Abstract:
This research evaluates the performance of equity mutual funds in Kenya. The objective was to compare fund
performance for the period 1st January 2005 to 31st December 2009. The research was motivated by the facts that
there is hardly any research on mutual funds carried out in less developing economy such as Kenya. The target
population was all mutual funds in Kenya. The research used both primary and secondary data. As a source of
primary data, structured questionnaires and scheduled interview were used. The secondary data included mutual
funds daily returns and annual reports for the period 2005 to 2009 so as to calculate the net asset value and also
performance of mutual funds in Kenya. Performance of mutual funds was analyzed using composite performance
evaluation models. Over the research period, the finding was that the mutual funds did not perform better than
the market on a risk- adjusted basis using various performance measures. The funds were neither preferable nor
outperform the market. Further, there were no portfolio diversifications as shown by lower coefficient of
determination. However, the individual funds risks were generally lower compared to that of the market as
measured using standard deviations and beta. This was consistent with many other empirical findings. The study
found that fund management despite its growth was seen as a back office function, a staff function, or a reporting
function by financial institutions. It is therefore recommended that the financial institutions should view fund
management as a profit Centre and put it on an independent basis so as to enhance its growth. Similarly, there
were many investors whose funds could be pooled so as to realize full advantages of funds management but may
not be so due to lacking of information. The study therefore recommends outreach activities by mutual funds so as
to enlighten investors on its advantages.
