Investment and Portfolio Management: Evaluating Top 8 Mutual Funds of US Market

The report evaluates the top 8 mutual funds of the US market on the basis of various techniques such as average return, standard deviation, beta, Sharpe ratio, treynor ratio, Jensen’s alpha, Information ratio etc. It suggests the top 4 stocks for investment in the US market.

Running Head: Investment and portfolio management
1
Project Report: Investment and portfolio management

Investment and portfolio management 2
Introduction:
The report mainly focuses on the various portfolios of US market and evaluates that
which portfolios are the best in context with the investment. In the report, top 8 mutual funds
of the US market has been evaluated on the basis of the average return, standard deviation,
beta of the portfolio, average performance of the portfolio, Sharpe ratio, treynor ratio,
Jensen’s alpha, Information ratio etc. On the basis of the study, top 4 stocks of the market has
been measured and it is suggested to the US investors to invest into those portfolios for the
better return and lower risk from the market.
Performance evaluation:
US market’s economy position and the financial performance explain that the position
of the market has been improved and thus the investors are attracting more towards the
investment into the US market. Williams (2010) explains that the mutual funds are the best
option for the investors to invest the amount. This would reduce the associated risk with the
stock of the company (Loukeris et al, 2009). The top 8 mutual fund of the US market has
been evaluated on the basis of the various techniques and it has been found that the average
performance of all the portfolios are quite significant, the evaluation on each of the stock of
the company is as follows:
Average raw returns:
Average return of all the stocks has been calculated firstly and it has been found that
the performance of all the mutual funds is positive and explains that the portfolios are
performing well. However, it has been recognized that the stock of Fidelity Advisor® Small
Cap Growth, ClearBridge Large Cap Growth, ClearBridge Large Cap Growth, ClearBridge
mid Cap Growth and American Beacon Bridgeway Lg Cp Val respectively. The average
return of all the above discussed mutual fund is 1.392%, 1.361%, 1.341% and 1.18%.
Henriksson and Merton Model

Investment and portfolio management 3
Ameri
can
Beaco
n
Bridge
way
Lg Cp
Val
Ariel
Appreci
ation
Instituti
onal
Fidelit
y
Advis
or®
Small
Cap
Growt
h
Caril
lon
Eagl
e
Mid
Cap
Gro
wth
ClearBr
idge
Large
Cap
Growth
Oppenhe
imer
Rising
Dividen
ds
Vangu
ard
Total
Stock
Marke
t Idx
Vangu
ard
Small
Cap
Growt
h
Index
Average
Return
1.178
% 1.124%
1.392
%
1.34
1% 1.361% 0.876%
1.134
%
1.093
%
(Elton et al, 2009)
Sharpe Ratio:
Sharpe ratio measures the average return of a portfolio which is earned in extras of
risk free rate or total risk of a portfolio. Sharpe return of all the stocks has been calculated
further to measure the performance and their excess return to the investors. On the basis of
the calculations, it has been found that the performance of all the mutual funds is positive and
explains that the portfolios are performing well. However, it has been recognized that the
stock of Fidelity ClearBridge Large Cap Growth, ClearBridge mid Cap Growth, Vanguard
Total Stock Market Idx and American Beacon Bridgeway Lg Cp Val respectively (Chen &
Huang, 2009). The Sharpe ratio of all the above discussed mutual fund is 0.45, 0.39, 0.38 and
0.39.
Sharpe Ratio for Portfolios
Stocks portfolio
Standard
deviation
Portfolio
return
Risk free
rate
Sharpe
Ratio
American Beacon
Bridgeway Lg Cp Val 2.90% 1.18% 0.02% 0.3988
Ariel Appreciation
Institutional 3.85% 1.12% 0.02% 0.2865
Fidelity Advisor® Small
Cap Growth 3.63% 1.39% 0.02% 0.3779
Carillon Eagle Mid Cap
Growth 3.41% 1.34% 0.02% 0.3867
ClearBridge Large Cap
Growth 2.97% 1.36% 0.02% 0.4509

