Stock Investment Analysis Term Paper

Pages: 3 (1190 words)  ·  Bibliography Sources: 3  ·  File: .docx  ·  Level: Master's  ·  Topic: Economics

Mutual Fund Analysis

Investment management can be an extensive endeavor even for the most astute managers. For one, investment performance is often measured for the short-term which is counterproductive to wealth accumulation. Due in part to this short-term nature of fund expectations, managers often engage in activities that ultimately reduce shareholders. Aspects such as portfolio turnover create tax inefficiencies for shareholders as management quickly buy and sell "hot" stocks. High expense ratios make it harder for managers to outperform the market, as they must do so by at least the amount that they charge in fees. By chasing short-term performance, management often neglects undervalued securities with strong long-term potential. As such, fund managers must constantly juxtapose the interest of shareholders with the interest of the overall fund (Bogle, 2007). By focusing solely on long-term investments, a significant decline will often cause investors to withdraw or redeem funds at precisely the wrong moment. However, if funds are successful over the short-term, an influx of funds quickly enters causing higher fee income for the manager who is paid based on the percentage of assets held (Burton, 1996).

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When analyzing the FLCSX, many of the problems mentioned above become very profound in regards to the overall performance of the fund. Relative to the S&P 500, the fund has lagged substantially. The fund YTD has returned approximately 7% while the S&P 500 has risen over 15% so far this year. I attribute this discrepancy to many of the prevailing issues listed above. For instance, according to Yahoo Finance, the portfolio turnover of the fund is 64%. The manager is exchanging roughly two-thirds of the funds shares yearly. This is very costly as investors, not the manager, are paying for the transactions cost, and capital gains taxes. In addition, the 1% expense ratio causes another headwind for the investors performance as they must achieve a 16% return just to break even with the markets 15% return (16% increase- 1% expense ratio= 15%).

Term Paper on Stock Investment Analysis Assignment

Now in regards to the overall holdings of the fund, they are much diversified. The top ten holdings are spread among varying companies and industries which help to smooth out growth. However, too much diversification makes the fund mediocre in its return potential. If the mutual fund diversifies too much, it will tend to act more like an index fund rather than a mutual fund. In this instance, the higher expense ration relative to the index fund is not justified. When analyzing the top 10 holdings of the firm, one quickly realizes that the manager is positioning the fund for an economic rebound. 23% of the funds assets are in financial services which have lost large amounts of value since the financial crisis. JP Morgan Chase (JPM) is the largest holding of the fund accounting for roughly 3% of the funds assets. Wells Fargo (WFC) is the third largest holding accounting for another 2% of the funds holdings. Wells is very interesting as it also is the largest mortgage originator in the country. As such, the manager may also be looking to participate in the overall housing recovery that is occurring. Another 15% of the funds assets are invested in technology stocks which have underperformed of late. The three largest holdings are Apple (AAPL), Google (GOOG), and Microsoft (MSFT). With the exception of Google, many of the funds tech company investments have lagged behind the market this year. Apple in particular has fallen nearly 40% from its $700 peak a few years earlier. Over 40% of the portfolio is aligned with financial services and technology, both of which… [END OF PREVIEW] . . . READ MORE

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How to Cite "Stock Investment Analysis" Term Paper in a Bibliography:

APA Style

Stock Investment Analysis.  (2013, June 24).  Retrieved October 26, 2020, from

MLA Format

"Stock Investment Analysis."  24 June 2013.  Web.  26 October 2020. <>.

Chicago Style

"Stock Investment Analysis."  June 24, 2013.  Accessed October 26, 2020.