A client asks you to analyze the performance of two funds, the 'TopReturn Fund' and the 'HighPerformance
Question:
A client asks you to analyze the performance of two funds, the 'TopReturn Fund' and the 'HighPerformance Fund'. Monthly gross return data for both funds can be found in the 'Homework_4_data' excel file. The file also contains data for the excess market return and the risk-free rate. Both funds started trading in 1995.
a. Compute the monthly Sharpe ratio of both funds and plot the cumulative performance of $1 invested at inception for both funds. Based on this evidence, which fund do you prefer and why? Hint: discuss how the funds perform during specific events such as the dotcom 'bubble' and the 2008 crisis.
b. Compute the alpha of both funds relative to the market. What do you observe? Which fund would a CAPM-investor choose? Hint: use the Regression Analysis tool in Excel.
c. What additional steps would you want to undertake to complement the analysis of point b?
Understanding Financial Statements
ISBN: 978-0133874037
11th edition
Authors: Lyn Fraser, Aileen Ormiston