Appendix
1. Sharpe Model
Another method of estimation of mutual fund performance with regard to the risk and return are Sharpe ratio and Treynor. The Sharpe ratio is estimated as return in excess of risk free rate (Treasury Bill Rate) to the standard deviation of portfolio. It is also used to compare the performance of different mutual funds in the mutual funds industry of a economy of country. The requisite model have been borrowed from the study of Sharpe Eleni Thanou (2008)
Rp = Average return of the portfolio
Rf = Risk free rate, Govt. six months Treasury Bills used as risk free
= Standard deviation of the portfolio
Treynor Model
Treynor ratios also defines the excess return over risk free rate, in this ratio total risk is used instead of systematic risk. The ratio is estimated by the following model:-
Beta of the portfolio = Standard Deviation of the portfolio divided by the Standard deviation of market return, which is used as KSE return remaining variables are same as above.
1. Sharpe Ratio
Table - 9
Average Mean of Portfolio Standard Deviation (Rp - Rf)/S.D of fund Sharp Ranking
1 UGIF -0.000191105 0.02204192 4.404774809 0
2 MBPSF 0.00233997 0.024336803 4.093420548 1
3 PIF 0.000019058 0.025291926 3.847071942 2
4 JSIF -0.000662803 0.025531933 3.78420217 3
5 AIF -0.000347465 0.028526949 3.397956531 4
6 DMMF -0.00371523 0.040481563 2.311313138 5
7 FBGF 0.002449759 0.065626554 1.519667764 6
8 ASMF 0.005993206 0.079102199 1.305576919 7
9 PCMF -0.003759826 0.073155379 1.278388208 8
10 UTP -0.004788889 0.081944625 1.128712335 9
11 KSE-100 Index 0.006454067 0.098185994 1.056513888 10
12 NIT -0.004738108 0.089531637 1.033631168 11
13 UIF -0.010810122...
... middle of paper ...
...Z
Asian Stock Fund Limited ASFL
BSJS Balance Fund/JS Value Fund BSJS/JSF
Capital Mutual Fund Limited 1st CMFL
Golden Arrow GA
Pak Premier Fund Limited PPFL
Safeway Mutual Fund Limited SMFL
UPT-Large Cap Fund (Now) JS Large Fund JSLF
PICIC Investment Fund PICIC IF
PICIC Growth Fund PICIC GF
Pakistan Strategic Fund PSF
Mezan Balanced Fund MBF
Atlas Fund AFF
National Investment Trust NIT
Dawood Money Market. Fund DMMF
JS Income Fund (Formerly UTP Income Fund) JSIF
Metro Bank - Pak. Sovereign Fund MBPSF
Pak. Income Fund PIF
United Money Market Fund (Now) United Growth & Income Fund UGIF
Crosby Dragon Fund CDF
Pakistan Stock Market Fund PSMF
Unit Trust of Pak UTP
Meezan Islamic Fund MIF
UTP - Islamic Fund UIF
Atlas Income Fund AIF
Atlas Stock Market Fund ASMF
Faysal Balance Growth Fund FBGF
Pakistan Capital Market Fund PCMF
Troy, PhD., Leo. Almanac of Business and Industrial Financial Ratios. 30th edt. (1999) (page 159) Paramus, NJ: Prentice Hall.
ROE = net profit margin X total asset turnover X total assets to equity ratio = -39.74% for FY 2016.
Quick Ratio – Constant grow for the last three years. From 3.56 in 2001 to 3.76 in 2002 to 4.17 in 2003. The reason of grow is constant increase in Current Assets.
Over the previous five years, the return of the ProIndex fund have outperformed the S&P 500 index, as the 5-year-return is nearly 3 times than the benchmark and the annualised return is nearly 2 times than the benchmark. It means ProIndex fund has a significant increase in value within that period. However, the ProIndex Fund has a higher standard deviation which means it is more risk than the S&P 500 index. Especially for the annualised standard deviation, it is approximately 10% higher than the benchmark. The correlation coefficient between the ProIndex and benchmark is about 0.65 which means both two variables are positive changing consistently, but there are still some other factors which have impacts on the relationship between two variables as the correlation is less than 1. Furthermore, the higher beta, 1.0132, which is more than 1 and it may be one of the reasons for high risk as well since it is more sensitive to the market change. It means that the ProIndex fund would increase by 1.0132% if the market increased by 1%.
The ratio of 1.7 for the last two years indicates consistency, although a lower number is preferred. As a company produces high value product, this could be a satisfactory ratio. By comparing it to 2011 when a ratio was 2.9, in the last two years a ratio improved
Standard Deviation is a measure about how spreads the numbers are. It describes the dispersion of a data set from its mean. If the dispersion of the data set is higher from the mean value, then the deviation is also higher. It is expressed as the Greek letter Sigma (σ).
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
The concept of beta has gained prominence due to the pioneering works of Sharpe (1963), Lintner (1965) and Mossin (1966). There are many studies that examine the behaviour and nature of beta. These studies include the impact of the length of the estimation interval, the stability of individual security beta as compared to portfolio beta, factors influencing the beta as well as the stability of beta in various market conditions.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
To maximize optimum performance of our investment portfolio, we placed a certain percentage of equity in different sectors of the stock market.
In the paper published by Xiong (2010), it is presented that a portfolio’s total return can be disintegrated into three components: the market return, the asset allocation policy return in excess of the market return, and the return from active portfolio management. The asset allocation policy return refers to the fixed asset allocati...
Saudi Arabia’s capital market is considered to be young compared to other financial markets in the region. Saudi financial markets have been developing slowly because most enterprises in the country are either government owned or family-owned, most of which was funded through state budget, and as a result reduced the need for financing. In the recent past, Saudi Arabia has focused on a careful measurement for structural developments and regulatory changes. However, different phases of historical development of the capital market which can be classified into three phases; pre-industrialization phase, post industrialization phase and growth phase that sparked changes and shaped the kingdom 's capital market on
The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most significant value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and it's relationship to the companies' generation of profits and utilization of assets into the calculation. Additional profitability ratios include the price earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to indicate to investor how expensive the shares of common stock of a firm are. Dividend yield is part of the stockholders ROI and is represented by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for preferred stock. Dividend payout ratio shows the proportion of the earnings paid to common shareholders. Dividend payout for manufacturing companies range from 30% to 50%, but can vary widely.
The analysis of these ratios shows how Ford stands as a company for the past five years. Return on equity (ROE) reveals how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet. For long-term investing with great rewards, companies that have high return on equity ratios can provide the biggest payoffs. This ratio also tells investors how effectively their capital is being reinvested, so it is a good gauge of management's money handling skills. Ford is showing a considerable turn around in this area this past year, which could easily be due to changes in management. They are also reasonably following the industry in this area.
Using the Modern Portfolio Theory, overtime risk assets will provide a higher expected rate of return, as compensation to the investors for accepting a high risk. The high risk will eventually lower collecting asset classes to the portfolio, thus reducing the volatile risk, and increasing the expected rates of return. Furthermore the purpose of this theory is to develop the most optimal investments portfolio which would yield the highest rate of return while ascertaining the risk for the individual or corporate investor.