Analyzing a Mutual Fund

There are a number of mutual funds and fund managers that have performed very well over both long-term and short-term horizons. 

All mutual funds have a stated investment mandate that specifies whether the fund will invest in large caps or small caps, and whether those companies exhibit growth or value characteristics.

It is assumed that the mutual fund manager will stick to the stated investment objective. 

It’s an excellent start to understand the mutual fund’s specific investment mandate, but there is more to fund performance that can only be exposed by digging a bit deeper into the fund’s portfolio over time.

Occasionally fund managers will drift towards certain sectors either because they have more experience within those sectors, or their particular strategy force them into certain industries. A dependence on a particular sector may leave a manager with limited possibilities if they have not broadened their investment net. 

To determine a fund’s sector weight, investors must compare the fund to its relevant indexes to determine where the fund manager increased or decreased their allocation to specific sectors relative to the index. 

This analysis will shed light on the manager’s exposure to specific indexes relative to the benchmark. 

The analysis can be as straightforward as listing the fund and relevant indexes side by side with a breakdown by sector. 

There are managers who have a top-down approach and others that have a bottom-up approach to stock-picking, 

Top-down indicates that a fund manager evaluates the economic environment to identify global trends and then determines which regions or sectors will benefit from these trends and will look for specific companies within those regions or sectors that are attractive. 

A bottom-up approach, a manager will filter the entire universe of companies based on certain criteria, such as valuation, earnings, capitalization, growth or a variety of combinations of these types of factors. A manager will then perform rigorous due diligence on those companies.

To determine whether a manager is actually adding any value to the mutual funds performance based on asset allocation or stock picking, an investor needs to complete an attribution analysis, which uncovers the impact of the manager’s investment decisions with regard to overall investment policy, asset allocation, security selection and activity. 

Attribution analysis can reveal that a manager has placed inaccurate bets on sectors but has picked the best performing stocks within each sector. From this example, this manager should have a bottom-up approach but if the manager’s mandate describes a top-down methodology, this might raise some red flags because we would have discovered that the fund manager has done an inadequate job of asset allocation. 

There are many other factors to consider when analyzing a mutual fund’s portfolio. 

By analyzing the sector weights of a fund and the manager’s attributions to performance, an investor can better understand the historical performance of the fund and how it should be used within a diversified portfolio of other funds. 

An investor can also break down the portfolio to provide valuable insight into a manager’s skill and further enhance the investor’s portfolio construction process. 

If at all possible, an investor would want a mix of superior allocators and first-class stock pickers, as well as fund managers with expertise in various sectors.

Link: http://www.equityscholar.com/library/analyzing-a-mutual-fund/

Value Investing World: Hussman Weekly Market Comment: The Journeys of Sisyphus

Value Investing World: Hussman Weekly Market Comment: The Journeys of Sisyphus: "The Journeys of Sisyphus
Link to: The Journeys of Sisyphus
As we discussed several months ago, that hope of succeeding rests on what economist J.K. Galbraith called “the extreme brevity of the financial memory.” Part of that brevity rests on ignoring the forest for the trees, and failing to consider movements further up the mountain in the context of how far the stone typically falls once it gets loose. It bears repeating that the average, run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance, making the April 2010 S&P 500 level in the 1200’s a fairly pedestrian expectation for the index over the completion of the current market cycle. A decline of that extent wouldn’t bring valuations close to historical norms, and certainly not to levels that would historically represent “undervaluation.” But consider that a baseline expectation, and don’t be particularly surprised if the market loses closer to 38% - which is the average cyclical bear market loss during a secular bear market period. A market loss of about 50% would put historically reliable valuation metrics at their historical norms, though short-term rates near zero would seem inconsistent with a move to historically normal valuations with typical (~10% annual) expected total returns, absent other disruptions.
"



'via Blog this'

SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading

SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading
May 16, 2014
by Jason M. Breslow

Michael Steinberg, once a top trader at the hedge fund SAC Capital Advisors, was sentenced to three-and-a-half years in prison and ordered to pay a $2 million fine on Friday for an insider-trading scheme that allegedly garnered him $1.8 million in illegal profits.

