guide for entering and selecting investment portfolios. The objective of this study was to identify investment strategies adopted by investment funds in Kenya and the effect of the strategies on financial performance of the funds. The population of study was all investment funds in Kenya and census was carried out on the nineteen investment funds since they are not many as given by Capital Market Authority Cap. 485A as of 2013. Primary data was collected through personal interview by use of interview guide to a total of ten investment managers who turned out to give a positive response. Secondary data was also collected from respective investment funds financial reports for the year 2012.Desrcriptive analysis which aims at finding out type of investment strategy was used and classified them either active investment strategy or passive investment strategy. The study concludes that investment funds in Kenya takes an active investment strategy and found out to be integrated into operation investment funds in Kenya; financial performance is of positive influence to investment funds performance and greatly so is liquidity which probably means the investment firms utilize liquid assets to make quick investment which translates to good returns. From inferential statistics, a positive relationship is established between ROA and the Predictor variables which are investment strategy, Leverage, Liquidity, age and size. Chisquare test results show that companies with high liquidity can be said to be better performing as compared to those without or with lower liquidity those frequently cited for their contributory role. While certain factors appear to recur, there is no obvious combination of defining characteristics for financial performance that predicts negative outcomes. Credit control and capability initiatives can help to mitigate potential negative outcomes of rapid financial loss and should be part of a more comprehensive strategy for responsible finance among the investment institutions, which includes customer satisfaction, effective loan recovery mechanisms and financial innovation. Financial capability efforts may also be able to contribute to the adoption of new products and services as well as sustained positive behaviors, such as loan repayment, committing to investing, etc. But to be successful at these tasks, investment literacy and capability programs need to be incorporated in investment sector’s innovation strategie