Business and Management
Submitted By htdong
BETA MANAGEMENT COMPANY
The CEO of Beta Management Group is in view of new goals and directions for the following year. The group is a small investment management company in a suburb of Boston. The group handles high-net-worth individual clients totaling $25 million in assets. The CEO is hoping to expand the business in 1991. The CEO has been timing the market to reduce risk while increasing the returns since 1988. Index was chosen to be the best way to maintain and adjust equity market exposure. A majority of the funds were in no-load, low-exposure index funds. The other was put in money market instruments to help time the market. The Vanguard Index 500 was best suited for the company do to its low expense ratio; the returns are close to the S&P 500.
The company was successful in 1990 by reducing the equity position to 50% in June. After September they began moving money back into the index fund. By January 4, 1991 Beta Management had 79.2% of $25 million invested in the Vanguard fund, making money for its clients.
Beta doubled size in six months, now the CEO works full-time managing money. They lose potential clients because of being mainly an indexed mutual fund. So now they are reviewing some small stocks since the market was a good value in 1991. The main two individual stocks are California R.E.I.T. and Brown Group, Inc.
The problem of adding new stocks in general is the variability, but these two in particular. All clients are promised reasonable returns with exposure to risk kept in control.
The prices of these two stocks fluctuate much more than the index fund. The CEO should determine if adding these two and exposing clients to a risk will be the right thing to do.
(ii) The standard deviations can be calculated using Excel’s STDEV () function.
Cal. REIT = 9.23%. Brown Group = 8.17%. Vanguard 500 = 4.61%. The individual stocks have…...