...available to you are stock in East Coast Yachts, the Bledsoe S&P 500 index fund, the Bledsoe Small-cap fund, the Bledsoe Large-Company Stock Fund, the Bledsoe Bond Fund, and the Bledsoe Money Market Fund. You have decided that you should invest in a diversified portfolio, with 70 percent of your investment in equity, 25 percent in bonds, and 5 percent in the money market. You have decided to focus your equity investment on large-cap stocks, but you are debating whether to select the S&P 500 Index fund or the Large-Company Stock Fund. In thinking it over, you understand the basic difference in the two funds. One is a purely passive fund that replicates a widely followed large-cap index, the S&P 500, and has low fees. The other is actively managed with the intention that the skill of the portfolio manager will result in improved performance relative to an index. Fees are higher in the latter fund. You’re just not certain on which way to go, so you ask Dan Ervin, who works in the company’s finance area, for advice. After discussing your concerns, Dan gives you some information comparing the performance of equity mutual funds and the Vanguard 500 index fund. The Vanguard 500 in the world’s largest equity index mutual fund. It replicates the S&P 500, and it’s return is only negligibly different from the S&P 500. Fees are very low. As a result, the Vanguard 500 is essentially identical to the Bledsoe S&P 500 index fund offered in the 401k plan, but it has been in existence...
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...A job at S&S Air Chapter Case Click Link Below To Buy: http://hwaid.com/shop/a-job-at-ss-air-chapter-case/ You recently graduated from college, and your job search led you to S&S Air. Because you felt the company's business was taking off, you accepted a job offer. The first day on the job, while you were finishing your employment paperwork, Chris Guthrie, who works in finance, stops by to inform you about the company's 401(k) plan. A 401(k) plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are dedicated from your current pre-tax income, so no current taxes are paid on the money. For example, assume your salary will be $30,000 per year. If you combine $1,500 to the 401(k) plan, you will pay taxes on only $28,500 in income. No taxes will be due on any capital gains or plan income while you are invested in the plan, but you will pay taxes when you withdraw the money at retirement. You can contribute up to 15 percent of your salary plan. As is common , S&S also has a 5 percent match program. This means that the company will match your contributions dollar-for-dollar up to five percent of your salary, but you must contribute to get the match. The 401(k) plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund's...
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...investor in a company profits along with the company. As a shareholder, when the company makes money, the investor also does. There are many ways to invest in the stock market, but it is my opinion that investing in mutual funds is probably the most appropriate way for the average person, without expertise in stock analysis, to make money. This paper plans to inform the reader on how to purchase stocks and mutual funds and which are appropriate for investing and retirement. Investing in the Stock Market When an investor owns a share of a company’s stock, he/she receives part of the company’s profit or bears some of the company’s losses, if the company does not do well (investopedia, 2011). When company does make profit for the year, there are two basic options that the company can do with the profits. They can either reinvest the profits back into the company or they can pay them out in the form of dividends. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth. Dividends can be thought of like cash payments back to shareholders for a job well done (“Get both dividend,” 2011). Most people that invest in the stock market do so by means of mutual funds, usually offered by their employer (such as through a 401k) or through an IRA. The 401k takes its name from the section of the tax code that allows for company-sponsored retirement accounts. (IRS, “401k,”11) ...
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...is confused on whether to select the Vanguard 500 index fund or equity mutual funds. Assignment Questions The 401(k) Account at East Coast Yachts mini case asks to provide details regarding implications drawn from a provided graph for mutual fund investors. Additionally, the mini case asks whether the graph is consistent with market efficiency. Furthermore, the mini case seeks to understand the reason for making an investment decision for the equity portion of a 401(k) account. Graph for Mutual Fund Investors The general desire for an investor is to receive a return on their investments. The mutual fund has to outperform the market return in order to produce profits. However, mutual funds are unlikely to outperform the market because they usually have average market returns before expenses (Ross, Westerfield, & Jaffe, 2013). Considering the fund managers are responsible for making decisions and achieving results, they often take a high fee, which adds to expenses and deducts from the funds overall value. Additionally, no more than half of equity mutual fund investors are likely to outperform the market (Ross et al., 2013). Once the costs of the expenses are considered, the number drops to well below half. Consequently, determining whether the account is efficient is not important unless the mutual fund manager outperforms other investors and managers. Considering the average expense ratio, it is unlikely that the mutual fund manager would outperform the market (Ross et...
