Abstract
Purpose: The purpose of this study was to determine the effect of portfolio size on the financial performance of portfolios of investment firms in Kenya.Methodology: The research design was descriptive survey study in nature since it focused on all investment firms in Kenya. The population of the study was all the investment firms in Kenya. This implied that the total population of this study is 90 firms as given by the Kenya Association of Investment Groups (KAIG). For representativeness purposes, the current study took a sample size of 50% of the population. This was 45 firms. This sample size was justified since this study could not anticipate how good the response rate would be. The 45 firms must have been in existence for 5 years (2007 to 2011).Results: The finding reveal that investments firms in Kenya had put the biggest allocation of funds in stocks, followed by real estate portfolio and the least holding was in bond and money market funds. The findings also reveal that that the stocks portfolio generated the highest returns followed by bond and money market returns while real estate portfolio generated the least returns. The first objective of the study was to establish the optimal portfolio size for investment firms in Kenya. The findings in this study indicated that an optimal portfolio should hold between 16 and 20 stocks. Unique contribution to theory, practice and policy: It was recommended that investment managers should consider increasing the number of stocks from the current average of 13 stocks to between 16 to 20 stocks. Such a portfolio size would be optimal since approximately 91% of risk would have been diversified.
Highlights
Background of the StudyEconomic agents save so as to take care of future expenses which can not be estimated with accuracy
The finding reveal that investments firms in Kenya had put the biggest allocation of funds in stocks, followed by real estate portfolio and the least holding was in bond and money market funds
The findings reveal that that the stocks portfolio generated the highest returns followed by bond and money market returns while real estate portfolio generated the least returns
Summary
Background of the StudyEconomic agents save so as to take care of future expenses which can not be estimated with accuracy. There is a variety of reasons why an economic agent such as a household or a firm can engage in investments. The primary reason for engaging in investment is to earn returns. Another reasons for investing is to increase some ones wealth. The only way to protect savings is to invest in products that have the ability to grow at a faster rate than that of inflation. Another reason to invest is to achieve the longer term financial goals such as retiring from work to live a life of leisure. It can be investing the money to provide a certain level of income during retirement (Pozen & Hamacher, 2011)
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