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1、 CHAPTER 25PROFESSIONAL ASSET MANAGEMENTAnswers to Questions1. Private management and advisory firms typically develop a personal relationship with their clients, getting to know the specific investment objectives and constraints of each. The collection of assets held can then be tailored to the spe
2、cial needs of the client. Conversely, a mutual fund offers a general solution to an investment problem and then markets that portfolio to investors who might fit that profile.Special attention comes at a cost and for that reason private management firms are used mainly by investors with substantial
3、levels of capital, such as pension funds and high net worth individuals. Conversely, individual investors with relatively small pools of capital are the primary clients of investment companies.The majority of private management and advisory firms are still much smaller and more narrowly focused on a
4、 particular niche in the market. A wide variety of funds is available, so an investor can match almost any investment objective or combination of investment objectives.Management and advisory firms hold the assets of both individual and institutional investors in separate accounts, which allows for
5、the possibility of managing each clients portfolio in a unique manner. Conversely, investment companies are pools of assets that are managed collectively. Investors in these funds receive shares representing their proportional ownership in the underlying portfolio of stocks, bonds, or other securiti
6、es.2. Based upon Exhibit 25.2, there has been a rapid increase in the number of large asset management firms. Much of this asset growth can be explained by the strong performance of the U.S. equity markets during this period, but there has been a trend toward consolidating assets under management in
7、 large, multiproduct firms. Still, as of December 2001, there were 48 firms with AUM of at least $100 billion. 3. After the initial public sale of shares in the investment company the open-end fund will continue to sell new shares to the public at the NAV with or without a sales charge and will rede
8、em (buy back) shares of the fund at the NAV. In contrast, the closed-end fund does not buy or sell shares once the original issue is sold. Therefore, the purchase price or sales price for a closed-end fund is determined in the secondary market.4. A load fund charges a fee for the sale of shares (fro
9、nt end load) and/or redeeming shares (back end load). It will sell shares at its net asset value plus the sales charge. A no-load fund has no initial sales charge, so it will sell its shares at its net asset value. 5. You definitely should care about how well a mutual fund is diversified. One of the
10、 major advantages of a mutual fund is instant diversification, so it truly is important. Given the CAPM, it is known that the market only pays for systematic risk so it is important to eliminate unsystematic risk, which is the purpose of diversification. A portfolio that is completely diversified wi
11、ll be perfectly correlated with the market portfolio (R2= + 1.00).6. The net return for a fund is the return after all research and management costs. The gross return is before these expenses. The net return is the return reported to the stockholder since all expenses have been allowed for in the NA
12、V. To compute the gross return it is necessary to compute the expenses of the fund and add these back to the ending NAV and compute the returns with these expenses added back. Typically, the average difference in return is about one percent a year, but this varies by fund. As an investor, it is the
13、net return that is important because these are the returns that you derive.7. Just because only half do better than buy-and-hold on the basis of risk-adjusted return does not mean you ignore them, because there are other functions that investment companies perform that are important. These other fun
14、ctions include diversification, flexibility, and record keeping. To derive these other advantages it may be necessary to give up some of the return.8. It is questionable whether good performance will continue during two successive short-term periods because in many cases it could be a random event o
15、f a couple of winners that are not repeated. Empirically, such superior performance has not been consistent beyond what you would expect by chance.9.Managers are often compensated with a base salary and a bonus that depends on the performance of their portfolios relative to those of their peers. The
16、refore, a manager with a relative poor performance midway through a compensation period could be more likely to increase the risk of the portfolio in an effort to increase his/her final standing. Of course, altering fund risk to enhance his/her own compensation suggests that some managers may not al