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...the advent of the internet. They could call a stockbroker and place an order for a particular stock, (usually paying a commission of about $100.00 - $200.00 dollars per trade), or they could invest (buy shares) in a mutual fund which held many different stocks and offered diversification to the investor, many (but not all) mutual funds do not charge a commission. If the investor wanted to spread their risk among many different parts of the economy, a mutual fund was the main and most cost-effective way to accomplish that objective. ETFs have some similarities to mutual funds, but this article will highlight some of the differences between ETFs and mutual funds. ETFs and mutual funds are both investment companies, (legally classified as “open-end” companies), but ETFs and mutual funds function differently, and the difference in the way they function is what allows ETFs to be able to be more tax-efficient than a mutual fund. Mutual funds “pool together” investors’ funds and buy stocks in proportion to the total amount invested. The size of the fund can vary based on inflows and outflows by investors. Usually a fund is large enough so that buys and sells do not significantly affect the size of a fund on a day-to-day basis. In a very simple example, if a mutual fund had $1,000,000.00 to invest (ignoring cash requirements by regulators), they could invest $50,000.00...
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...investment strategy. This portfolio was concentrated in large cap U.S equities and domestic mutual funds. There was a blend of small cap growth stocks, which were selected based on potential for large growth. This decision was in line with our primary goal of maximizing growth. The portfolio is highly focused in the technology sector in order to capitalize on advance in the short-term. The portfolio is tailored to an investor with high-risk tolerance. The Money Team held on to its U.S equities throughout the course of the time horizon. The only changes The Money Team made to its portfolio during the time horizon was selling underperforming bonds. Below is the holding period return data for each of The Money Team’s assets: Company Name | QTY | Currency | Price Paid | Last Price | Profit/Loss (local curr) | P/L % | 3-D Systems Corp (Delaware) | 100 | USD | $55.96 | $75.38 | $1,942.00 | 34.70 | Rite Aid Corp | 1000 | USD | $4.59 | $5.75 | $1,160.00 | 25.27 | Virtus Investment Partners Inc | 100 | USD | $168.00 | $202.04 | $3,404.00 | 20.26 | Nokia Shs Sponsored American Deposit Receipt Repr 1 Sh | 500 | USD | $6.64 | $7.88 | $620.00 | 18.67 | Apple Inc | 300 | USD | $474.81 | $560.02 | $25,563.00 | 17.95 | Boeing Co | 100 | USD | $118.68 | $135.18 | $1,650.00 | 13.90 | Exxon Mobil Corp | 500 | USD | $85.94 | $95.65 | $4,855.00 | 11.30 | Ball Corp | 500 | USD | $45.27 | $50.05 | $2,390.00 | 10.56 | Molson Coors...
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...Bill Miller and Value Trust Background Information Bill Miller is one of the most renowned professional fund managers. This can be proven by the outperformance of the Value Trust, which is managed by him, compared to its benchmark index, the Standard & Poor’s 500 Index (S&P 500), for an astonishing 14 years in a row; and this marked the longest streak of success for any manager in the mutual-fund industry. By the middle of 2005, Value Trust is worth $11.2-billion. Bill Miller’s approach to investment management was research-intensive and highly concentrated. For instance, nearly 50 percent of Value Trust’s assets were invested in just 10 large-capitalization companies. While most of Bill Miller’s investments were value stocks, he was not averse to taking large positions in the stocks of growth companies. In other words, Bill Miller’s investing style is iconoclastic: “You simply can’t do what he’s done in the supremely competitive, ultra-efficient world of stock picking by following the pack…The fact is that Miller has spent decades studying freethinking overachievers, and along the way he’s become one himself.” Mutual Funds Definition A mutual fund is an investment vehicle that pooled the funds of individual investors to buy a portfolio of securities, stocks, bonds, and money-market instruments to meet specific investment objectives; investors owned a pro rata share of the overall investment portfolio (Bruner, 2007). The various investments included in a fund’s...
