Investments

Bank Of America Investment By Staff

This blog talks about the indian mutual fund schemes, NFOs and analysis of various mutual funds and mutual fund investment strategy.

Investment Opportunity (AXcess News) Berkeley, CA - Extensive research has shown that actively managed mutual funds perform no better than index funds and their past performance is no indicator of future returns. So then why do investors continue to comb through records in search for the top mutual fund?

Banc Of America Investment Many researchers have chalked up the answer to irrational behavior, but not Jonathan Berk, an associate professor of finance at UC Berkeley's Haas School of Business. In an article that recently won an award on scholarly writing from the financial services firm TIAA-CREF, Berk concluded that such behavior makes sense.

Up the ladder are corporate bonds...then the stock market...and some of the most popular investments these days...Mutual Funds.

Banking Investment In the winning article "Mutual Fund Flows and Performance in Rational Markets," (Journal of Political Economy, December 2004), Berk and co-author Richard C. Green of Carnegie Mellon University found that some mutual fund managers are talented enough to beat the market when their fund is small. But as more investors become aware of their skills, their funds grow and their performance deteriorates. That's because as funds grow larger, managers receive poor prices when buying and selling larger blocks of stock, and it's also more difficult to manage more stocks in a portfolio, Berk explains.

(Put graphic of the investment buckets here) The best way to invest for average people is in Mutual Funds. A mutual fund is a collection of individual stocks purchased by a major company and managed by professionals. You give them a small amount of money, they add it to that of thousands of other investors and they watch over it for you. You'd have to have lived in a cave for the past 5 years not to have heard at least something about Mutual Funds.

Investment Solution Strategic "People didn't understand why money flowed to mutual fund managers that did well because if you look at the data, the past is no predictor that the fund would do well in the future." Berk says. "But it's the other way around: The reason why mutual fund returns are unpredictable is precisely because of the flow of funds from investors."

Diversification . A larger pool of funds allows the fund manager managing the unit trust to purchase a wider range of investments. Rather than concentrating an investment portfolio into one or two investments or shares, a portfolio of market securities can be held. The wider the spread of investments, the less volatile (i.e. variable) the investment returns will be. In simple terms, not putting all your eggs in one basket.

Investment Banking Services So what's an investor to do? "Stick with index funds," Berk says. "That is, unless an investor has a competitive advantage for finding a good fund manager."

Bank Investment Berk's mutual fund research was one of two articles to recently win the 2005 TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security.

Alternative Investment Berk has made a practice of explaining seemingly puzzling relationships in finance. In another paper just named one of the two best articles ever published in the Review for Financial Studies, Berk tackled the "size anomaly" - why smaller firms' stocks tend to deliver higher average returns.

Online Investment Services In that article, "A Critique of Size-Related Anomalies," Berk provided a theoretical explanation for the inverse relationship between firm size and risk - or why smaller firms tend to be riskier investments and consequently yield higher returns. He then showed why the relationship between small firms' stock and higher returns should not be viewed as an anomaly.

Accompany Essential Investment Berk notes that one example of the size anomaly can be found in the mutual fund world, where funds that invest in smaller companies typically outperform those that focus on larger firms.

Investment Company To access Berk's article "Mutual Fund Flows and Performance in Rational Markets," visit: http://www.journals.uchicago.edu/JPE/journal/issues/v112n6/112603/112603.web.pdf .

Investment Management Solution To access Berk's article "A Critique of Size-Related Anomalies," visit: http://faculty.haas.berkeley.edu/berk/critique_size.html.

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