Mais conteúdo relacionado Semelhante a The secrets to long term investing success - session 2 (20) Mais de Steve Stanganelli (20) The secrets to long term investing success - session 21. Session 2 – Mutual Fund Analysis,
Selection & Portfolio Design
© 2012 Sigma Advantage Investments. All rights reserved.
2. Determining the “Best” Mutual Fund
Investments
Utilize fundamental analysis techniques.
Include data related to fund risk level in
addition to long-term return data.
Put more weight on 3-year data versus 5 and
10 year data. Three year data falls within the
typical 5-year business cycle.
The “best” investments will change within
the business cycle.
© 2012 Sigma Advantage Investments. All rights reserved. 2
3. Fundamental vs. Technical Analysis
Fundamental Technical
Long-term focused. Too short-term
Looks for performance focused.
consistency over time Difficult, if not
by fund manager. impossible to do with
mutual funds.
© 2012 Sigma Advantage Investments. All rights reserved. 3
4. Risk Adjusted Return – Definition
Return of the investment if its risk level was the same
as the benchmark, in our case the market.
RA’ = RFR + (σm/ σA)(RA – RFR)
Investment Risk & Return
20.00%
14.62%
15.00%
A’
Return (R)
10.00% 7.33%
Fund A
5.00%
0.67% Market Risk
Level
0.00%
0% Risk Free Rate 11.04% 23.11%
(RFR) Risk (σ)
© 2012 Sigma Advantage Investments. All rights reserved. 4
5. Risk Adjusted Return – Why Use It?
• Allows for a direct
comparison of returns
between investments.
• Takes into consideration
changes in the Risk Free
Rate that the Sharpe
Ratio (Return/Risk)
does not.
• Allows for a direct
return comparison to
the benchmark
(market).
© 2012 Sigma Advantage Investments. All rights reserved. 5
6. Elements of the Equity Mutual Fund
Comparison Guide
Created by BetterInvesting,
formerly the National
Association of Investors
Corporation
• Portfolio
Characteristics
• Management
Performance
• Fees & Other Costs
• Risk Metrics
• Ranking Calculation
© 2012 Sigma Advantage Investments. All rights reserved. 6
7. Elements of the Equity Mutual Fund
Comparison Guide – Portfolio Characteristics
• Portfolio Composition
• Distribution of
investments across various
asset classes.
• Market Capitalization
• Distribution across sizes of
companies based on
market cap.
• Number of Sectors
• Number of Stocks in
Portfolio
© 2012 Sigma Advantage Investments. All rights reserved. 7
8. Elements of the Equity Mutual Fund
Comparison Guide – Management Performance
• Management Tenure
• Average Turnover Rate
• Total Return over 3, 5
and 10 Years
• Total Tax-Adjusted
Return (if in a taxable
account)
• 3-Year Average Portfolio
Earnings Growth
• Average Price/Earnings
(P/E) Ratio
© 2012 Sigma Advantage Investments. All rights reserved. 8
9. Elements of the Equity Mutual Fund
Comparison Guide – Fees & Other Costs
• Management Fee
• Expense Ratio
• Brokerage
Commissions (if any)
• 12b-1 Fee
• Deferred Load or
Redemption Fee
© 2012 Sigma Advantage Investments. All rights reserved. 9
10. Elements of the Equity Mutual Fund
Comparison Guide – Risk Metrics
• Morningstar Rating
(Stars)
• 3-Year Standard
Deviation
• 3-Year Risk Adjusted
Return
© 2012 Sigma Advantage Investments. All rights reserved. 10
11. Elements of the Equity Mutual Fund
Comparison Guide – Ranking Calculations
• Counts up the number
of metrics ranked 1, 2
or 3.
• Counts the Total
number of metrics
compared.
• Calculates the
weighted average for
the overall Score.
© 2012 Sigma Advantage Investments. All rights reserved. 11
12. Screening for High Long-Term and
Sustainable Performance Mutual Funds
Section Metric Rank
Management Tenure (Total number of years) ↓
Average Turnover Rate % ↑
Total Return %
↓
Management
10-Year Avg.
5-Year Avg. ↓
3-Year Avg. ↓
Tax-Adjusted Return %
↓
10-Year Avg.
