Advance Funds Management (M)
Semester 2, 2018
Your 3-member Mutual Funds Analysis team has recently been hired to (i) Create an Australian Equity
Active fund, (ii) Analyse a US bond fund, (iii) Create an Australian/US multi-asset (Equities and Bonds
1. Create and Active Australian Equity fund
Each team will create an active Australian equity fund. This portfolio will have a tracking error around
15% per annum and sector allocation against the ASX 200 benchmark will be +/- 10%. Active returns
will be generated through (i) 20 mispriced securities (using the equities analysed in EVA(M)) as well as (ii)
sector rotation using sector indexes. Each team will provide the first 4 steps of the Investment
Management Process for the various aspects of this Active Australian Equity Fund.
2. Analyse an Active US/Australia equity and an Active Bond fund
a. Selection: Each team will select two mutual funds: 1 (One) equity mutual fund and 1 (One) Fixed
Income Security Mutual Fund from the same market: EITHER US OR Australia. Each fund
needs to have been in the market for at least 3 quarters. Fund details are available on Thomson
Reuters Eikon database (Lipper database). Fund selection can be based on the team member
preference, however, teams cannot choose either the best or the worst mutual fund over the 3
quarters. In terms of analysis it will be beneficial that sector allocation must be provided on a
historical basis. Most US funds provide this information, though not as many Australian funds
provide this information on a historical basis.
b. Comparison Funds: Once the team has selected the Equity Mutual Funds, and the Fixed Income
Security Fund, The team now needs to get 2 (two) comparison funds for each chosen Mutual
Fund. The first comparison funds for each of the selected funds should have the following
characteristics: (i) from the same classification (such as large capitalised equity fund), (ii) should
have almost the similar Inception Date (same age as the selected fund) OR Size, and (iii) should
have a 3 quarter performance similar to the selected fund.
The second comparison fund for each of the selected fund should be the best performing (o...