Investment and portfolio management 4
Oppenheimer Rising
Dividends 2.78% 0.88% 0.02% 0.3076
Vanguard Total Stock
Market Idx 2.84% 1.13% 0.02% 0.3914
Vanguard Small Cap
Growth Index 3.51% 1.09% 0.02% 0.3058
Treynor ratio:
Treynor ratio measures the average return of a portfolio which is earned in extras of
market index return and the cost of equity of the company. Treynor ratio of all the stocks has
been calculated further to measure the performance and their excess return to the investors.
On the basis of the calculations, it has been found that the performance of all the mutual
funds is positive and explains that the portfolios are performing well (Brown, 2012).
However, it has been recognized that the stock of Fidelity Advisor® Small Cap Growth,
ClearBridge large Cap Growth, American Beacon Bridgeway Lg Cp Val and Carillon Eagle
Mid Cap Growth respectively. The treynor ratio of all the above discussed mutual fund is
1.61%, 1.40%, 1.38% and 1.24% respectively.
Treynor Ratio for Portfolios
Stocks portfolio Beta
Portfolio
return
Risk
free rate
Treynor
Ratio
American Beacon
Bridgeway Lg Cp Val 0.84 1.18% 0.02%
1.38%
Ariel Appreciation
Institutional 1.19 1.12% 0.02%
0.92%
Fidelity Advisor®
Small Cap Growth 0.85 1.39% 0.02%
1.61%
Carillon Eagle Mid Cap
Growth 1.07 1.34% 0.02%
1.24%
ClearBridge Large Cap
Growth 0.96 1.36% 0.02%
1.40%
Oppenheimer Rising
Dividends 0.97 0.88% 0.02%
0.88%

Investment and portfolio management 5
Vanguard Total Stock
Market Idx 1.00 1.13% 0.02%
1.12%
Vanguard Small Cap
Growth Index 1.00 1.09% 0.02%
1.07%
Information ratio:
Information ratio measures the profitability of a portfolio which is earned in extras of
market index return and the volatility of the company. Information ratio calculations over the
top 8 mutual funds of US explains that the information ratio of American Beacon Bridgeway
Lg Cp Val, Fidelity Advisor® Small Cap Growth, ClearBridge mad Cap Growth and Carillon
Eagle large Cap Growth respectively. The information ratio explains that these stocks would
offer higher return (Taneja & Bansal, 2011).
Information Ratio
Americ
an
Beacon
Bridge
way Lg
Cp Val
Ariel
Apprec
iation
Institut
ional
Fideli
ty
Advis
or®
Small
Cap
Growt
h
Carill
on
Eagle
Mid
Cap
Grow
th
Clear
Bridg
e
Large
Cap
Grow
th
Oppen
heimer
Rising
Divide
nds
Van
gua
rd
Tot
al
Sto
ck
Mar
ket
Idx
Van
gua
rd
Sm
all
Cap
Gro
wth
Ind
ex
Portfoli
o return 1.18% 1.12%
1.39
%
1.34
%
1.36
% 0.88%
1.1
3%
1.0
9%
Return
on the
index 1.02% 1.11%
1.20
%
1.19
%
1.26
% 1.14%
1.1
3%
1.0
8%
Standar
d
deviatio
n 2.90% 3.85%
3.63
%
3.41
%
2.97
% 2.78%
2.8
4%
3.5
1%
Informa
tion
ratio
(Portfol
io
return -
return
on
index) /
5.45% 0.44% 5.21
%
4.42
%
3.34
%
-9.41% 0.0
9%
0.2
6%

Investment and portfolio management 6
Standar
d
deviati
on
Jensen’s Alpha:
Jenses’s alpha ratio measures the profitability of a portfolio on the basis of the market
return and cost of equity of the company. Jensen’s alpha calculations over the top 8 mutual
funds of US explains that the performance of Ariel Appreciation Institutional, Oppenheimer
Rising Dividends, Vanguard Small Cap Growth Index and Vanguard Total Stock Market Idx
respectively. The Jensen’s alpha ratio explains that these stocks would offer higher return.
Jensen's Alpha
Amer
ican
Beac
on
Bridg
eway
Lg
Cp
Val
Ariel
Appre
ciatio
n
Institu
tional
Fidelit
y
Advis
or®
Small
Cap
Growt
h
Carill
on
Eagle
Mid
Cap
Growt
h
ClearB
ridge
Large
Cap
Growt
h
Oppen
heime
r
Rising
Divid
ends
Vangu
ard
Total
Stock
Market
Idx
Vangu
ard
Small
Cap
Growt
h
Index
Beta 0.84 1.19 0.85 1.07 0.96 0.97 1.00 1.00
Risk free
rate
0.02
% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Market
return -
risk free
rate
1.15
% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
CAPM
[rf
+ β
(rb
–
rf)]
0.98
% 1.39% 1.00% 1.24% 1.12% 1.13% 1.17% 1.17%
Average
return
1.18
% 1.12% 1.39% 1.34% 1.36% 0.88% 1.13% 1.09%
Alpha Av
era
ge
ret
urn
-
-
0.19
%
0.26
%
-
0.39%
-
0.10%
-0.24% 0.25
%
0.03% 0.08%