17、ways act in his/her clients best interest. 10. Soft dollars are generated when a manager commits the investor to paying a brokerage commission that is higher than the simple cost of executing a stock trade in exchange for the manager receiving additional bundled services from the broker. One example
18、 would be for a manager to route her trades through a non-discount broker in order to receive security reports that the brokerage firm produces. 11(a).To derive a quick view of recent performance you can look at a recent quarterly review in Barrons; the Mutual Fund Scoreboard in Business Week, the a
19、nnual Forbes review.11(b).The long-run analysis and address for the funds are best derived from the Weisenberger Investment Companies book.CHAPTER 25Answers to Problems1.Current NAV = $75,800/6,250 shares = $12.132. Load fund = ($1,000 - $80) x 1.15 = $1,058.00Represents a 5.80 percent growthNo-load
20、 fund = ($1,000 x 1.12) x (1 - .01) = $1,108.80Represents a 10.88 percent growthThe no-load fund offers an extra $50.80 over the load fund for a $1,000 investment held over a one-year time period. The difference in percent growth is 5.08 percent.3. Period NAVPremium/DiscountMarket Price 0 $10.00 0.0
21、 $10.00 1 11.25 -5.0 6.25 2 9.85 +2.3 12.15 3 10.50 -3.2 7.30 4 12.30 -7.0 5.30 3(a). 10.00 = 5.30(PV 4 years) Average return per year = -14.68% 1.8868 = 1/(1+ x)4 (using calculator) (1 + x)4 = .5300 1 + x = (.5300).25 1 + x = .8532 x = -.14683(b). 10.00 = 12.30(PV 4 years) Average return per year =
22、 5.31% 0.8130 = 1/(1+ x)4 (using calculator) (1 + x)4 = 1.230 1 + x = (1.230).25 1 + x = 1.0531 x = 0.05313(c). 6.25 = 12.15(PV 1 year) Average return per year = 94.40% 0.5144 = 1/(1+ x) (using calculator) (1 + x) = 1.9440 x = 0.94403(c). 11.25 = 9.85(PV 1 year) Average return per year = -12.44% 1.1
23、42 = 1/(1+ x) (using calculator) (1 + x) = .8755 x = -.12444(a). Client 1 Client 2.0100 x 5,000,000 = 50,000 .0100 x 5,000,000 = 50,000.0075 x 5,000,000 = 37,500 .0075 x 5,000,000 = 37,500.0060 x 10,000,000 = 60,000 .0060 x 10,000,000 = 60,000.0040 x 7,000,000 = 28,000 .0040 x 77,000,000 = 308,000 2
24、7,000,000 175,500 97,000,000 455,5004(b). 175,500/27,000,000 = .0065 455,000/97,000,000 = .004696 = 0.65% = 0.47%4(c). Costs of management do not increase at the same rate as the managed assets because substantial economies of scale exist in managing assets.5. CFA Examination II (1999) ConductPotent
25、ial Conflicta. Compensation based on commissions from clients trades.A fee structure of this type can cause a conflict because the portfolio manager has an incentive to turn over investments in client accounts to increase fees. A high volume of trading may be in conflict with a clients investment ob
26、jectives.b. Use of client brokerage (“soft dollars”).A conflict may be created when client brokerage is used to generate soft dollars for the purchase of goods or services that benefit the firm (i.e., that are used in the management of the firm) rather than benefit the clients whose trades generated
27、 the soft dollars. An investment manager may pay higher commissions to obtain “soft dollar” credits to buy goods and services that do not necessarily provide direct benefits to the client whose commissions are being used; such actions, however, must be justifiable on the basis that the goods and ser
28、vices aid the manager in its investment decision-making process. Absent such justification, the manager is putting its own interest ahead of the clients interest.c. Purchase of stock in a company whose warrants are owned by the portfolio managerThere is a potential conflict of interest when a portfo
29、lio manager trades, for the account he manages, in the shares of a company in which he personally owns warrants that can be used to purchase shares of that same company. The conflict arises whether the manager purchases or holds such shares for the fund, because his purchase could be viewed as an at
30、tempt to increase the value of the warrants.d. Reimburse-ment of analyst expenses.Accepting reimbursement for such expenses as meals, lodging, or plane fare from the issuer of the stock about which the analyst is writing a research report creates an obvious conflict of interest. Such conduct gives r
31、ise to the perception that the analysts independence and objectivity have been compromised. 6(a). Beginning value = $27.15 x 257.876 = $7,001.33 Capital gain & dividends = $1.12 x 257.876 = 288.82 Ending value = $30.34 x 257.876 = 7,823.96 ($7,823.96 - $7,001.33) + 288.82 Return = = 15.87% $7,001.33
32、6(b). Assuming that the tax rate of 30% is applied to all cash flows: ($7,823.96 - $7,001.33) + 288.82 = $1,111.45 $1,111,45(1 - .30) = $778.02 Return = $778.02/$7,001.33 = 11.11%6(c). Alternatively, the $1,111.45 could be reinvested at the year-end NAV of $30.34. The investor could purchase $1,111.
