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1. How well has Value Trust performed in recent years? In making that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you?
Value trust had outperformed its benchmark index, the Standard & poor 500 Index for 14 years in a row; am average annual total return of 14.6 percent, which surpassed the S&P 500 by 3.67% per year. Value trust had earned a cumulative return of more than 830% over the previous 14 years, more than double that its average peer and the index.
There are two ways to mearsure investment performance; the percentage of annual growth rate of NAV assuming reinvestment (the total return on invenst) and the absoulute dollar value today of an investment made at some time in the past. These measure then compared with the performance of a benchmark portfolio such as the Russel 2000 Index or the S&P 500 Composite Index.
2. What might explain the fund’s performance? To what extent do you believe an investment strategy, such as Mill’s explains performance?
Some observers attributed this success to the fund manager’s conscious strategy of staying fully invested at all times rather than attempting to time the extent of market investments.
Another popular explanation for the fund’s performance was the unusual skill of Bill Miller, the fund’s portfolio manager. His approach was research-intensive and highly concentrated when 50% of its assets were invested in just 10 large-capitalization companies and he was not averse to take large positions in the stocks of growth companies.
3. How easy will it be to sustain Miller’s historical performance record into the future? What factors support your conclusion?
4. Consider the mutual fund industry. What roles do portfolio managers play? What are the differences between fundamental and technical securities analysis? How well do mutual funds generally perform relative to the overall market?
Technical analysis: This involved the identification of profitable investment opportunities based on trends in stock prices, volume, market setiment, Fibonacci numbers,etc.
Fundamental analysis: This approach relied on insights afforded by an analysis of the economic fundamentals of a company and its industry: supply and demand costs, growth prospects, etc.
Mutual funds were able to perform up to the market on a gross-returns basis; however, when expenses were factored in, they underperformed the market.
5. What is capital market efficiency? What are its implications for investment performance in general? What are the implications for fund managers, if the market exhibits characteristics of strong, semi-strong, or weak efficiency?
Three levels of market efficiency.
6. Suppose that you are an advisor to wealthy individuals in the area of equity investments. In 2005, would you recommend investing in Miller’s Value Trust? What beliefs about the equity markets does your answer reflect?
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