Choosing One Fund for Investment Purposes

1. Explain the importance of net asset value (NAV) for mutual fund investing
Net asset value (NAV) is delineated as the value of assets of a mutual fund scheme less the value of liabilities for every unit. It is the price in which an investor can purchase the unit of a scheme and also at the same time can be price at which the investor can sell the unit, less any load fees that might be applicable. The net asset value is significant for mutual fund investing as it mirrors the composite prices of all the securities held within the portfolio together with the liquid cash. Imperatively, if the prices of a great deal of the securities within the scheme increase, then the net asset value will also increase and the other way round. In addition, the net asset value moves concurrently with the prices of securities that are held within the mutual fund scheme (Rastogi, 2016). However, it is imperative to note that as an investor, it is not suitable to solely consider the NAV when making investment decisions.
2. Now look at the performance of ProShares UltraShort Silver (ZSL) fund and iShares Russell 2000 Index (IWM). Use NAV and other criteria to choose one fund for investment purposes. Yahoo performance reports provide a good overview. Please explain your reasoning in brief
3. Fund Name
NAV
Launch Date
Assets Under Management
1 year YTR
Expense Ratio
I Shares Russell 2000 ETF
$149.33
22nd May 2000
43.62 billion
11.76%
0.20 percent
ProShares UltraShort Silver
$32.02
1st December 2008
22.96 million
-16.51%
0.95 percent
The net asset value of iShares Russell 2000 ETF (IWM) is $149.33 whereas that of ProShares UltraShort Silver (ZSL) fund is $32.02. As can be perceived, ProShares UltraShort Silver fund is relatively newer as compared to the iShares Russell 2000 fund being created approximately 8 years later. However, the assets under management under IWM are significantly greater standing at $43.62 billion whereas ZSL is presently managing assets worth 22.96 billion. In addition, the IWM has a considerably lower expense ratio rate standing at 0.20 percent whereas ZSL has an expense rate of 0.95 percent. This implies that for the IWM fund, the investors have to incur lower expenses when buying in as compared to the ZSL fund. As a result, it can be noted that the IWM fund should be selected for investment purposes as it generates greater and more consisted returns for the investor.
In particular, IWM scheme has attained a total average yearly return of 8.02 percent. In addition, the scheme is well-diversified and apportions its finances to multiple sectors including finance, information technology, health care, energy, industrials, materials, and customer staples. In addition, the net expense ratio of the fund is comparatively lower as compared to the other funds together with a low turnover ratio, which is indicative that the mutual fund is passively managed. The fund is fitting for the investors that embrace an aggressive growth strategy of investment and also the ones that spire to diversify their stock allocations and at the same time sustaining longstanding growth potential in their portfolios (Nickolas, 2015).
4. Based on your analysis and findings, which investment strategy is better (active or passive)?
On the basis of the analysis and findings above of the two mutual fund scheme, the passive investment strategy is better in comparison to the active investment strategy. This is largely for the reason that the actively managed funds will find it very difficult to beat and surpass the market in an incessant manner and more significantly, the high fees charged will go further to dilute the returns of the investor. On the other hand, the passively managed funds are bound to have better performances, albeit lower returns, in the long run. In addition, there are lower expenses incurred by the investors. Therefore, it can be noted that the passive managers attain better performances as compared to active managers.
5. Which investment strategy would you recommend to other investors? Please explain your reasoning
The investment strategy that I would recommend to other investors is the passive management form of investment. This is for the reason that the approach offers a long-standing option of investment for investors. There is a limitation in the amount of buying as well as selling in the security portfolio, and as a result is a cost-effective approach of investment. In addition, different from active investment, the investor does not have to constantly respond or antedate every succeeding move of the stock market. There is minimal risk in this approach and therefore despite the fact that there are minimal returns, they are assured to some extent. Moreover, in cases of active investment, when the investment is wrong, then it can give rise to significant losses (Krueger, 2017).
Part 2
1. Would you choose to invest at least 10% of your long-term portfolio in one or two country funds? What would you expect to happen to your money? Why?