5-Year Avg. ↓
3-Year Avg. ↓
3-Year Average Portfolio
↓
Earnings Growth %
Average P/E Ratio ↑
Management Fee % ↑
Expense Ratio % ↑
Brokerage Commissions % ↑
Cost
12b-1 Charges % ↑
Front-End Load % ↑
Deferred Load %
-or- ↑
Redemption Fee %
Morningstar Rating ↓
Risk
3-Year Standard Deviation % ↑
3-Year Risk Adjusted Return % ↑
© 2012 Sigma Advantage Investments. All rights reserved. 12
13. Using the Equity Mutual Fund
Comparison Guide – Comparison Info
Fill in yellow box with Fund Category, Date, Preparer’s
Initials and whether the account is Taxable or Tax-
Deferred.
Enter the last month’s Risk Free Rate and the S&P 500
Standard Deviation.
Enter the Fund Symbols and Names.
© 2012 Sigma Advantage Investments. All rights reserved. 13
14. Using the Equity Mutual Fund Comparison
Guide – Portfolio Characteristics
Enter the percentage invested in each asset class.
Enter the percentage invested by market cap.
Enter the number of Sectors Covered by the fund.
Enter the number of Stocks in the Portfolio.
© 2012 Sigma Advantage Investments. All rights reserved. 14
15. Using the Equity Mutual Fund
Comparison Guide – Management
Enter the total number of years for the Management Tenure.
Enter the Average Turnover Rate.
Enter the Total Return for the past 10, 5 and 3 year averages.
Enter the 3-Year Average Portfolio Earnings Growth
Enter the Portfolio’s Average P/E Ratio.
© 2012 Sigma Advantage Investments. All rights reserved. 15
16. Using the Equity Mutual Fund Comparison
Guide – Fees & Other Costs
Enter the Management Fee (percent of assets).
Enter the fund’s Expense Ratio.
If purchased through a broker, enter the Brokerage
Commission.
Enter the 12b-1 Charge.
Enter the Deferred Load or Redemption Fee if the fund
charges one.
© 2012 Sigma Advantage Investments. All rights reserved. 16
17. Using the Equity Mutual Fund
Comparison Guide – Ranking
Enter the Morningstar Rating. A link to the
Morningstar web site is available on the Guide.
Enter the 3-Year Standard Deviation.
The Guide calculates the 3-Year Risk Adjusted Return.
© 2012 Sigma Advantage Investments. All rights reserved. 17
18. Using the Equity Mutual Fund
Comparison Guide – Risk Metrics
Rankings are calculated automatically by the
Comparison Guide!
© 2012 Sigma Advantage Investments. All rights reserved. 18
19. Portfolio Design
Goals
Determine the optimal allocation between
asset classes.
Asset classes are represented by selected
mutual funds.
Allocation optimizes the portfolio’s risk-
adjusted return.
Provide the best chance for above market
return at a lower than market risk level.
© 2012 Sigma Advantage Investments. All rights reserved. 19
20. Portfolio Design
Goal of Portfolio Design Tool
Easy to use.
Provides the allocations for three different risk
levels:
Aggressive
Intermediate Risk
Conservative
Black boxes the mathematics required.
© 2012 Sigma Advantage Investments. All rights reserved. 20
21. Portfolio Design – Step 1
Enter the Fund
names and symbols.
© 2012 Sigma Advantage Investments. All rights reserved. 21
22. Portfolio Design – Step 2
Enter the S&P 500’s 3-Yr Return &
Std Dev, and the Risk Free Rate
© 2012 Sigma Advantage Investments. All rights reserved. 22
23. Portfolio Design – Step 3
Click on the Button. That’s it!
© 2012 Sigma Advantage Investments. All rights reserved. 23
24. Portfolio Design - Results
After Clicking the Optimize button:
Pulls data from Yahoo Finance for the funds’
prices.
Makes the standard deviation and covariance
calculations.
Runs the optimization model for all three
portfolios.
Determines efficient frontier and capital market
line.
Updates the charts for each portfolio.
© 2012 Sigma Advantage Investments. All rights reserved. 24
25. Portfolio Design - Results
© 2012 Sigma Advantage Investments. All rights reserved. 25
26. What Resources are Available?
Go to…
sigmaadvantageinvestments.com/downloads/
There you will find links to…
• Links to Equity Mutual Fund Comparison
Guide Worksheet and Instruction Guide.
• Links to the Portfolio Design Tool and Instruction
Guide for a mutual fund portfolio.
© 2012 Sigma Advantage Investments. All rights reserved. 26
27. Also…
sigmaadvantageinvestments.com/blog/
• Model portfolio performance reports.
• Investor education articles from AAII and
BetterInvesting.
• Market commentary.
• Stock studies.
© 2012 Sigma Advantage Investments. All rights reserved. 27