Internship Report on Composite Portfolio Performance Analysis of Mutual Funds

Today’s world is a most competitive one. During the last few decades, the stock markets around the globe has seen many ups and downs, some company’s stock price soared to sky making the investors happy and some suffered from deep downfall in price thereby making the company subject to bail-out and the investors went bankrupt all on a sudden. But if we want focus more closely, one question may arise in our mind that why such sudden fluctuation happens? Is it a miracle? or, failure of proper financial engineering? Are the investors really behaving rationally? The fact is still a mystery to the investor’s behavior analyst.
But researchers identified that, investors often behave in an idiosyncratic manner and investors are not necessarily behaving in a rational way as always the previous theories would suggest. Then there comes the slight base for the price fluctuation of the stock market, other things being equal and holding that the market is strongly efficient.

Investors are always interested in evaluating the performance of their portfolios. It is both time consuming and expensive to analyze and select securities for a portfolio. So, an individual, company or institution must determine whether this effort is worth the time and money invested in it. Investors managing their own portfolios should evaluate their performance as should those who pay one or several professional money managers. In the latter case, it is imperative to determine whether the investment performance justifies the services cost.
This report outlines the theory and practice of evaluating the performance of an investment portfolio. In the first section we consider what is required of a portfolio manager; we pinpoint what to look for before we discuss the techniques to evaluate portfolio managers.
Then we briefly discuss four portfolio performance evaluation techniques which is known as “Composite Portfolio Performance Analysis”.
The next section is equipped with the discussion of composite measures to gauge the performance of a selected sample of mutual funds. This demonstration analyzes how these measures relate to each other. These are best viewed as complementary measures.
An equity portfolio manager who can do a superior job of predicting the peaks and troughs of the equity market can adjust the portfolio’s composition to anticipate market trends, holding a completely diversified portfolio of high beta stocks through rising markets and favoring low beta stocks and money market instruments during declining markets. Bigger gains in rising markets and smaller losses in declining markets gives the portfolio manager above-average risk adjusted return. In this report this is the main concept and essence we want to deliver to the readers.

There are a number of situations in which cases; the portfolio performance evaluation becomes necessary and important. Such as:

  • Self-evaluation: It is important to evaluate how well a manager has been able to apply his or her skills in stock selection and fund allocation to create individual portfolio composed of stocks or in mutual funds.
  • Quality of asset management: Because we live in a competitive economy, it is very necessary for the companies to justify asset allocation, as excess amount idle of funds and shortage of funds both are significantly harmful for company reputation and signals poor asset management.
  • Mutual Funds evaluation: To evaluate the performance of various mutual funds existing in our economy to build up a sound financial growth is essential. So, this report can help adequately to get a precise knowledge regarding the mutual fund related operations in our country.
  • Evaluation of investors group: To evaluate the performance of a particular investor group and to compare it with another group of investors with similar investment opportunities and preference towards asset allocation, this report might be helpful.
Sources and methods of collecting secondary data
The data had been collected from various published articles and journals of ICB. These are listed below:

  • ICB Annual Report (2009-2010)
  • Annual Report of Mutual Fund (2009-2010)
  •  Annual Report of Unit Fund (2009-2010)
  • Other department based work plan sheets and materials
  • Other sources
The study mainly focuses on the analysis of Portfolio Performance Evaluation and Attribution & Decomposition. This study is mainly based on secondary data collected from DGEN Index as well as different published articles, books, prospectus and journals. This study is conducted based on the application of theoretical knowledge of the field of finance. Data arrangement is logical that helps in easy application of analytical tools. We have used methods to evaluate the performance of the portfolio by
  • Sharpe Portfolio Performance Measure
  • Treynor Portfolio Performance Measure
  • Jensen’s Performance Measure(multifactor Models)
  • & Fama’s Decomposition model to decompose the performance of the portfolio.