Investment and portfolio management 7
CA
P
M
Treynor-Mazuy Model:
Treynor mazuy model has also been performed over the mutual fund of the companies
to measure the performance of the mutual funds. On the basis of the study, it has been found
that American Beacon Bridgeway Lg Cp Val, Ariel Appreciation Institutional, Fidelity
Advisor® Small Cap Growth, Carillon Eagle Mid Cap Gro and ClearBridge Large Cap
Growth are the best portfolios of the market.
Treynor-Mazuy Model
Ameri
can
Beaco
n
Bridge
way
Lg Cp
Val
Ariel
Appreci
ation
Instituti
onal
Fideli
ty
Advis
or®
Small
Cap
Grow
th
Carillon
Eagle
Mid
Cap
Growth
ClearB
ridge
Large
Cap
Growth
Oppenh
eimer
Rising
Dividen
ds
Vang
uard
Total
Stock
Mark
et Idx
Vang
uard
Small
Cap
Grow
th
Index
Portfolio
return 1.18% 1.12%
1.39
% 1.34% 1.36% 0.88%
1.13
%
1.09
%
Risk free
investmen
t 0.02% 0.02%
0.02
% 0.02% 0.02% 0.02%
0.02
%
0.02
%
Treynor-
Mazuy
Model 1.16% 1.10%
1.37
% 1.32% 1.34% 0.85%
1.11
%
1.07
%
(Kumar, Ajjan& Niu, 2008)
Henriksson and Merton Model:
Lastly, the Henriksson and Merton model has also been performed over the mutual
fund of the companies to measure the performance of the mutual funds. On the basis of the
study, it has been found that American Beacon Bridgeway Lg Cp Val, Fidelity Advisor®
Small Cap Growth, Carillon Eagle Mid Cap Gro and ClearBridge Large Cap Growth are the
best portfolios of the market.

Investment and portfolio management 8
Henriksson and Merton Model
America
n Beacon
Bridgew
ay Lg Cp
Val
Ariel
Appre
ciatio
n
Institu
tional
Fidelit
y
Advis
or®
Small
Cap
Growt
h
Carillon
Eagle
Mid Cap
Growth
ClearBr
idge
Large
Cap
Growth
Oppenh
eimer
Rising
Divide
nds
Vangu
ard
Total
Stock
Marke
t Idx
Vanguard
Small Cap
Growth
Index
Portfolio
return 1.18% 1.12% 1.39% 1.34% 1.36% 0.88% 1.13% 1.09%
Market return 1.02% 1.11% 1.20% 1.19% 1.26% 1.14% 1.13% 1.08%
Risk free rate 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Beta 0.84 1.19 0.85 1.07 0.96 0.97 1.00 1.00
Henriksson
and Merton
Model 0.32%
-
0.19% 0.36% 0.07% 0.15% -0.22% 0.00% 0.01%
Performance analysis:
On the basis of the overall evaluation on all the 8 portfolios, it has been found that the
American Beacon Bridgeway Lg Cp Val, Fidelity Advisor® Small Cap Growth, Carillon
Eagle Mid Cap Gro and ClearBridge Large Cap Growth are the best portfolios of the market.
The return from these mutual funds is higher than the return from the other portfolios. The
calculations have been done on the basis of the various portfolio techniques and it has been
found that the total return of these portfolios are quite higher than the risk free rate, market
return, cost of equity etc so that the investment must be done in these companies for the better
performance of the company.
Conclusion:
To conclude, the investors should invest into the American Beacon Bridgeway Lg Cp
Val, Fidelity Advisor® Small Cap Growth, Carillon Eagle Mid Cap Gro and ClearBridge
Large Cap Growth for better returns.

Investment and portfolio management 9
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theory and investment analysis. John Wiley & Sons.
Kumar, R., Ajjan, H., & Niu, Y. (2008). Information technology portfolio management:
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