1. Explain the importance of net asset value (NAV) for mutual fund investing
Net asset value (NAV) is delineated as the value of assets of a mutual fund scheme less the value of liabilities for every unit. It is the price in which an investor can purchase the unit of a scheme and also at the same time can be price at which the investor can sell the unit, less any load fees that might be applicable. The net asset value is significant for mutual fund investing as it mirrors the composite prices of all the securities held within the portfolio together with the liquid cash. Imperatively, if the prices of a great deal of the securities within the scheme increase, then the net asset value will also increase and the other way round. In addition, the net asset value moves concurrently with the prices of securities that are held within the mutual fund scheme (Rastogi, 2016). However, it is imperative to note that as an investor, it is not suitable to solely consider the NAV when making investment decisions.
2. Now look at the performance of ProShares UltraShort Silver (ZSL) fund and iShares Russell 2000 Index (IWM). Use NAV and other criteria to choose one fund for investment purposes. Yahoo performance reports provide a good overview. Please explain your reasoning in brief
3. Fund Name
NAV
Launch Date
Assets Under Management
1 year YTR
Expense Ratio
I Shares Russell 2000 ETF
$149.33
22nd May 2000
43.62 billion
11.76%
0.20 percent
ProShares UltraShort Silver
$32.02
1st December 2008
22.96 million
-16.51%
0.95 percent
The net asset value of iShares Russell 2000 ETF (IWM) is $149.33 whereas that of ProShares UltraShort Silver (ZSL) fund is $32.02. As can be perceived, ProShares UltraShort Silver fund is relatively newer as compared to the iShares Russell 2000 fund being created approximately 8 years later. However, the assets under management under IWM are significantly greater standing at $43.62 billion whereas ZSL is presently managing assets worth 22.96 billion. In addition, the IWM has a considerably lower expense ratio rate standing at 0.20 percent whereas ZSL has an expense rate of 0.95...
This implies that for the IWM fund, the investors have to incur lower expenses when buying in as compared to the ZSL fund. As a result, it can be noted that the IWM fund should be selected for investment purposes as it generates greater and more consisted returns for the investor.
In particular, IWM scheme has attained a total average yearly return of 8.02 percent. In addition, the scheme is well-diversified and apportions its finances to multiple sectors including finance, information technology, health care, energy, industrials, materials, and customer staples. In addition, the net expense ratio of the fund is comparatively lower as compared to the other funds together with a low turnover ratio, which is indicative that the mutual fund is passively managed. The fund is fitting for the investors that embrace an aggressive growth strategy of investment and also the ones that spire to diversify their stock allocations and at the same time sustaining longstanding growth potential in their portfolios (Nickolas, 2015).
4. Based on your analysis and findings, which investment strategy is better (active or passive)?
On the basis of the analysis and findings above of the two mutual fund scheme, the passive investment strategy is better in comparison to the active investment strategy. This is largely for the reason that the actively managed funds will find it very difficult to beat and surpass the market in an incessant manner and more significantly, the high fees charged will go further to dilute the returns of the investor. On the other hand, the passively managed funds are bound to have better performances, albeit lower returns, in the long run. In addition, there are lower expenses incurred by the investors. Therefore, it can be noted that the passive managers attain better performances as compared to active managers.
5. Which investment strategy would you recommend to other investors? Please explain your reasoning
The investment strategy that I would recommend to other investors is the passive management form of investment. This is for the reason that the approach offers a long-standing option of investment for investors. There is a limitation in the amount of buying as well as selling in the security portfolio, and as a result is a cost-effective approach…