Steinberg, 42, is the most senior SAC employee to be convicted since the U.S. Attorney’s Office in Manhattan launched a vast probe into insider trading within the hedge fund industry. Since the start of the probe in 2009, eight SAC employees have either pleaded guilty or been convicted at trial.

Steinberg was convicted in December for using inside information to trade shares of Dell in 2008 and Nvidia in 2009. Prosecutors argued that Steinberg knowingly traded on illegal tips from Jon Horvath, a former analyst at SAC. Horvath, who pleaded guilty, testified at trial that Steinberg directed him to acquire “edgy, proprietary, market-moving information” for the firm.

In one e-mail, sent two days before Dell was set to report its 2008 second-quarter earnings, Horvath wrote to Steinberg with details about the computer company’s expenditures, gross margins and revenue. “I have a 2nd hand read from someone at the company,” Horvath wrote. “Please keep to yourself as obviously not well known.” Steinberg wrote back, “Yes normally we would never divulge data like this, so please be discreet.”

The government has argued that such behavior was commonplace at SAC, a firm that was once the envy of Wall Street for its consistently stellar returns. The hedge fund’s billionaire founder and namesake, Steven A. Cohen, has avoided criminal charges, but in November SAC as an institution pleaded guilty to insider trading violations as part of a record $1.8 billion settlement. The agreement came with a clause forcing the firm to shut down its business of managing money for outside investors. SAC has since rebranded itself Point72 Asset Management, a reference to the firm’s headquarters at 72 Cummings Point Road in Stamford, Conn.

The sentence is shorter than the 6.5 years sought by the government, and Judge Richard Sullivan, who called Steinberg “a good man,” allowed him to remain free on bail pending an appeal of the case. As The Wall Street Journal reported:

A federal appeals court in New York signaled last month that it was uncomfortable with some of the instructions Judge Sullivan gave to the jury that convicted two other hedge-fund managers. The judge gave the same instruction in Mr. Steinberg’s trial, and his lawyers are expected to file an appeal within days of his sentencing.

The government’s investigation into SAC was the focus of the recent FRONTLINE investigation, To Catch a Trader. You can watch the full film below:

SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading | To Catch a Trader | FRONTLINE | PBS:

Ben's Blog

About Ben's Blog


My name is Ben Horowitz, and I am cofounder and Partner (along with Marc Andreessen) of the venture capital firm Andreessen Horowitzbased in Menlo Park.

Prior to Andreessen Horowitz, Marc and I co-founded Loudcloud, a managed services provider (today, we’d call it a cloud service provider, but people were not quite ready for that in the early 2000s) which became Opsware, an data center automation software provider. I tell the dramatic story of how Loudcloud became Opsware and was ultimately acquired by HP in my blog post titled The Case for the Fat Startup. You can learn more about what I did prior to co-founding Loudcloud by reading my biography on Wikipedia.

My blogging agenda for this year is to reflect on the many experiences I’ve had in my career—as computer science stAbout Ben's Blog




My name is Ben Horowitz, and I am cofounder and Partner (along with Marc Andreessen) of the venture capital firm Andreessen Horowitz based in Menlo Park.




Prior to Andreessen Horowitz, Marc and I co-founded Loudcloud, a managed services provider (today, we’d call it a cloud service provider, but people were not quite ready for that in the early 2000s) which became Opsware, an data center automation software provider. I tell the dramatic story of how Loudcloud became Opsware and was ultimately acquired by HP in my blog post titled The Case for the Fat Startup. You can learn more about what I did prior to co-founding Loudcloud by reading my biography on Wikipedia.




