Zeus’s investment philosophy is based on the belief that superior investment results can be achieved over many years by following a conservative, risk-averse, quality-oriented approach to investment management. In other words, the firm uses active approach to investment management, which means the primary job of portfolio managers is to deliver the best possible performance relative to the benchmark’s performance working within the risk and other constraints specified in the client’s mandate. In detail, the equity fund aims to seek long-term growth of capital through investments in a high quality portfolio of stocks, whose earnings are expected to grow at above-average rates. That is the growth investment style of active management. Besides, the bond fund seeks to maximize total return in a way that was consistent with the preservation of capital, which is done through an actively managed portfolio of high quality. However, the balanced fund seems to be a little different, since its objective is to minimize risk while generating competitive returns over longer periods, which is more like a semi-active approach.
2. Who are Zeus’s primary investors?
Zeus Asset Management serviced both institutional and individual investors. The institutional clients were consisted mostly from 2 parts, foundations & endowments, and corporations. The individual investors were typically risk-averse, high-net-worth and would like to grow their assets over long-term. There was a minimum requirement of $2 million for individually managed account. For these clients, Zeus customized portfolios according to clients’ investment objectives and special requirements, then balanced the horizon and volatility of their portfolios. For others who did not meet the minimum requirements, or those who wished to invest in a specialty fund, Zeus also had multiple mutual funds focusing on domestic equity, bond and international equity market. The firm also provide balanced fund which consisted of high-quality equities and fixed-income securities.
3. Describe the advantages and disadvantages of Zeus’s current investment process. Advantages:
As a new director was hired, he began a new investment process to establish portfolios, and developed a stricter policy to manage the portfolios. This change enhanced the monitoring and controlling of the company’s main holdings. Current investment process helped identify high profitability equities and bonds, which were constructed into portfolios that minimize risks and generate more competitive return as well. Of course, the investment process would help the company establish its internal rules regarding the level of risk and return, and make the firm even more attractive to its relatively risk-averse clients. Disadvantages:
Although the current investment process did make big achievements compared to the process before changed, it might cost more time and intelligent for fund managers to do so. Fund managers would also found limitations when they construct their portfolios. For clients, they might have to pay more fund charges and operating fees.
4. Evaluate the performance of Zeus’s equity, bond, and balanced funds Equity funds
During the first subperiod, the equity fund underperformed both the S&P 500 index and the Lipper Growth Index because of a weak cash policy. At the end of subperiod 1, both a new process to screen stocks and a stricter investment policy to manage the equity portfolios were developed, thus enhancing the monitoring and controlling of core holdings. In the second subperiod, Zeus’s equity funds earned a much higher return than the first subperiod. Compared with Lipper Growth Index, the equity funds had an annualized return of 24.44% versus the Lipper with 24.38%, which indicated that Zeus performed a little bit better than the Lipper Growth Index, but still underperformed the S&P 500 index. When looking at Sharpe ratio and Treynor ratio...