Tactical Portfolio Adjustments and Profitability of Member Firms of the Nairobi Securities Exchange, Kenya

Abstract

Tactical portfolio adjustments within the Portfolio hedging aims to reduce the risks linked to market volatility, safeguarding investments from potential losses. It enables firms to maintain a well-balanced portfolio by employing strategies that offset unfavorable price movements in specific assets or market segments. As a result, the profitability of brokerage firms depends on how effectively they manage these risks. Member firms of the Nairobi Securities Exchange (NSE) are essential in enabling securities trading within Kenya's capital markets. However, despite their important role in the country’s financial sector, challenges in managing portfolio risks have impeded their growth. The current study was undertaken to assess the effect of tactical portfolio adjustments on profitability of member firms of the Nairobi Securities Exchange. The study was anchored on modern portfolio theory. A descriptive research design was adopted to systematically capture and analyze the phenomenon. The target population comprised member firms of the Nairobi Securities Exchange. Data was collected using a questionnaire and analysis was aided by SPSS. The study utilized both descriptive and inferential methods for data analysis. The results revealed that tactical portfolio adjustments (r = 0.735, p = 0.000) had strong and positive relationships with profitability. The coefficient of determination was (R² = 0.540), indicating that tactical portfolio adjustments explained 54% of the variation in profitability. This demonstrates that profitability is to a great extent determined by tactical portfolio adjustments. The study concludes that tactical portfolio adjustments play a central role in stabilizing earnings and enhancing financial resilience among firms at the Nairobi Securities Exchange. It is recommended that member firms of the Nairobi Securities Exchange deepen the integration of portfolio hedging into their investment strategies to balance risks with sustainable returns and profitability.