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... Value Trust is a mutual fund that has performed well against various indexes in the years leading up to 2005. Value Trust takes S&P 500 as its benchmark index, which it has outperformed for the last 14 years. Prior to 2005, Value Trust had an average annual total return of 14.6%, which was 3.67% higher than S&P 500’s average annual returns. From exhibits 1 and 5 we can see that the return was much higher for Value Trust (15.04%) compared to the S&P 500 (9.48%) over a ten year period. The NAV was consistently increasing from 1994 to 2000 up until the market crash when the NAV decreased but then again increased consistently until 2004. The NAV is an investment measure and increase indicates a better performance. Also from exhibit 1 we can see that the annual return of Value Trust was higher than the S&P 500’s over the years. According to the case Value Trust uses S&P 500 however we should make some analysis on what kind of shares S&P 500 deals with versus what kind of shares Value Trust deals with. S&P comprises of 500 widely held common stocks in other words large cap stocks. On the other hand 50% of Value Trust’s assets were of only 10 large cap companies and Value Trust was open for investing in growth companies. This made the beta of Value Trust (1.31 as taken from Exhibit 1) higher than S&P’s beta indicating that Value Trust is riskier. In this case to make the benchmark more comparable to Value Trust we chose to use other benchmarks, such as the S&P 400 mid-cap. Although...
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...had outperformed S&P 500 index for 14 years in a row. This was longest successful run by any fund manager. The average return on the fund was 14.6% which surpassed the S&P by 3.67% per year. The value trust only had 36 holdings, 10 of which accounted for 50% of the fund’s assets. No manager had matched Miller’s consistent index beating record. Miller’s results were in contradiction to the conventional theory which suggests that it is extremely difficult to beat the market on a sustained basis as it is characterized by high competition, easy entry and informational efficiency. Problem Statement: The Lag Mason Value Trust has been able to outperform the S&P 500 index for 15 consecutive years till 2005. Will the trust to able to consistently deliver similar performance in future? Should a rational investor buy shares in Value Trust as on middle of 2005? What can be possible reasons for the exemplary record of the Value Trust? Can the reasons of the trust’s success can be only attributed to the trading skills and style of Bill Miller or is it sheer luck? US Mutual Fund Market: The mutual fund market in the US has seen exponential growth in the last 30 years. The numbers of mutual funds have increased from 361 to 8,044 in between 1970 to 2005. By 2004, Mutual fund owned nearly 20% of the outstanding stocks of US companies. The value of each share was called Net Asset Value (NAV) NAV = (Market Value of fund assets – liabilities) / fund shares outstanding...
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...markets, many investors have seen little to no real growth in their portfolios over this period. For example, $10,000 invested in the S&P 500 Market Index in 2000, was worth just $10,456 at the end of 2010. And this does not take into account inflation, investment fees and taxes.1 This White Paper explains why investors’ portfolios may underperform in both bear and bull markets and incur substantial costs in the process. It also details the impact this chronic underperformance can have on achieving long-term financial goals. Threat 1: The Expenses of Active Management Most us would like to beat the market, but as we’ll explore in this whitepaper, even many professional money managers have had a hard time performing better than the market. To understand why, it is helpful to begin with some definitions. Active investors (and active money managers) attempt to out- perform stock market rates of return by actively trading individual stocks and/or engaging in market timing — deciding when to be in and out of the market. Those investors who simply purchase “the market” through index or asset class mutual funds are called passive or “market” investors. Active mutual fund managers are typically compared to a benchmark index. For example, large cap mutual funds are often compared to the S&P 500 index. To beat the index, an active mutual fund must perform better than the weighted average return of those companies in the index. And they must do so while including fees, taxes,...
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...job search led you to S&S Air. Because you felt the company's business was taking off you accepted a job offer. The first day on the job, while you are finishing your employment paperwork, Chris Guthrie who works in finance stops by to inform you about the company's 401k plan. A 401k plan is a retirement plan offered by many companies. Such plans are tax defferred savings vehicles, meaning that any deposits you make into the plan are deducted from your current pretax income, so no taxes are paid on the money. For example, assume your salary will be $50,000 per year, if you contribute $3000 to the 401k plan you will only pay tax on $47,000 in income. There are also no taxes paid on any capital gains or income while you are invested in the plan, but you do pay taxes when you withdraw money at retirement. As is fairly common, the company will match 5%. The 401k plan has several options, most are mutual funds. S&S Air uses Bledsoe Financial Services for its 401k administrator. Here are the investment options: Company Stock - one option in the 401k plan is stock in the S&S Air. Currently privately held, planning on going public in 4 or 5 years. Until then stock set price is made by board of directors. Bledsoe S&P 500 Index Fund - Mutual fund tracks the S&P 500. Stocks are weighted the same as the S&P 500. Fund expenses are lower. THe Bledsoe S&P 500 charges expenses of 1.5 percent of assets per year. Bledsoe Small-Cap Fund- Fund primarily invests in small...
