Question
In: Finance
A mutual fund manager achieve 12.7% annual return during last year. Is it possible that this...
A mutual fund manager achieve 12.7% annual return during last year. Is it possible that this is associated with inferior performance?
Solutions
Expert Solution
While looking at a fund's performance, do not be led by the fund's return in isolation. A scheme may have generated a 12.7 percent annualized return in the previous year, but then, even the market indices would be moving around that figure. Underperformance in a down market, i.e. when the NAV of the fund falls more than its benchmark (or the market), could still be a reason to review your portfolio.
Therefore, compare the portfolio return as against its benchmark indices return. A scheme not being able to beat its benchmark on a constant basis, need not be in place in your portfolio. If there are under-performing funds, then replace them with front runners after cautiously evaluating the new buys. Prominently, identifying under and over-performing funds is a need for a longer time horizon.
Chasing the past returns of mutual funds is not a very good idea. It’s not like that you should ignore it. But it should be considered along with other points.
As per the market study the past performance hardly ever provides adequate information to allow fund selection or elimination. And most of the time, present performance can be an illusion.
jeff jeffy answered 5 months agoRelated Solutions
12. A mutual fund has earned an annual average return of 15% over the last 5...
12. A mutual fund has earned an annual average return of 15%
over the last 5 years. During that time, the average risk-free rate
was 2% and the average market return was 12% per year. The
correlation coefficient between the mutual fund’s and market’s
returns was 0.7. The standard deviation of returns was 30% for the
mutual fund and 22% for the market. What was the fund’s CAPM
alpha?
Stuck on this. Any help would be greatly appreciated.
The following tables shows 5 year returns of different funds Mutual Fund Annual Return (%) Year...
The following tables shows 5 year returns of different funds
Mutual Fund
Annual Return (%)
Year 1
Year 2
Year 3
Year 4
Year 5
Stocks
12.01
11.22
13.47
45.42
-21.93
Bonds
17.64
4.25
7.51
-1.33
7.36
Aggressive Growth
32.41
18.71
30.09
41.46
-23.26
Aggressive Value
32.36
20.61
12.93
7.06
-5.37
Moderate Growth
33.44
19.40
6.77
58.68
-9.02
Moderate Value
24.56
25.32
-6.70
5.43
17.31
Let’s assume the minimum return every year across all the funds
is M. This means...
For a recent 10-year period, a mutual fund company reported performance (average annual return) for two...
For a recent 10-year period, a mutual fund company reported
performance (average annual return) for two of its funds as
follows:
FUND
AVERAGE RETURN
Equity-Income Fund
10.50 percent
Personal Strategy Growth Fund
9.50 percent
Assume you invested $10,000 in each fund at the beginning of
this 10-year period.
(a) How much difference would there be in the ending wealth (after
10 years) between the two funds?
(b) For the same two funds, the ending wealth after five years was...
For a recent 10-year period, a mutual fund company reported performance (average annual return) for two...
For a recent 10-year period, a mutual fund company
reported performance (average annual
return) for two of its funds as follows:
Fund Average Return
Equity-Income Fund 10.50 percent
Personal Strategy Growth Fund 9.50 percent
Assume you invested $10,000 in each fund at the beginning of this
10-year period.
(a) How much difference would there be in the ending wealth (after
10 years) between the
two funds?
(b) For the same two funds, the ending wealth after five years was
$1.45...
A mutual fund manager expects his portfolio to earn a rate of return of 11 percent...
A mutual fund manager expects his portfolio to earn a rate of
return of 11 percent this year. The beta of the portfolio is 0.8.
If the market risk premium is 10 percent and the risk-free rate is
4 percent, is it a good idea to invest? How could you use a stock
index fund (S&P 500 index) and risk-free fund (invested in
T-bills) to create a portfolio with the same risk as the manager,
but a higher return?
Last year, you invested $90,000 into Jones mutual fund. The fund had a NAV of $45...
Last year, you invested $90,000 into Jones mutual fund. The fund
had a NAV of $45 when you opened your account. Jones fund charges a
3% front end load and a 2% back end load. During the course of the
year, the fund paid $5/share in distributions, which you fully
reinvested in the fund by purchasing new shares at a price of
$44/share. The fund currently has a NAV of $48.
How many shares did you buy when you opened...
A portfolio manager claims that the mean annual return on one of the mutual funds he...
A portfolio manager claims that the mean annual return on one of
the mutual funds he manages equals 8%. To substantiate his claim,
he states that over the past 10 years, the mean annual return for
the mutual fund has been 9.5% with a sample standard deviation of
1.5%. Assume annual returns are normally distributed.
a. Do a hypothesis test to test the portfolio manager's claim a
5% significance level.
b. Find 95% confidence interval for the population mean annual...
In 2011-2015, mutual fund manager, Diana Sauros produced the following percentage rates of return for the...
In 2011-2015, mutual fund manager, Diana Sauros produced the
following percentage rates of return for the Mesozoic Fund. Rates
of return on the market index are given for comparison.
2011
2012
2013
2014
2015
Fund
?1.4
+24.3
+40.3
+11.3
+0.5
Market index
?0.8
+15.0
+31.3
+10.6
?0.6
Calculate (a) the average return on both the Fund and the index,
and (b) the standard deviation of the returns on each. (Do
not round intermediate calculations. Round your answers to 2
decimal...
In 2011-2015, mutual fund manager, Diana Sauros produced the following percentage rates of return for the...
In 2011-2015, mutual fund manager, Diana Sauros produced the
following percentage rates of return for the Mesozoic Fund. Rates
of return on the market index are given for comparison. 2011 2012
2013 2014 2015 Fund −1.3 +25.0 +41.0 +12.0 +0.4 Market index −1.0
+17.0 +32.0 +11.3 −0.8 Calculate (a) the average return on both the
Fund and the index, and (b) the standard deviation of the returns
on each. (Do not round intermediate calculations. Round your
answers to 2 decimal...
In 2011-2015, mutual fund manager, Diana Sauros produced the following percentage rates of return for the...
In 2011-2015, mutual fund manager, Diana Sauros produced the
following percentage rates of return for the Mesozoic Fund. Rates
of return on the market index are given for comparison.
2011
2012
2013
2014
2015
Fund
−1.3
+24.2
+40.2
+11.2
+0.4
Market index
−0.7
+14.0
+31.2
+10.5
−0.5
Calculate (a) the average return on both the Fund and the index,
and (b) the standard deviation of the returns on each.
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