My blogging agenda for this year is to reflect on the many experiences I’ve had in my career—as computer science student, software engineer, cofounder, CEO, fund raiser, company acquirer and seller—and distill the lessons I’ve learned in each of those roles. I’ll use this blog to share what I’ve learned, provide a sharp opinion or two, and generally contribute to the lively dialog around entrepreneurship, building and leading organizations, and venture capital.




You can follow me on Twitter @bhorowitz. You can also get updates on my venture capital firm @a16z.






inShare

3




About

Ben's Book

Archive




App.net

Subscribe with RSS

Email Subscription

Enter your email address to follow this blog and receive notifications of new posts by email.










or sign in with Facebook, Twitter or email.

udent, software engineer, cofounder, CEO, fund raiser, company acquirer and seller—and distill the lessons I’ve learned in each of those roles. I’ll use this blog to share what I’ve learned, provide a sharp opinion or two, and generally contribute to the lively dialog around entrepreneurship, building and leading organizations, and venture capital.

You can follow me on Twitter @bhorowitz. You can also get updates on my venture capital firm @a16z.





AboutBen's BookArchive
App.net
Subscribe with RSS

Email Subscription

Enter your email address to follow this blog and receive notifications of new posts by email.

or sign in with Facebook,Twitter or email.

Link: http://www.bhorowitz.com/about/

The Fed’s enormous balance sheet in seven charts - Slide Show - MarketWatch

The Fed’s enormous balance sheet in seven charts - Slide Show - MarketWatch: "









Left: Former Federal Reserve Chairman Ben Bernanke, and his successor, Janet Yellen. The Fed’s balance sheet is approaching $4.1 trillion, a hard number to wrap your head around. It’s a big number, even by Washington standards. It’s twice the government expenditures for all 50 states, equal to the net worth of 56 Bill Gates and could buy 6.5 billion iPhones, notes Vincent Reinhart, chief U.S. economist at Morgan Stanley. How did the Federal Reserve’s balance sheet get so big? What does it mean for markets? Will it lead to crippling inflation down the road? With the Federal Reserve publishing its annual report on its open market operations, it is a good time to look at the balance sheet under a microscope. The balance sheet was expanded under the leadership of former Fed Chairman Ben Bernanke. Many think that the principal task of his successor, Janet Yellen, will be to reduce the size of the Fed’s asset holdings without upsetting financial markets. -- Greg Robb "










EMAIL





With short-term interest rates stuck at zero, the Fed began in the spring of 2009 to buy $1.1 trillion of Treasurys and mortgage-backed securities in a program that became known as quantitative easing. The idea was to bring down long-term interest rates and spur growth. Investors were also expected to be pushed out of safe assets and take more risks.


This chart shows three waves of purchases, the first round in the spring of 2009, a second round of purchases when the economy stumbled in November 2010 and a third round in September 2012 after another soft patch.


In 2013 alone, the Fed’s balance sheet actions resulted in cumulative additional purchases of $1.02 trillion of longer-term securities to a year-end level of $3.8 billion.


During the year, Treasury holdings grew by $543 billion and MBS holdings grew by $509 billion.The Fed projects its balance sheet will peak at $4.2 trillion late this year as the Fed has begun to taper its bond purchases.







EMAIL





This chart shows how much bond buying has turned central bank investment policy on its head, said Lou Crandall, chief economist at Wrightson ICAP. Central banks used to hold assets with short maturities so they could raise cash in case of emergencies.


Short-term assets used to make up 60% of the Fed’s portfolio but now represent less than 10%.













See More

Link:http://www.marketwatch.com/story/the-feds-enormous-balance-sheet-in-seven-charts-2014-04-18










g this'



The Fed’s enormous balance sheet in seven charts - Slide Show - MarketWatch: "







 Left: Former Federal Reserve Chairman Ben Bernanke, and his successor, Janet Yellen.

The Fed’s balance sheet is approaching $4.1 trillion, a hard number to wrap your head around.

