1.0 Objectives of Pension Fund Manager:
A pension fund manager cannot set objectives unless he knows the relevant characteristics of his clients or beneficiaries. These characteristics include their appetite of risk, desired level of return, details of their existing income, liquidity requirements, tax positions and future liabilities. Once the firm’s investment manager have established the objectives of the investor or fund, they can set about planning the most suitable investment strategies. A pension fund manager may have the objectives of meeting a specified set of future liabilities at minimum overall cost.
Investment portfolio policies can be categorized as either active or passive investment strategies. It is essential to all active strategies for the requirement of expectations about the factors, which is influenced on the performance of an asset class. In this case active equity management, this may include of future earnings, dividends and price-earnings ratio. In relations to active bond strategies, it may involve forecasts of future interest rates, interest-rate risk and yield spreads, and involving in foreign securities will require forecasts of future exchange rates. However, passive strategies can be classified minimum expectation output and one common type of this strategy is indexing, which objective is to replicate the performance of a preset index fund or benchmark.
2.0 Rationale of Choosing Fund
The firm fund manager may set up that invest in a particular country or geographical region such as Canada, UK, Sweden or Asian emerging markets- Japan. Singapore, South Korea. It may also establish funds to invest in particular segments, for example mixed asset allocation, technology, infrastructure and healthcare....
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...stock prices, inflation, moneys supply, interest rates and consumer price index (CPI) will clearly be influenced, which are as follows:
4.2.1 Stock Prices:
Works Cited
Money Sense, 2013. Unit Trust- What investment objectives, strategies or approaches do funds have?. Available at: http://www.moneysense.gov.sg/understanding-financial-products/investments/types-of-investments/unit-trusts.aspx [Accessed 16-12-2013]
About.com, 2013. Moderate Mutual Fund Portfolio- Moderate Asset Allocation. Available at: http://mutualfunds.about.com/od/managingyourportfolio/a/Moderate-Mutual-Fund-Portfolio-Example.htm [Accessed 17-12-2013]
Jones, C.P., 2010. Investments- Principle of Concepts. 11th Edition. Asia – John Wiley &Sons. P-329
IMF, 2013. World Economic Outlook Database. Available at: http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx [Accessed 18-12-2013]
Can We Keep Our Promises? The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor. Robert Arnott describes risk and return as “having two sides of the same coin” meaning risk is inseparable from return. Arnott points out the most important risks that are faced by managers of company pension plans: underperforming other corporate pension funds (their peers), losing money (mostly associated with portfolio standard deviation or volatility), and underperforming the values of pension obligations and therefore losing actuarial ground.
This structure was beneficial for the decision-making and profit generation for the clients and gave incentive to the fund manager to get a good investment performance. If clients were solely focused on investment performance and the entire peer group also kept to adopt the traditional model, this approach proved effective to business growth.
Bodie, Zvi, Alex Kane, and Alan J. Marcus. Essentials of Investments. Ninth ed. N.p.: McGraw, 2013.
In the following essay I will be comparing and contrasting the effectives of capital asset pricing model (CAPM), Arbitrage Pricing Theory, and the Fama-French three factor model when estimating the cost of capital and explaining performance of investment portfolios.
... Capital, Corporation Finance and the Theory of Investment", The American Economic Review, vol. 48, no. 3, pp. 261-297.
Mutual funds were long considered one of the best available easy-to-invest instruments that minimized risk and maximized returns. In the 80’s and 90’s, the US financial markets made trillions of dollars with the mutual fund structure. The funds, especially the most actively managed ones, were expected to outperform the market index in the long run. However, with expense ratios ranging as high as 1.5% to 2.5%, the funds underperformed the index by the amount of their expense ratio.
Over the previous five years, the return of the ProIndex fund have outperformed the S&P 500 index, as the 5-year-return is nearly 3 times than the benchmark and the annualised return is nearly 2 times than the benchmark. It means ProIndex fund has a significant increase in value within that period. However, the ProIndex Fund has a higher standard deviation which means it is more risk than the S&P 500 index. Especially for the annualised standard deviation, it is approximately 10% higher than the benchmark. The correlation coefficient between the ProIndex and benchmark is about 0.65 which means both two variables are positive changing consistently, but there are still some other factors which have impacts on the relationship between two variables as the correlation is less than 1. Furthermore, the higher beta, 1.0132, which is more than 1 and it may be one of the reasons for high risk as well since it is more sensitive to the market change. It means that the ProIndex fund would increase by 1.0132% if the market increased by 1%.
This assignment is concerned with your understanding of the key issues relative to portfolio analysis and investment. In completing this assignment you are to limit your scope to the US stock markets only. Use the Cybrary, the Internet, and course resources to write a 2-page essay which you will use with new clients of your financial planning business which addresses the following issues and/or practices:
Capital Asset Pricing Model (CAPM) is an ex ante concept, which is built on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). It enhances the understanding of elements of asset prices, specifically the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where market risk of an asset is associated with the return and risk of the market along with the risk free rate to estimate expected return on an asset (Watson and Head 1998 cited in Laubscher 2002).
What do you understand by the phrase “stakeholder analysis”? Attempt a stakeholder analysis of an organisation that you are closely associated with.
Following the trend of economy, it is important to investors to understand that strong economy creates strong stock market. To elaborate further, as stock prices are increased by current and future expectations of earnings, thus without a strong economy it would be difficult for the companies to increase and sustain their earnings (Kong 2013). The economy development is usually calculated using the gross domestic product of a countries. On the other hand, a change is the stock price can also cause a major impact to the consumers and investors directly. Hence, a loss in confidence by investors can cause a downturn in consumer spending in the long term, which will also affect the economy’s output (Aysen 2011). The graph below shows the relationship of stock market price (KLCI) and the GDP of Malaysia in 2009. Thus, it can be concluded that the economy and the stock market has a positive relationship.
Our understanding and the concept of investment in behavioural finance combines economics and psychology to analyse how and why investors make final decision. As an investor one’s decision to invest is fully influence by different type of attitudes of behavioural and psychological ( Ricciardi & Simon, 2000). Yet, in order to maximize their financial goal, investors must have a good investment planning. Furthermore , to gain a good investment planning , there must be a good decision making among investors. They have to choose the right investment plan I order to manage the resources for different type of investments not only to gain profit wise but also to avoid the risk that occur from investment.
I am currently majoring in Finance Management. Most of the time people think of finance as just managing money. However, finance is needed for so much more! The finance industry deals with starting businesses, developing new products, expanding markets, as well as everyday things like saving for retirement, purchasing a home, and even insurance. The stock market, asset allocation, portfolio analysis, and electronic commerce are all key aspects in finance. In this paper, I will explain how these features play a vital role in the industry, along with the issues that come with these factors.
The Modern portfolio theory {MPT}, "proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. The basic concepts of the theory are the efficient frontier, Capital Asset Pricing Model and beta coefficient, the Capital Market Line and the Securities Market Line. MPT models the return of an asset as a random variable and a portfolio as a weighted combination of assets; the return of a portfolio is thus also a random variable and consequently has an expected value and a variance.
In the modern world, financial markets play a significant role, with huge volumes of everyday dealings. They form part of contemporary economic lifestyle and determine the level of success of many people. Humans have always been uncertain of what the future holds and thus, tried to forecast it. The forecast of course cannot omit the likelihood of “easy money” by forecasting the prices of equity markets in the future.