Mutual Fund Paper
Analysis of Northern Small Cap Value Fund
The following information will outline and overview the Northern Small Cap Value Mutual Fund and whether or not the fund should be chosen as one of the investments currently offered for the employees’ 401-K plan at Rick Lamm and Associates. This report will first, cover the category and nature of the mutual fund, the strategy involved, and what type of investor would be interested. Second, the performance of the mutual fund, comparing the fund’s various returns to its respective category and index. Third, analyze the risks of the fund, and compare those risks with category averages. Fourth, ...view middle of the document...
” The fund is catered to a more aggressive investor looking for the value potential in smaller companies. It is appropriate to hold as a larger percentage of a younger equity investor’s portfolio who has an above-average tolerance for risk and plans to invest for the long term without concern for current income.
To evaluate the general performance of the fund, it is evaluated against the performance of two other benchmarks, the category average of Small Value Funds, and the Russell 2000 Value Index. As well as those benchmarks, we will look at ratings that financial agencies are giving the fund. The fund has been a consistent performer over the past five years, narrowly beating the total returns of the Small Value Category Average by .58%, and the Russell 2000 Value Index by 1.61%. In 2011, Small Value Category Average and the Russell 2000 Value index experienced average losses of nearly 5%, the Northern Fund lost only .61%. As of October 31st of this year, the fund is outperforming the average returns of its benchmarks by over 2.5% (Table 1). Morningstar currently rates the Northern Fund four stars out of five. The Morningstar rating for this fund is derived from a weighted average of various performance figures from 336 funds within the Morningstar Category for the past three years (Morningstar). As stated in U.S. News, the Northern Fund is rated 18th overall out of 119 Small Value Funds. To attain this ranking, U.S. News averages the ratings that leading fund industry researchers have given for the 119 Small Value Funds. Such financial researchers include: Morningstar, Lipper, Zacks, Standard and Poor’s, and The Street Ratings. This rating is updated whenever any of the research agencies amend their ratings. If one was to invest $10,000 dollars in the Northern Fund five years ago, that fund would now be worth $11,646 dollars. That is a return of 16.46% compared to the average return of Small Value funds of 15.02% (Table 2). Overall the Northern Fund has been a consistent performer over the past five years. The fund has beaten, albeit narrowly, its benchmarks on average over the past five years. While it has experienced consistent gains, the fund has also mitigated its losses favorably compared to its benchmarks during underperforming years. The general consensus of various industry researchers give the Northern Fund a favorable rating.
There are multiple measures to evaluate the risk of the Northern Fund. Statistical calculations such as Beta and Standard Deviation are used are used to measure the volatility of the fund. For risk-adjusted performance, the Jensen Index and the Sharpe Ratio are used. Beta measures the volatility of a fund compared to the general performance of the market as a whole. A Beta greater than one indicates more volatility while a beta less than one indicates less volatility. Beta is the proper risk measure if the Northern Fund is a smaller percentage of one’s portfolio. Standard deviation is a statistical...