Mutual Fund Research Analysis Mutual

Mutual Fund Research Analysis mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and other securities. The mutual fund will have a fund manager whose job is to trade the pooled money on a regular basis. At present, the worldwide value of all mutual funds totals more than $26 trillion (Mutual Fund, (n.d.). The following are some of the traditional and distinguishing characteristics of mutual funds:

Investors purchase mutual fund shares from the fund itself or through a broker for the fund. The price that one pays for mutual fund shares is the fund's approximate per share net asset value (NAV) plus any fees that the fund requires at time of purchase.

Mutual fund shares are redeemable. This means that if you would want to sell your fund shares you would sell them back to the fund.

Mutual funds generally sell their shares all the time. Although some funds will stop selling when they become too large.

Mutual funds are usually managed by investment advisers that are registered with the SEC.

Mutual funds usually come in many varieties. There are index funds, stock funds, bond funds, and money market funds. Each of these will have a different investment objective and strategy along with a different investment portfolio. Each mutual fund may also have different risks, volatility, along with different fees and expenses (Mutual Funds, 2007).

The fund that I chose to look at is that of USAA Precious Metals and Minerals (USAGX). This investment seeks long-term capital appreciation and protection against inflation. The fund normally invests at least 80% of its assets in the equity securities of domestic and foreign companies which are primarily engaged in gold exploration, mining, or processing of other precious metals and minerals. These include such as platinum, silver and diamonds. The remainders of its assets are invested in the equity securities of natural resource companies. These would be companies that engage in the exploration, production, or processing of base metals, oil, coal, or forest products. This fund is non-diversified

USAA Precious Metals and Minerals (USAGX), 2009).

This fund is a medium market cap fund which has 96.54% of assets in stocks, nothing in bonds and 3.30% in cash. The following a breakdown of the market capitalization for this fund:

Giant Cap 12.05%

Large Cap 34.53%

Medium Cap 36.96%

Small Cap 15.66%

Micro Cap 0.79%

This fund has present net assets of 893.16 Mil with a.05% dividend yield. The initial investment into this fund is $3,000

USAA Precious Metals and Minerals (USAGX), 2009).

When looking at USAGX and its returns over the past five years you can see that back in 2003 it had a return rate of 71.4% but took a nose dive the following year down to -10.7%. The next two years saw a decent recovery to about 40% each year. Then the bottom fell out again last year in which it was down 24.9%

USAA Precious Metals and Minerals (USAGX), 2009).

Calendar-Year Total Returns

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD 2/2009 Total Return % 7.2 -15.0-31.0-67.6-71.4 -10.7-39.2-43.2-27.7 -24.9 -0.4% Rank in Cat 48-45 13-35 12-71 14-14 13-29-48 +/- Category 1.0-1.9-11.4-3.7-14.3 -2.5-8.4-11.6-4.5-4.9-0.6 +/- Index* 1.8 -21.6-25.9-65.7-70.1 -12.0-36.1-38.1-22.0 -28.8 When looking at what funds to invest in one should look to see how much a portfolio's return has changed over the past three years. This change is measured by its standard deviation. The lower the standard deviation, the more consistent the fund is. http://moneycentral.msn.com/investor/partsub/funds/purchinfo.asp?Funds=1&symbol=USAGX" USAA Precious Metals and Mineral's mean total return over the past three years was 1.37%. Its standard-deviation over that same period was 42.35, which means that its returns should be expected to range in the future from -40.98% to 43.72%. The average fund in this category has a mean total return of -0.64% and a standard deviation of 12.23

USAA Precious Metals and Minerals (USAGX), 2009).

Another factor that one should look at when contemplating investing in a mutual fund is how much the fund has rewarded shareholders relative to the risk they have taken.

One should look at a risk-adjusted measure of performance known as the Sharpe ratio. It balances volatility against total return to reveal funds that have delivered the most gains with the least risk. A good fund will have a Sharpe ratio higher than 1.0. The rule is the higher the Sharpe ratio the better. USAA Precious Metals and Minerals has a Sharpe ratio of 0.3%. The average for all funds in this same category is -0.9%

USAA Precious Metals and Minerals (USAGX), 2009).

If you look at the Modern Portfolio Theory Statistics for the USAGX fund you find the following:

Modern Portfolio Theory Statistics

Measurement

Standard Index

ML USD LIBOR 3 Mon CM

R-Squared (1-year)

Beta (1-year)

Alpha (1-year)

In this method, alpha measures the difference between a fund's actual returns and its expected returns given its risk level. A positive alpha figure indicates that the fund has outperformed its beta. A negative alpha indicates that the fund has underperformed in relation to the expectations set by the beta. Beta measures the sensitivity the fund has to swings compared to the overall market. A beta of more than 1.0 indicates higher volatility than the overall market. A beta of less than 1.0 indicates lower volatility than the overall market. R-squared is an indicator that ranges from o to 100 and tells what percentages of a fund's movements are explained by movements in the benchmark index. If a fund has an r-squared of 100 it means that all of the movements of a fund are completely explained by movements in the index. On the other hand a low r-squared value indicates that very few of the fund's movements are explained by movements in its benchmark index