Running Head: Mutual Funds
Running Head: Mutual Funds
Running Head: Mutual Funds
MUTUAL FUNDS
NAME
INSTITUTION
MUTUAL FUNDS
Mutual funds refer to the trusts that allow investors sharing a common financial goal to
pool their savings. The fund manager collects and invests the money in different types of
securities. These securities could range from debentures, shares and other money market
diversified portfolio at a little cost. The mutual funds have different strategy and objective that
are well defined. A total of 10 mutual fund scheme will be included in my investment portfolio
for easy tracking of changes and detect underperforming projects. It will be comfortable and less
Several parameters have been employed in shortlisting the mutual fund schemes portfolio
(Benz mutual fund). They include the following; progressing weighting for the last three years,
mean rolling returns done daily for the past three years, outperformance: This is determined
using the Jensen’s alpha in the past three years. It will indicate risk-adjusted return generated by
the mutual fund scheme selected compared to the expected market return as forecasted by
CAPM. A higher alpha will suggest that the portfolio performance has overperformed compared
Average return= Risk-free beta + Beta of the mutual fund x (the index average return –
risk-free rate)
My ideal portfolio (Benz mutual fund) will consist of 10 mutual funds spread across
various asset classes and different market capitalizations. The returns on the scheme below are
annualized.
I will consider a moderate portfolio that has moderate volatility with the possibility of
getting returns that outperforms the inflation with a significant margin. My moderate portfolio
shall consist of the 30% bond, 65% stock and 5% money market and cash. This can be broken
I will invest 5% in liquid instruments such as treasury bills and CDs. T-bills is an
investment that is safe for moderate investors. One year online/brick and mortar banks such as
Sallie Mae (1.9%), CIT Bank, Ally and Barclays bank have an interest of about 1.7% to 1.9% on
its certificate of deposit which varies depending on the amount saved. It has fewer penalties. I
will gain higher interest on the savings account without the certificate of deposit restrictions.
You can break the CD (Certificate of Deposit) whenever you need your money. The government
MUTUAL FUNDS
protects these accounts through the Federal deposit insurance corporation to a maximum of
$250000.
Comprises of investment in other investment grade and corporate. They have durations of
between 3- 10 years. They are less volatile and less sensitive to interest rates compared to a
portfolio with longer durations. They include CMBS ETF with an expense ratio of 0.25, total
assets of $306.62m and annual return of -0.42% ranked as the best performing common bond in
the market. The fund classifies under the ERISA index, Commercial mortgage-backed securities
index (CMBS) representing some commercial mortgages. The 90% of its assets are invested in
the assets that consist of the component securities of the underlying index. It may invest more
than 10% of its assets in swap contracts, certain futures, and options. Others include ishares
government credit bond ETF, SPDR Portfolio Aggregate Bond ETF and ishare core Total USD
Bond Market ETF, Vanguard Total Bond market ETF (Grinblatt and Knüpfer 2015, p.926).
Comprises of investment in popular foreign companies that are trading in the U.S
exchanges. These companies comprise among the vast operations in the foreign countries with
significant volumes of trade globally and hence provide a better way of diversifying the
investment portfolio. These securities cover a large span regarding industries and geographical
locations. Stocks should be diversified from emerging and developed markets throughout the
world. For example, Teva Pharmaceutical Industry Ltd (TEVA) is an Israel based
pharmaceutical company that manufactures genetic drugs and other specialty medicines sold in
global markets. Other include Alibaba Ltd (BABA) that offers online-based mobile commerce in
MUTUAL FUNDS
services and products sold in China and internationally. Other include Vale SA a Brazil-based
producer of nickel, base metals, coal fertilizers, iron ore pellets and iron ore used in the
Comprises of stocks of publicly traded companies with a market capitalization that ranges
between $300m-$2 billion. They are considered riskier compared to large caps stocks hence they
have a higher potential of making large profits for investors. Stocks that offer the possibility for
growth in future and what affect their prices. The top small cap stock includes the Lithium
Motors, Inc. (LAD). It’s an automobile company involved in selling used cars, new cars,
insurance, warranties, parts and other maintenance services. The company has an upward
moving stock with a market capitalization of $2.467 billion. In January 2018, the stock reached
$128 after which it decreased to the current level of $98.89. The company has an attractive
valuation and return on equity making Lithia a strong small cap to select. P/E ratio of 10.08, EPS
The second option is the Brink’s company (BCO) which is a famous armored car
company that engages in high tech task, intelligent safes, design security systems, process bill
payments and offers cash management services. Its stock has an uptrend movement after
acquiring DUNBUR Armor Inc. With proper management practices from the management and
accessibility to wider markets it better to invest in brink shares. It has an average volume of
488450, market capitalization of $4.253b, and P/E ratio of 982.9, EPS of $0.09 and dividend of
Refers to the company that has a market capitalization of $10 billion and above. The
large-cap stocks are less volatile compared to small-cap and mid-cap companies and therefore
preferred for investors with demand in low risk in the stock market. They have a slow and steady
return as they can withstand tough market conditions and regain quicker aftermarket selloff. In
the S&P 500 Index, stocks of Mallinckrodt PLC has a better chance of being bought since the
stock price has been gradually increasing from $53.56 to $83.3 over two years hence worth
buying. Others include Endo international PLC that increased from $15.87 to $24.0 and
The moderate option will have time horizon more than five years and a medium risk
PLC
Hanebrand 0.98% $33.2 $24.0 $0.32 0.65
Inc.
Annual return
The information related to the current price of the stock and the rate at which it was
purchased will be needed. In the case of splits, the amount of purchase will be adjusted
accordingly. After the determination of the costs, the simple return on percentage is calculated,
The annualized return on investment shows the real gain or loss of investment, and hence
an investor can relate with difficulty involved in recouping the losses. Due to the significant size
of the difference in losses and gains, annualized returns help in better comparison of investment
results. This process is considered to be more reliable compared t simple returns since it includes
adjustments in interest being compounded. Different classes of assets are said to have different
The Benz mutual fund as seen above is expected to have an average of the annual return
of 6.92% over the next 20 years on the S&P 500 index return. The average mutual fund return
for the next 20 years is expected to be 4.23% while other investments such as the stock market
provide an annual yield of 10%. The Benz mutual fund is supposed to have an initial investment
of about $30000. The mutual fund portfolio will be traded per day after closure of the market
Conclusion
Mutual funds experience both highs and lows throughout the year. Understanding the
consequences of the investment will assist investors to decide on what is wrong or right in their
investment portfolio. It’s important we consider the number of fees charged on our investment
portfolio and the expected tax to be incurred in the process. Investors should be in a position to
avail tax rebates mutual funds to reduce overall expenses. Furthermore, those mutual funds that
attract less fee should be considered. The credit opportunity funds should adopt a better accrual
strategy to increase on their return. This is undertaken with high risk to take the higher
performance.
MUTUAL FUNDS
Reference
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Reference