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Case
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Reference no. UVA-F-1232
Product 1529 (UVA-F-1232) has no authors
Published by: Darden Business Publishing
Originally published in: 1999
Version: 30 April 2019
Revision date: 14-May-2019
Length: 6 pages
Data source: Field research

Abstract

In May 1998, the director of Research at Zeus Asset Management is reflecting on the current performance evaluation of Zeus''s mutual funds (which include an equity fund, a bond fund, a balanced fund, and an international fund) and ways to improve the measurement of performance. Zeus has become increasingly aware that absolute returns, or relative returns (returns relative to a benchmark), will not suffice as a measurement of performance and that a measurement (or a series of measurements) of risk-adjusted performance must be added. Performance evaluation is key to structuring compensation and incentive schemes in general, as well as strategic planning for the company''s future. Given Zeus''s relatively risk-averse clientele, the ''correct'' measurement of risk is imperative. Students are asked to compute several measures of risk-adjusted performance. Familiarity with running regression models in Excel is required; alternatively, the case can be used to pursue that objective. The case comes with an Excel spreadsheet containing the relevant data (time series of returns [net of risk-free rate] of three mutual funds and corresponding benchmark indices). The case can be used as a vehicle for discussing several concepts: (1) the alternative measures of performance evaluation for mutual funds and their relative merits (e.g., why absolute or relative returns may not reveal the entire truth about performance; which index to use as a benchmark); (2) the alternative measures of risk-adjusted performance (e.g., Sharpe''s ratio, Treynor, Jensen’s alpha, Gruber’s Four Factor alpha, Graham and Harvey''s measure of risk-adjusted performance); and (3) the idiosyncrasies of managing portfolios for individuals with particular needs (e.g., tax, liquidity).
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Abstract

In May 1998, the director of Research at Zeus Asset Management is reflecting on the current performance evaluation of Zeus''s mutual funds (which include an equity fund, a bond fund, a balanced fund, and an international fund) and ways to improve the measurement of performance. Zeus has become increasingly aware that absolute returns, or relative returns (returns relative to a benchmark), will not suffice as a measurement of performance and that a measurement (or a series of measurements) of risk-adjusted performance must be added. Performance evaluation is key to structuring compensation and incentive schemes in general, as well as strategic planning for the company''s future. Given Zeus''s relatively risk-averse clientele, the ''correct'' measurement of risk is imperative. Students are asked to compute several measures of risk-adjusted performance. Familiarity with running regression models in Excel is required; alternatively, the case can be used to pursue that objective. The case comes with an Excel spreadsheet containing the relevant data (time series of returns [net of risk-free rate] of three mutual funds and corresponding benchmark indices). The case can be used as a vehicle for discussing several concepts: (1) the alternative measures of performance evaluation for mutual funds and their relative merits (e.g., why absolute or relative returns may not reveal the entire truth about performance; which index to use as a benchmark); (2) the alternative measures of risk-adjusted performance (e.g., Sharpe''s ratio, Treynor, Jensen’s alpha, Gruber’s Four Factor alpha, Graham and Harvey''s measure of risk-adjusted performance); and (3) the idiosyncrasies of managing portfolios for individuals with particular needs (e.g., tax, liquidity).

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