I would choose to invest at least 10 percent of my long-term portfolio in two country funds. I would expect my money to generate greater returns as compared to the investment that would have been made in one country fund. This is because an investment in foreign portfolio will give me the prospect of taking part in global diversification of portfolio assets, which as a result facilitates the attainment of a higher risk-adjusted return. Secondly, it is imperative to note that the international stock market operates in a manner that the factors impelling the stock market in one nation at a certain point in time are dissimilar to those that carry the day in another nation. As a result, by investing in two country funds, as an investor I will experience decreased volatility. In addition, there is the advantage of the exchange rate in the sense that bearing in mind that the global exchange rates incessantly fluctuate, then when second country currency is strong, then I will generate greater returns (Investopedia, 2015).
2. Based on your analysis and findings, which fund would you recommend to other investors? Why?
Based on my analysis, I would invest in the Japan Equity Fund. The main objective of the fund is to accomplish long-tern value increases on the assets invested by means of active asset management. The assets are capitalized in publicly traded equities and equity-linked securities of corporations that are listed in the stock exchanges in Japan. The aim is, by the selection of equity, to attain a return that outpaces the average return on the Japanese equity market. The returns, for instance, dividends and interest, will be invested yet again. The NAV of the fund is 0.17728 as of the present day. The returns for 1 day are 0.01 percent, returns for 1 month stand at 3.71 percent and the returns for year to date stand at 12.10 percent. The fund is suitable for the investors that pursue high returns and increases in asset value, and at the same time enduring significant value changes or even declines. In addition, it is fitting as part of a diversified investment portfolio. With respect to risk, the fund is typically one that has higher risk but at the same time generates characteristically higher returns (Danske Invest, 2017). Therefore, there is a typically higher risk that is involved in the investment in this particular nation, however, it is largely linked to the approach of management.
There is a significantly high growth potential investing in the nation. This is largely linked to the fact that the returns of the nation have been steady and were not affected by the financial crisis. In particular, the returns of the fund from 2010 up until 2017 have gone toe to toe with the benchmarks set, which indicates that there is a significant potential for growth. For instance, in the 2016 financial year, there is an annual return of 8.79 percent and this has risen to 12.04 percent in 2017. This rate of return is expected to rise in the forthcoming years.
The diversification benefits of investing in a foreign nation will without doubt be advantageous for the portfolio, as opposed to investing in the United States funds only. To begin with, this will give the investor a great change to take part in global diversification and this implies that there is the prospect of attaining a higher return that is risk-adjusted. In addition, compared to the problems experienced in the different markets, this implies that by investing in different stocks in different nations, the investor is bound to face decreased volatility over the whole portfolio. Basically, the factors that drive the stock exchanges in the United States at any given point in time will be dissimilar to those that drive the stock exchange in Japan. As a result, when the U.S is facing the financial crisis, for instance, the same will not be significantly experienced in Japan, and therefore, there is decreased volatility and a greater prospect of generating greater returns.







References
Danske Invest. (2017). Japanese Equity Fund. Retrieved from: https://www.danskeinvest.fi/web/show_fund.produkt?p_nId=1527&p_nFundgroup=61&p_nFund=2452
Investopedia. (2015). What are the advantages of foreign portfolio investment? Retrieved from: https://www.investopedia.com/ask/answers/061515/what-are-advantages-foreign-portfolio-investment.asp
Krueger, P. (2017). Active vs. Passive Investing. Investopedia. Retrieved from: https://www.investopedia.com/news/active-vs-passive-investing/
Nickolas, S. (2015). IWM: iShares Russell 2000 Index ETF. Investopedia. Retrieved from: https://www.investopedia.com/articles/investing/123115/iwm-ishares-russell-2000-index-etf.asp
Rastogi, A. (2016). Does Net Asset Value (NAV) really matter? The Economic Times. Retrieved from: https://www.google.com/amp/s/m.economictimes.com/mf/learn/fund-basics/does-net-asset-value-nav-really-matter/amp_articleshow/55435264.cms