It’s a big number, even by Washington standards. It’s twice the government expenditures for all 50 states, equal to the net worth of 56 Bill Gates and could buy 6.5 billion iPhones, notes Vincent Reinhart, chief U.S. economist at Morgan Stanley.

How did the Federal Reserve’s balance sheet get so big? What does it mean for markets? Will it lead to crippling inflation down the road?

With the Federal Reserve publishing its annual report on its open market operations, it is a good time to look at the balance sheet under a microscope.

The balance sheet was expanded under the leadership of former Fed Chairman Ben Bernanke. Many think that the principal task of his successor, Janet Yellen, will be to reduce the size of the Fed’s asset holdings without upsetting financial markets.

-- Greg Robb

"

EMAIL





With short-term interest rates stuck at zero, the Fed began in the spring of 2009 to buy $1.1 trillion of Treasurys and

mortgage-backed securities in a program that became known as quantitative easing. The idea was to bring down long-term interest rates and spur growth. Investors were also expected to be pushed out of safe assets and take more risks.


This chart shows three waves of purchases, the first round in the spring of 2009, a second round of purchases when the economy stumbled in November 2010 and a third round in September 2012 after another soft patch.


In 2013 alone, the Fed’s balance sheet actions resulted in cumulative additional purchases of $1.02 trillion of longer-term securities to a year-end level of $3.8 billion.




During the year, Treasury holdings grew by $543 billion and MBS holdings grew by $509 billion.The Fed projects its balance sheet will peak at $4.2 trillion late this year as the Fed has begun to taper its bond purchases.

This chart shows how much bond buying has turned central bank investment policy on its head, said Lou Crandall, chief economist at Wrightson ICAP. Central banks used to hold assets with short maturities so they could raise cash in case of emergencies.


Short-term assets used to make up 60% of the Fed’s portfolio but now represent less than 10%.





See More
Link:http://www.marketwatch.com/story/the-feds-enormous-balance-sheet-in-seven-charts-2014-04-18

Warren Buffett, Climate Change and the Billion-Dollar Challenge

Warren Buffett, Climate Change and the Billion-Dollar Challenge:



Warren Buffett has been spending billions of dollars on wind turbines and solar farms, but what exactly are his views on climate change?















Link: http://www.institutionalinvestor.com/Article/3327788/Asset-Management-Hedge-Funds-and-Alternatives/Warren-Buffett-Climate-Change-and-the-Billion-Dollar-Challenge.html?ArticleId=3327788#.U09JivldVAJ

Gradual Tightening

DEALBOOK Banks Ordered to Add Capital to Limit Risks By PETER EAVIS The requirement could force the eight biggest banks in the United States to find as much as an additional $68 billion to put their operations on firmer financial footing, according to regulators' estimates.

Start up failure

"Shutting down has shown me the ugly side of startups." Billy Chasen of Turntable.fm shares his startup story https://medium.com/p/7958dae1d27b  

Medium

Shutting Down

By Billy Chasen @billychasen

After four years, we shut down our final product, Turntable Live, in early January. A lot happened over those four years…

View on web

MSFT - Why Microsoft will likely keep its bronze medal in the mobile

Tom Krazit ‏@tomkrazit 23h

"Unless one of the leaders falters badly, few marathons are won from behind." @KevinCTofel on MSFT's predicament: http://gigaom.com/2014/04/02/why-microsoft-will-likely-keep-its-bronze-medal-in-the-mobile-computing-marathon/ …  

Gigaom

Why Microsoft will likely keep its bronze medal in the mobile...

By Kevin C. Tofel @KevinCTofel

For as much good news that Microsoft shared for end-users, developers and device makers at Build 2014 on Wednesday, the reality is the game of “catch up” is still on. And for this race, that’s not...

View on web

What a warmer planet means to the bottom line

 

Grist

Risk game: What a warmer planet means to the bottom line

By SMITH @strangerworks

How do we move beyond vague climate fears? 

