Firm Characteristics, Inflation and Yield of Money Market Unit Trusts in Kenya
DOI:
https://doi.org/10.53819/81018102t5428Abstract
Investors expected money market unit trusts to deliver above-market returns through professional fund management. However, persistent underperformance relative to benchmarks eroded investor confidence in Kenya, raising concerns about management efficiency, cost structures, and institutional ownership models, while leaving investors with diminished portfolios and missed investment opportunities. This study examined how firm characteristics-specifically institutional affiliation, benchmarks, and management fees-influenced the yield of money market unit trusts in Kenya, with inflation acting as a moderating variable. The research was guided by Transaction Cost Theory, Deming Benchmark Theory, Cost-Plus Pricing Theory, Keynes’s Liquidity Preference Theory, and Inflation Quantity Theory. An explanatory research design was adopted and grounded in positivist philosophy. Panel data covering 2013 to 2022 were collected from 19 money market unit trusts licensed by the Capital Markets Authority (CMA), supplemented by secondary data from CMA, Central Bank of Kenya, Kenya National Bureau of Statistics, and unit trust performance reports. Random Effects panel regression models were applied. Results indicated that institutional affiliation significantly affected fund yield, with independent funds outperforming bank-affiliated and insurance-affiliated funds, achieving yields 1.618 and 1.495 times higher than bank-affiliated funds, respectively, suggesting that bank affiliation may introduce inefficiencies or conflicts of interest. Benchmarks, including bank deposit rates and 182- and 364-Day Treasury Bills, were positively associated with yields, with independent and insurance-affiliated funds demonstrating higher returns. Management fees showed a consistent negative effect on yields; a one-unit increase in fees decreased yield by 0.622, with insurance-affiliated funds exhibiting the strongest negative correlation. Inflation directly affected yields and moderated the impact of management fees, with the moderation model’s R² (8.02%) nearly doubling the explanatory power of individual models (4.12%). The study concluded institutional affiliation, benchmark choice, management fees and inflation jointly determine money market unit trust performance.
Keywords: Institutional Affiliation, Benchmarks, Management fee, Inflation, Yield, performance, Money Market Unit Trusts, Kenya
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