The Effect of Portfolio Composition on the Financial Performance of Investment Companies Listed in Nairobi Securities Exchange

Abstract

Investment is the sacrifice of current consumption for future consumption whose objective is to increase future wealth. Effective organizational decision-making is the primary responsibility and the raison of management (Dearlove, 1998). There is a long standing concern that the strategy literature needs a better understanding of how organizational structure and decision-making affect organizational performance. Despite the advantages of Investment Companies listed in Nairobi Stock Exchange, Kenyans have been wary of investing through them challenging the premise that improved market performance should attract new investments. The only entrants into these investment channels are corporate‟s and high net worth individuals. The study sought to determine the effect of portfolio composition on financial performance of investment companies listed in Nairobi Securities Exchange. This study took a descriptive research design approach. The study entailed a census of all the investment companies listed in the Nairobi Securities Exchange. There are five investment companies listed in Nairobi Securities Exchange. The study covered a period of three years starting in the year 2012 to year 2014.The study used secondary data sources available at the companies‟ books of account and the NSE or Capital Market Authority offices. The study used the multiple linear regression equation and the method of estimation was Ordinary Least Squares (OLS) so as to establish the effect of portfolio composition on financial performance of investment companies listed in Nairobi Securities Exchange. The study revealed that portfolio composition affects the financial performance of investment companies listed in the Nairobi Securities Exchange. The study found that investment in bonds positively influences the financial performance of investment companies listed in the Nairobi Securities Exchange. The study also found that investment in real estate and equity by investment companies positively impacted on their financial performance. The study recommends that the management of investment companies to have solid organization structure and policy implementation which will influence their portfolio composition which affect their financial performance.