33、45/$30.34 = 36.63 shares 7. Stock Year 1 Year 2 Proportion Dollar Liquidated No. of shares A $ 4,525,000$ 4,875,000 5.63% $297,594 6,104 B 5,710,500 5,568,750 6.44% 339,943 13,735 C 5,437,500 4,642,500 5.37% 283,401 22,892 D 10,019,950 11,327,500 13.09% 691,485 7,020 E 8,701,000 9,625,000 11.12% 587
34、,557 9,401 F 11,025,000 13,475,000 15.57% 822,579 10,683 G 6,784,000 8,189,560 9.46% 499,930 12,942 H 4,193,750 2,406,250 2.78% 156,889 16,787 I 4,333,500 12,352,500 14.28% 754,056 27,470 J 6,412,500 6,784,200 7.84% 414,140 5,494 K 3,665,310 4,317,810 4.99% 263,580 5,311 L 2,723,560 0 0.00% 0 0 M 0
35、2,962,500 3.42% 180,845 9,157 $73,531,570 $86,526,570 100.00%$2,127,0007(a). Portfolio value of $73,531,570 Cash 3,542,000 Expenses (730,000) Net Asset Value $76,343,570/5,430,000 = $14.067(b). Portfolio value of $86,526,570 Cash 2,873,000 Expenses (830,000) Net Asset Value $88,569,570/5,430,000 = $
36、16.31 Growth = ($16.31 - $14.06)/$14.06 = 16.0%7(c). $2,873,000/$16.31 = 176,149.61 shares7(d). 500,000 - 176,149.61 = 332,850.39 shares (or $5,282,000 based on NAV of $16.31) (See table on previous page.) Each stocks percentage of portfolio was calculated arriving at the percentages presented in th
37、e table. Each percentage was applied to the $5,282,000 to arrive at the dollar amount for each stock that must be liquidated. Finally, each stock price was divided into the liquidation amount per stock to determine the number of shares of each stock that would have to be sold.8(a). (1) 3 percent fro
38、nt-end load = $100,000 (1 - .03) = $97,000 $97,000 (1 + .12)3 = $97,000(1.4049) = $136,278 (2) a 0.50 percent annual deduction Year 1: $100,000(1 + .12) = $112,000 (1 - .005) = $111,440 Year 2: $111,440(1 + .12) = $124,812.80(1 - .005) = $124,188.74 Year 3: $124,188.74(1 + .12) = $139,091.38(1 - .00
39、5) = $138,395.93 (3) a 2 percent back-end load $100,000(1 + .12)3 = $100,000(1.4049) = $140,492.80 $140,492.80(1 - .02) = $137,682.94 Choice (2) with ending wealth of $138,395.93.8(b). (1) 3 percent front-end load = $100,000 (1 - .03) = $97,000 $97,000 (1 + .12)10 = $97,000(3.10585) = $301,267.28 (2) a 0.50 percent annual deduction $100,000(1 + .12) 10 (1 - .005) 10 = $100,0
