Financial project Essay

The longer the investment period selected, the more useful the data may be as a guide for decision-making. However, investment choice depends on the skill of a fund’s management and past performance may not be a guide for the future given that management personnel may have changed.Cumulative average returns can mask volatility during a set period. For example, a fund’s returns may have had wide swings during the period but will look the same as more consistent returns from another fund.

Past performance is a ‘hygiene’ test of what performance was achieved given the market conditions within which s/he was operating and the staff employed. Bacon & Woodrow maintain that it should never be used as an indicator of future performance unless one is predicting that all the factors taken into account in the past will be exactly the same in the future-an unlikely outcome.However, other research challenges the notion that consumers should not look at past performance when taking investment decisions.·                    Fund performance – good and bad – does persist·                    Consumers can make profitable use of past performance information to take investment decisions·                    Withholding past performance information is detrimental to consumersPerformance figures reflect certain fee waivers and/or expense limitations. As a result, total return figures, which take into account these fee waivers and/or expense limitations, may have been lower. The fee waivers and/or expense limitations are voluntary and may be discontinued at any time.

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Quantitative AnalysisQuantitative Analysis is the process of analyzing fundamental data on companies to determine their financial strength and viability as a going concern. There are a few areas that need to be examined when doing a quantitative analysis: valuation, sales and earnings growth trends (using historical and projected sales), and financial strength. When trying to determine the value of a company, a commonly used measure is the Price-to-Sales ratio. This compares the total Market Cap (shares outstanding x stock price) to the Sales. The simplest way to explain the Price/Sales ratio is that the higher the ratio is over 1, the more “expensive” the stock is (relative to the amount of current Sales). A Price-to-Earnings Growth (PEG) ratio is a good measure for determining value relative to growth. This value compares the current fiscal year P/E ratio to the long-term growth rate. The higher the ratio is over 1, the more “expensive” the stock is (relative to the long-term growth rate).

Finally, Debt-to-Equity and the Current Ratio, are measures of the financial stability. Debt is not necessarily a bad thing, but in a company that’s not immediately converting borrowed money into earnings, you have to watch debt very carefully. The Debt/Equity ratio compares total liabilities (debt) to the total equity (debt and book value equity). The Current Ratio (Current Assets [those that can be liquid in a year] minus Current Liabilities [debts due within a year]). A ratio of below 1.0 means that there are more debts due in a year than assets available to cover them. These are some of the measures that can be used to conduct quantitative and comparative analyses between companies within the same industry.The Fund may be appropriate for investors who seek high long-term total returns, understand the advantages of diversification across international markets, who are willing to tolerate the greater risks of foreign investments and who want to invest in a fund with a profile similar to the Fund’s benchmark index.

The Fund seeks a favorable long-term total return, mainly through capital appreciation, primarily from equity securities of large domestic companies.ReferencesLucie Chaumeton and Kevin Coldiron, “Global Companies—A New Asset Class?” Working Paper, Equity Research Group, Barclays Global Investors, San Francisco, 1999.Eugene F. Fama, Foundations of Finance (New York: Basic Books, 1976).Eugene F. Fama and James MacBeth, “Risk, Return and Equilibrium: Empirical Tests,” Journal of Political Economy, Vol. 71, 1973, pp. 607–636.

Joanne M. Hill, Robert C. Jones and John H. Taylor, “Domestic Equity Benchmark Underperformance,” Pension and Endowment Forum (New York: Goldman Sachs and Company, 1996).Ronald N. Kahn and Richard C.

Grinold, Active Portfolio Management (Chicago: Probus Publishing, 1995).Ronald N. Kahn and Andrew Rudd, “Does Historical Performance Predict Future Performance?” Financial Analysts Journal, November/December 1995, pp. 43–52.Ronald N.

Kahn and Andrew Rudd, “The Persistence of Equity Style Performance: Evidence from Mutual Fund Data,” Chapter 17 in The Handbook of Equity Style Management, ed. Daniel T. Coggin, Frank J. Fabozzi and Robert Arnott, 2nd ed.

(New Hope: Frank J. Fabozzi Associates, 1997).Robert McGough, “Mutual Funds Are on a Roll, So Far,” The Wall Street Journal, April 2, 1998.


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