Evaluating Equity Portfolio Performance and the Role of Gold and Usd in Porfolio Management In Zimbabwe

Abstract

Over the past few decades equity investors in Zimbabwe have experienced recurrent episodes of capital depreciation due to raising inflation and debilitating economic conditions. The equity market delivered risk adjusted returns of 15% from 2009 to 2015 during the multi-currency regime. The global boom, wider involvement of emerging markets in stock trading, high capitalisation levels of stock markets and economic crises that have been experienced during the last few years which has adversely affected investors returns have awakened the need to improve portfolio management strategies. Modern Portfolio Theory was developed to reduce portfolio risk of high volatile assets by diversifying portfolios with negatively related assets. To evaluate equity only portfolio and the role of Gold and USD in portfolio management data for 10 years was collected from 2009 to 2019. Gold international price, USD index and ZSE industrial index was used to investigate equity only portfolio, equity and Gold portfolio and equity and USD portfolios’ average returns during distress times to measure average returns during these times. The findings of the study were that USD and Equity portfolio performs better during financial turmoil and USD asset is the best equity portfolio effective hedge in Zimbabwe. Also, we noted that Equity and Gold portfolio performs best on a risk adjusted basis compared to Equity and USD portfolio. From these findings we recommend that investors and portfolio managers should also invest in hard international recognised assets especially in commodities like Gold and hard currency like USD and practice portfolio diversification strategies by increasing assets investments portfolios to reduce portfolio management risk and increase portfolio returns.