Risky Business’ Kate Gordon is assembling hard data on what’s at stake for business. 

View on web  

Risk game: What a warmer planet means to the bottom line

Kate Gordon,  San Francisco’s Financial District, is managing Risky Business, an ambitious project that aims to quantify the financial risks that climate change poses to the American economy. 

The report, which is slated to be released this June, is headed by Tom Steyer, former New York Mayor Michael Bloomberg, and former Treasury Secretary Henry Paulson, and features input from an eclectic Risk Committee of former cabinet members and other political heavy-hitters.

 

Q. The first thing I’m curious about is, what kind of climate change data is out there? What do you have, and what would you like to see more of?

A. The climate risk data just isn’t out there. The reinsurance industry is the big exception. They were doing a lot of work around climate risk because they had to – they were insuring the insurers.

But most of the reinsurers – who have been talking about this since the ’80s – are based in Europe.

The reason we decided to do this project was to have a very U.S.-focused, business-focused, and investor-focused approach to climate risk, which wasn’t really available outside of some private institutions.

The five sectors we’re looking at are:
- agriculture,
- public health,
- energy systems, 
- coastal infrastructure, and then 
- labor productivity,,,

Of those, the ones that have been most studied from a risk perspective are agriculture and coastal infrastructure, and that’s largely because of private industry.

We have Greg Page on our Risk Committee, who just stepped down as the CEO of Cargill, and is now the executive chair of the board. Cargill positions itself as a risk management company in the agricultural space.

At Next Generation we’re not doing the research; we contract it out. 

We’re working very closely with a company called RMS, which is the big risk analyst for the insurance and reinsurance and hedge fund industries. 

One of their specialties is coastal risk. Coastal infrastructure is a big issue for insurers – the sea-level rise and the extreme weather events and the capital infrastructure falling apart. 

That’s something that private companies are looking into.

Energy systems are becoming a bigger deal. The Department of Energy put out a big study on risks to energy systems from climate change. But honestly, again, that’s been from the perspective of coastal infrastructure: flooding, hurricanes.

The area that we’re looking at that is the least studied is labor productivity. 

Q. And what will climate change do to labor productivity? 

A. Extreme heat. And precipitation. There are data on that, from extreme heat events in recent years — what happens to the construction industry, for instance.

Q. And then in terms of energy systems – aside from the effects of wind and heat on pre-existing systems, what else would be affected by climate change? 

A. With energy, we’re looking less at infrastructure and more at energy supply and demand. If you have extreme heat, what happens to energy demand? People use their air conditioners more. We’re looking at energy load and our lack of energy diversity.
 


We are not telling people how to react. We’re not dictating solutions. We are doing the work of a risk committee to highlight the catastrophic risks of climate change.

For Mike Bloomberg and for Tom Steyer and for Hank Paulson, this project speaks really to their backgrounds in taking the data and working with the data. They are all data-driven people.

Q. And they’re all finance guys.

A. They’re all finance guys. This project speaks to their desire to see a broadening of climate as an issue for a much larger set of people.

There’s a lot of intersection between this work and the other work that those guys are doing. We’re in conversation with Paulson about China, which is where he’s really focused. 

Risky Business is specifically not coordinated with anybody else’s efforts.

... everything we’re doing for this phase of the project is open source, so all the data and all the modeling will be open source. We like to think this will be a platform for a lot of people, not just for us.


We have four different temperature scenarios. We’re running all of the National Climate Assessment Models, which is 39 models, on each of those. 

Most of the climate modeling is already online – it’s part of the IPCC process or the National Climate Assessment Process. There are 16 terabytes of data going into this project.

... we are focused on extreme events. This is a catastrophic risk analysis. So we’re going up to pretty high temperatures.  

