Describe what is meant by the term active investing

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Reference no: EM133429441

Fact Pattern:

You serve as an investment analyst at Smith & Jones Financial Advisors. You have been asked to analyze the Awesome Portfolio, a portfolio managed by Portfolios-R-US, for potential inclusion in a large institutional client's retirement program. The portfolio has a good reputation in the industry for providing "value added" returns based on its active management strategies employed.

Charlie the CFA serves as the current fund manager of the Awesome Portfolio. He was recently quoted in the financial press stating "the Awesome Portfolio represents an optimal investment for all investors and provides a superior return due to our specialized active investment strategies".

For the most recently completed year, your research indicates that the return on the S&P 500 was 12.75%, the AAA corporate bond yield was 9.75%, and the return on federal government short-term securities was 5.0%. Further analysis of Awesome Portfolio reveals the following data and characteristics:

Required:

Based on the fact pattern above (and assuming the identified investments comprise the entire Awesome Portfolio), answer the following questions:

1. What return did Awesome Portfolio achieve in the most recently completed year? What was its beta? How would you calculate the portfolio's standard deviation (note - you do not have to calculate the actual standard return metric). Describe your calculation methodologies for each metric.

2. Describe what is meant by the term "active investing". How does it impact investment management and returns? What issues can it create for investor portfolios?

Reference no: EM133429441

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