Value Trust Case Study

Question 1

Value Trust had outperformed its benchmark index, the Standard & Poor 500 Index for 14 years in a row. It surpassed the S&P 500 by 3.6 percent per year by having an average total return of 14.6 percent. Value Trust had earned a cumulative return of more than 830 percent over the previous 14 years (Bruner, 2005). It is already a great accomplishment for a fund manager to beat the S&P in any single year, however Miller showed a far more greater performance by achieving consistently better results during both the bull market and bear markets along 14 years (Carr et al., 2005).

I think it is irrational for an investor to purchase shares in Value Trust. It is because it is very unlikely for the firm to consistently producing market beating

Portfolio managers play various roles in mutual fund industry.

• Portfolio managers need to decide the best investment plan for individual by taking into account the age, wages and the ability to undertake risk. One should prepare by keeping aside some amount of money to overcome the unpredictable contingencies for tough times.

• Next, a portfolio manager needs to make his client be conscious of benefits of numerous investment tools available in market. The portfolio manager needs to explain the reasons of invest with his client and also choose the most suitable investment plan for the individual.

• Besides, portfolio managers need to design customized investment solutions for the clients. The background, financial requirements and the capacity to invest of the clients will be taken into account by the portfolio manager (MSG,

Implications of capital market efficiency for investment performance in general

The implications are it is impossible for investors to beat the market through expert stock selection or market timing. An investor can only purchase riskier investments in order to get higher returns. Investors are not likely to outperform the overall market consistently on a risk-adjusted basis since market prices should only react to new information or changes in discount rates.

Implications of strong, semi-strong, and weak form efficiency for fund managers

• Strong form efficiency refers to strongest version of market efficiency by stating all information and is accounted for in the price of stock. For strong form efficiency, the stock prices fully reflect all information from public and private sources. Possessing insider information is not an advantage for an investor in strong form efficiency. Although the fund managers possess huge amount of information, they are not able to help their clients to gain abnormal profits that is exceeding normal returns. (Investopedia, 2015). Fund managers are not able to contribute much in helping clients to invest due to the above