Table of Contents

Introduction. 2

Analysis of the Funds. 2

HHR ACTIVE.. 3

TRACKER.. 5

What would have happened if HCM in 2014 had opted the proposal?. 7

Conclusion. 9

References. 10

Fund Construction & Performance

Introduction of Fund Construction & Performance

               The aim of this report is to provide brief information about two funds, which are HHR active and tracker fund. These funds are compared with the benchmark OSEFX. The 10 companies are selected for creating the HRR active fund. The companies which are selected for creating the HRR active are among the largest companies in Norway. For creating the tracker fund, 6 companies are selected which belong to different industries & companies. The main aim behind creating this fund is to provide the investor with clear information about the performance of the stocks.

Analysis of the Funds of Fund Construction & Performance

               It has been decided to utilize the data dating 5 years back because more data were missing the further back in time you went. It would be a good idea to start after the financial crisis to get some continuity in the data. Therefore for in order to create the report, the data will be from 01.04.2009 – 01.04.2014.

HHR ACTIVE of Fund Construction & Performance

               I put in a restriction on max 10% per stock because otherwise, it would have been 100% AF GRUPPEN. I wanted some diversification and a portfolio consisting of at least 10 stocks.

The 10 companies are selected for creating the HRR active fund. The companies which are selected for creating the HRR active are among the largest companies in Norway. In other words, the selected stocks are among the 50 largest in OSE (Oslo Stock Exchange). The 10 selected companies belong to various industries, which include Construction, financial, telecommunication and IT industries. The companies or industries are selected in such a way so that the risk of the fund should remain high. The stocks of AF Gruppen, ATEA, Equinor, and other companies stock, which is included in the HRR active fund, have to experience fluctuations which means that the amount of risk in these stocks is higher.

    As there are 10 companies, each company has a weight of 10% in the fund which will make up 100% in total. The standard deviation of the HRR active fund is 0.03, and the variance of the fund is 0.08. The standard deviation in the stock indicates the level of risk. The higher the standard deviation, the more will be the risk in the returns. The standard deviation is indicating that there is a significant level of risk in the stocks. The Sharpe ratio of the fund is 0.88 (Reilly & Brown, 2011).

    As the risk of the HRR fund is higher, the return of the fund is also high. It is evident that the higher the risk, the more will be the amount of return. If the HHR active fund is critically analyzed, then it can be said that the fund has achieved its goal of high risk and high return. Due to high risk, the fund is providing a higher return. The investors who like to take risks will definitely invest in this fund and will have the opportunity to generate a significant amount of return. It means that the investors who are looking for high financial leverage must invest in this fund.

                                                                      In the above line chart, the performance of the HRR active fund is compared with the OSEFX benchmark. Through the graph, it is evident that the performance of the HRR active fund is better than OSEFX. In other words, the HHR active fund has beaten the OSEFX benchmark (Wegner, 2010).

TRACKER of Fund Construction & Performance

 I chose only 10 stocks with a similar risk/return ratio as OSEFX to get the scope narrower. From that, this is the 6 companies that follow OSEFX benchmark best.

For creating the tracker fund, 6 companies are selected, which belong to different industries & companies. The main aim behind creating this fund is to provide the investor with clear information about the performance of the stocks. The investors can easily evaluate the developments which occur in stock prices. This fund will track OSEFX quite closely. The highest weight in the fund is of Eqquinor, which is 32.11%. the second-highest allocation is of DNB, which is 30.31%.  the lowest allocation is made in Sparebank 1 which is 5.66%. The return of the fund is 1.57%, with a standard deviation of 5.91% (Jonathan, 2010).

               The standard deviation of the stock is quite high, which means that the return of the stock will also be higher. The yearly return of the tracker fund is 18.89% whereas the risk of the fund is 20.47%. If the tracker fund is analyzed critically, then it can be said that the fund is closely tracking OSEFX. The risk and return of the fund are quite closer to the risk and return of the OSEFX. In the below line chart, it can be seen that the tracker fund is quite closer to the OSEFX (Reilly & Brown, 2011).

               In the above chart, it is evident that the fund is closely tracking OSEFX. However, the performance of the tracker fund is better than the performance of the OSEFX. It means that the fund's performance is better than the performance of the OSEFX which is the benchmark (Somanath, 2011).

From the above line chart, it is clear that the HHR active funds performance is better than the Tracker fund and OSEFX benchmark. The tracker funds’ performance is also higher than the benchmark. From the chart, it is clear that both funds are beating the benchmark appropriately and the aim of creating the funds is being fulfilled.

What would have happened if HCM in 2014 had opted for the proposal?

From the above charts, it can be seen that both of the portfolios beat the benchmark, but not as much as it is expected. The return of the HRR active fund must be a bit higher than the benchmark OSEFX. Although the return of the HRR active is higher than OSEFX, it is merely 1.67% higher than the OSEFX. It is recommended that the HHR active fund should include such stocks, which are quite riskier so that the amount of return can be further increased. Now, if we talk about the Tracker fund, then it is clear that it has beaten the benchmark, but the amount of risk is quite higher than the bench mark, which is indicating that it is not closely tracking the OSEFX. It is recommended that tracker fund risk should be reduced so that the risk and return amount can come closer to the OSEFX benchmark (Reilly & Brown, 2011).

Conclusion of Fund Construction & Performance

        It has been concluded that as the risk of the HRR fund is higher, the return of the fund is also high. It is evident that the higher the risk, the more will be the amount of return. If the HHR active fund is critically analyzed than it can be said that the fund has achieved its goal of high risk and high return. Due to high risk, the fund is providing a higher return. The investors who like to take risks will definitely invest in this fund and will have the opportunity to generate a significant amount of return. It means that the investors who are looking for high financial leverage must invest in this fund.

The HHR active funds’ performance is better than the Tracker fund and OSEFX benchmark. The tracker funds’ performance is also higher than the benchmark. From the chart, it is clear that both funds are beating the benchmark appropriately and the aim of creating the funds is being fulfilled. Both of the portfolios beat the benchmark, but not as much as it is expected. The return of the HRR active fund must be a bit higher than the benchmark OSEFX. Although the return of the HRR active is higher than OSEFX, it is merely 1.67% higher than the OSEFX. It is recommended that the HHR active fund should include such stocks which are quite riskier so that the amount of return can be further increased

References of Fund Construction & Performance

Jonathan, B. (2010). Financial Management. Pearson Education, India.

Reilly, F. K., & Brown, K. C. (2011). Investment Analysis and Portfolio Management. Cengage Learning.

Somanath, V. S. (2011). International Financial Management. I. K. International Pvt Ltd.

Wegner, T. (2010). Applied Business Statistics: Methods and Excel-based Applications (illustrated ed.). Juta and Company Ltd.