Beta Management

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Beta Management

Summary of facts: Beta Management is new, small mutual fund that is run by Ms. Wolfe. She has recently begun to work full time at her mutual fund due to its increasing growth. With the fund’s increasing growth over the past year Ms. Wolfe has started to have inquiries from larger mutual funds wanting her to manage some of their money. Ms. Wolfe does not have much experience in managing money and needs some advice on how to deal with the larger institutions. Problem: Beta Management consists of only two investments; the Vanguard 500 and the rest of the funds are in Money Markets. The larger institutions are hesitant to invest their funds into a portfolio that they feel they should be able to build themselves. Ms. Wolfe has recently hired an analyst to help her find a few stocks that would be good investments for Beta Management. Her analyst has provided her with two different buckets of stocks for her to decide on. With her inexperience in the financial industry she is unsure as to which bucket to decide to invest in. Analysis: It is very important in this case to look into what the goal of the fund is. In this scenario, Ms. Wolfe’s goal is to make more than she could in a bank, but also keep her risk exposure as low as possible. This is what we will be making the decision upon; we want to find a stock the will provide us lower risk and still a good return. The two stocks in question are Brown and REIT; both of the stocks have been labeled as undervalued by Ms. Wolfe’s analyst. Brown is a retail corporation that has had a rough few years, but looks poised to begin a bounce back. REIT is a real estate investing company that is based out of California and was hit very hard by the recent earthquake. The first thing that is necessary to do in this situation is to look into the historic performance of the stocks verse the rest of the market. This is done by calculating the variance of all the stocks, and the covariance of the stock to the rest...
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