Q. So if this is open source, is it stuff that was open source before? Since you’re not generating all of your own data?

A...about 80 percent of this is existing research and 20 percent is new. The labor productivity stuff is new.

What is less common is, we’re not just saying “Here are the risks.” We’re quantifying it, sector by sector. That’s basically overlaying an economic analysis on top of a scientific analysis. That’s new.

The nuclear industry’s done a ton, because a lot of nuclear plants are on the water. So the nuclear industry is the perfect example of an industry that deals with very low probability, high-risk events and massive amounts of regulation.

And now they’re having to deal with the overlay of climate risk, because what used to be a 100-year flood zone is becoming a 50-year flood zone. 

And they’re having to deal with that. They’re in a lot of flood zones. There’s a lot – especially after Fukushima – about dealing with climate risk overlaying overall nuclear regulations.

Q. What if I’m a refinery on the East Coast 

A. That’s what the Department of Energy report is about. What they actually find is that the fossil fuel transportation system has huge risks – the grid infrastructure and the actual transportation infrastructure are both at risk, as well as the refineries that are along the coast. 

People understand the relationship between climate change and coastal infrastructure pretty well. Sea-level rise is one of those things that everyone’s agreed on in the scientific community.

  

Q.  Is there room for thinking about climate change in a hopeful manner? 

A.  We’re saying is: “Look. We know from experience — from the health sector, from national security, from the insurance sector – that when we understand the risks, the business community responds.”

...what we’re trying to do here, is bring this to a place where people think they really can act. Particularly in the business community, in this case.


 BMW has located their manufacturing plant in Washington state because they want cheap access to green power. They think of it as less volatile than fossil fuel power. That was a business decision. It didn’t have anything to do with carbon being priced.
 
People are out there the whole time doing smart risk analysis of things that are way lower probability than climate change. Our entire defense department does risk assessments based on the potential for another Arab Spring. Or for mass terrorist attacks.

Some of it is never made public. Shell, for instance, does war games and scenarios all the time based on climate change. We’re never going to see that. It’s all proprietary and internal. But we hear about it.

We did this project outside Washington, and outside the environmental community and the traditional NGO community, because we were basically saying: these are people from business backgrounds and public sector backgrounds who deal with risk. 

They have dealt with it in public conversations and private conversations for decades. And we need to bring that level of analysis to this problem.

We need to bring a similarly business-driven conversation about what those risks might be.
Only when you are on the same page about those risks can you talk about a solution.

That’s the long answer. But what I’m really trying to say is: There is hope.
 
We need to have a conversation first about why this is a problem to people. Why should we even be thinking about this? 

    
  
I continue to think – that clean energy is a huge economic development driver.  If we do commit to transitioning the economy to low-carbon sources, it’s a massive boon for our economy. 

And for local economies, in particular.

Economic Development 101 is that you start where people are. If you’re trying to do a plan for a city, you start with what the city’s assets are. If you look at Oakland, you start with the port, the universities. You start with access to San Francisco and Richmond.

You don’t come in flying with a one-size-fits-all plan.

The same is true for any economic opportunity.  

You start with what the region is actually dealing with, and what the sector is dealing with. 

So everything I’ve done with Apollo, or the Center for American Progress, to here, has been from that theory.

You don’t come to someone and tell them that climate change is the biggest issue they’ll ever have to deal with. 

You start with where they already are, and you talk about why this matters from that perspective. 

That’s what I did as an organizer, and that’s what I do now.

Risky Business is basically saying,


 “Let’s do the analysis and find out what the risk is to your industry.” 

Let’s not start with “WHY aren’t you people thinking about climate change?”

 

 

 

 

 

 

 

 

Heather Smith (on Twitter, @strangerworks) is interested in the various ways that humans try to save the environment: past, present, and future.

 

Read more: Business & Technology, Climate & Energy

 Link:  http://grist.org/climate-energy/risk-game-what-a-warmer-planet-means-to-the-bottom-line/