Project – Fund Comparison Case Solution
STYLE OF INVESTMENT
To achieve long term capital growth for its investors, the fund usually invests a minimum of 80% of its net assets in common stocks of companies, the majority of these companies deal in IT and earn through development and advancement of technology. To diversify its risks the fund has invested globally and has presence in more than 5 countries and allocates a major part of their investment in abroad.
The major holding of the fund includes Amazon.com Inc, Tesla Motors Inc, Class A shares of LinkedIn Corporation and Citrip.com International Ltd, these holding make up more than 25% of the total investments of the Mutual Fund. Although the fund mainly invests in technology sector however,it also has a significant portion of its investment in Consumer Cyclical sector and a considerable investment in communication services sector. The fund has more than 40% of its investment in companies that are out of US.
Morning star Style Boxes
ARE THE ACTIVE FUND MANAGERS EARNING THEIR FEES
In order to evaluate if the mutual fund managers are earning enough and adding value to investors after charging expenses, we can compare the results of our selected open-ended mutual fund, T. Rowe Price Global Technology, with the benchmark exchange traded fund provided, SPDR S&P 500. As the exchange traded fund charge less fees compared to mutual fund and adopt a passive strategy of trading, which requires less management and forecasting techniques, therefore less salary expenses are incurred.
The expense ratio generally tells about the percentage of expenses incurred during the year by fund to the total assets value of the funds. It is an indicator of fees charged by management, expense ratio for mutual fund is usually higher than ETF, as the management is more involved and therefore, overall expenses are increased over the year.
The calculations show that the expense ratio for PRGTX (open ended mutual fund) is 0.91% as compared to 0.09% for SPY (an exchange trade fund); it shows that expenses for PRGTX is 9 times higher than SPY, the annual returns for the company has shown growth of 146% as compared to 67% for SPY. The above performance indicates that the mutual was almost able to earn their fees by providing higher returns but it seems that growth is still less as compared to expenses and risks accepted.
Over here it should be noted that PRGTX is a global fund and has investment all over the world, therefore it incurs increased costs for management whereas SPY is a large cap fund and therefore can easily save costs. The performance of PRGTX mutual fund seems reasonable and it shows that they have performed well enough to earn their fees………………
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