Question

You are examining a mutual fund.  You see that it is heavily invested in securities that have low price-earnings and price-book ratios relative to the market.  At the same time, its dividend yield exceeds the market yield.  You would conclude that the manager is a…

1. sector rotator.
2. value investor.
3. top-down growth investor.
4. bottom-up growth investor.

Answer 1

The correct option is b. Value investor.

Reason : Value investing means investing in a company that is trading at less intrinsic value or book value. Clearly the investor is investing on the basis low price earnings ratio and low price-book ratios. It is considered that if these ratios are low, the is undervalued and therefore, great for investment and hence, it can be concluded that the investor is a value investor.

Sector Rotator : Under this strategy, it is considered that economy moves in cycles. Each cycle impacts difference industries. Therefore, a sector rotator will always transfer investment from one industry to another inorder to take advantage of cyclic change in economy.

Top-Down Growth Investor :This kind of strategy involve understanding the macros of an economy and then micros of an industry and then selecting a stock from that industry. It is vast approach as it involves lot of research.

Bottom-Up Growth Investor : This kind of strategy involves understanding specific characteristic of individual companies such as business model, market cap etc. After analyzing individual stock factors, investor turns to macro factors. Therefore, it is called bottom up approach as it starts from the bottom i.e.. company and also analyses the top macros.

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