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...job search led you to S&S Air. Because you felt the company's business was taking off you accepted a job offer. The first day on the job, while you are finishing your employment paperwork, Chris Guthrie who works in finance stops by to inform you about the company's 401k plan. A 401k plan is a retirement plan offered by many companies. Such plans are tax defferred savings vehicles, meaning that any deposits you make into the plan are deducted from your current pretax income, so no taxes are paid on the money. For example, assume your salary will be $50,000 per year, if you contribute $3000 to the 401k plan you will only pay tax on $47,000 in income. There are also no taxes paid on any capital gains or income while you are invested in the plan, but you do pay taxes when you withdraw money at retirement. As is fairly common, the company will match 5%. The 401k plan has several options, most are mutual funds. S&S Air uses Bledsoe Financial Services for its 401k administrator. Here are the investment options: Company Stock - one option in the 401k plan is stock in the S&S Air. Currently privately held, planning on going public in 4 or 5 years. Until then stock set price is made by board of directors. Bledsoe S&P 500 Index Fund - Mutual fund tracks the S&P 500. Stocks are weighted the same as the S&P 500. Fund expenses are lower. THe Bledsoe S&P 500 charges expenses of 1.5 percent of assets per year. Bledsoe Small-Cap Fund- Fund primarily invests in small...
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...INDEX FUNDS.. FM n FS PROJECT Active and Passive Management Before we get into the details of index funds, it's important to understand the two different styles of mutual-fund management: passive and active. Most mutual funds fit under the active management category. Active management involves the art of stock picking and market timing. This means the fund manager will put his/her skills to the test trying to pick securities that will perform better than the market. Because actively managed funds require more hands-on research and because they experience a higher volume of trading, their expenses are higher. Passively managed funds, on the other hand, do not attempt to beat the market. A passive strategy instead seeks to match the risk and return of the stock market or a segment of it. You can think of passive management as the buy-and-hold approach to money management. Defn- An index fund a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market condition. An index fund is a mutual fund which merely invests in the securities in the index. It is passive, in the sense that absolutely no effort is made to produce results better than the index. HISTORY: Index funds haven't been around forever -- how did they come about? Long ago, there was a student at the University of Chicago who studied modern ideas of finance taught...
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...rP os t S 908N20 ALEX SHARPE'S PORTFOLIO op yo Professor Colette Southam wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2008, Ivey Management Services Version: (A) 2008-07-11 On Friday, January 26, 2007, Alex Sharpe sat in her home office and pondered her investment strategy. During her MBA program, Sharpe had learned that in an efficient market, investors should buy and hold the ‘market portfolio’ because no other portfolio can offer the same expected return at a lower risk. Since the Standard & Poor’s (S&P) 500 was the most commonly used benchmark for the overall U.S. stock market, Sharpe had invested her children’s educational savings in the Vanguard 500 Index Fund, a no-load mutual fund constructed...
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...that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you? Bill Miller is a fund manager who has set a new pace in the financial markets. His firm has been on a winning streak for a record time of 14 years. In recent years, the markets were bearish yet Miller’s firm was able to not only surpass the S&P 500 mark but consistently have positive returns. He has a consistent index-beating record that is unmatched. The United States fund market is the largest in the world. The aggregate figures are an abstract reflection of the consistent growth of mutual funds investment. Majority of the people that own mutual fund investments in the 21st century comprise of nearly half of the households in the United States. This is a great increase from the 1980s where only 6% of the population had mutual-fund assets. Investment performance is measured based on its efficiency, returns and risk involved. Mutual funds enable the investor to diversify their portfolio without necessarily injecting a huge sum of money into the fund. This makes this investment efficient. Over the years, mutual funds have had good returns. The industry provides the investor a place where he can safeguard his investment from harsh market forces. As such, the investor is assured of making some gains from his investment. The fact that an investor does not have to actively contribute in monitoring the fund to protect his investment enables...
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