Thompson Asset Management Case Study (1)

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Surname 1 Student’s Name Professor’s Name Course Date Thompson Asset Management Case Study Thompson Asset Management (TAM), established by Allison Thompson in 2009, is a small investment advising and asset management company with around $100 million in assets under management across two different types of assets. It is based in Jacksonville, Florida. The Pro Index, Thompson Asset Management's first fund, was created to generate returns above the benchmark S&P 500 record while maintaining a level of risk equivalent to the index. Additionally, Thompson has a track record of outperforming benchmarks and managing the downside risk of the portfolio. High-net-worth individuals made up the majority of the firm's clientele, and in 2014, Thompson hopes to expand her client base by adding institutional clients as well. Using Exchange Traded Funds was a straightforward way to maintain enough market exposure. ETFs offer benefits through economies of scale by distributing administrative and transaction expenses, which lessen the effects of returns, among a large number of investors. They do this by replicating a certain index at the lowest cost feasible. Investment philosophies Value Investing An investor might manage their portfolio using a core set of beliefs or a strategy to optimize returns known as an investing philosophy. The investment philosophy may have a particular emphasis on value, growth, indexing, or quantitative analysis. Value investing is the approach to investing that emphasizes an investment is undervalued when its share price is higher than its market value. The investors who employ this tactic Find firms whose stocks, in their opinion, the market has undervalued. Moreover, Value investors think that stock price changes do not reflect the company's long-term prospects. term fundamentals but instead to the market's exaggerated responses to both good and bad news is an approach based on evidence. The intrinsic value of a stock is the major area of concern for investors who adopt this technique. Because of this risk, value investors will only invest when they believe there is a substantial margin of safety—that is, then there is a gap between the intrinsic price and the projected value—offering the investment. It's also critical to keep in mind that while some value investors just value current earnings, while others only value future growth, all of them ultimately seek opportunities to profit by taking a long position when the price is depressed.

Surname 2 Growth investing Growth investing is a theory that involves buying stocks that the investor thinks have a good chance of future growth. When compared to other businesses in the same industry and throughout the whole market, these stocks of companies show a profit growth that is significantly higher than the average rate. Since firms in these markets are generally viewed as being worth more than their earnings or book values, this investment strategy is typically linked to technical companies, ones that control a particular industry, as well as emerging markets. Moreover, since their main goal is to maximize their capital gains, growth investors frequently link this investment philosophy with a capital growth strategy. Investors adopt a position on investments as a result of this. Indexing Indexing, often known as a passive approach, is an investment philosophy in which the investor compares the performance of their investment portfolio to that of a certain index. As a result, the produced return and risk using this method will be identical to those of the index. When managing a portfolio, an investor should use indexing if they think that the market operates with the greatest efficiency and that it is impossible to exceed it. The portfolio decision-making process is as little as feasible in this financial approach to lower transaction costs. Passive investors are constrained to following an index and lack access to a wider variety of assets or the chance to bet against, say, those nations that are dealing with a political or economic crisis: This is a passive technique that is not the same as limiting risk since diversity may be used to do it and investors can do it here because they are more interested in absolute risk and return than relative risk and return. To maximize their odds of outperforming the market, investors that follow the quantitative analysis investment philosophy base their portfolio decision-making process on quant models. This investing technique focuses on patterns and numbers and selects the investment that, for the same level of return, delivers the lowest degree of risk. It is also unaffected by the emotions that are frequently linked with financial decisions among investors. Quantitative Investors examine several risk indicators, including as beta coefficient, and the Sharpe ratio, to avoid more risks than required and select the investment that offers the maximum amount of return for a particular degree of risk. Quantitative models are also able to assess a huge number of assets at once and exploit inefficiencies much faster than traditional investors, which makes the trading process much simpler and less expensive. In addition, there is less of a need to employ analysts and portfolio managers. Additionally, although models are updated often to account for new information, it is crucial to keep in mind that quantitative investment strategies are based on historical data that excludes future occurrences. It is not always feasible to foresee unexpected market events, despite the fact that models are regularly updated to do so.

Surname 3 Similar to this, high turnover brought on by the economy's higher-than-average volatility results in high costs like commissions and taxable events. Technical analysis, which draws its conclusions on changes in stock prices, might be used in this method. It is a technique for assessing securities that involve looking at market indicators including historical prices and volume. Technical analysts aim to gauge "market mood" and forecast and profit from future price changes rather than concentrating on examining the businesses of individual companies. In our view, technical analysis by itself may not be sufficient to properly comprehend the root issues. Return Variability The questions raised in this case should examine the risk/return characteristics, return variability, and risk versus return characteristics of the Pro Index and Pro Value funds, managed by Thompson Asset Management, in terms of returns, absolute and relative risks, and risk versus a benchmark index. The best way to rebalance the Pro Value funds should be assessed along with any enhancements that may be made to facilitate rebalancing. In conclusion, while assuming various amounts of investment, seeks to give the data and portfolio characteristics that Thompson Asset Management should reflect in the Pro Value fund Pro Index fund Year Pro index % S&P 500 % 2009 56.48 23.45 2010 14.16 12.78 2011 11.43 0 2012 17.20 13.41 2013 72.78 29.60 Cumulative 2009 - 2013 303.60 104.63 Daily standard deviation 1.91 1.23 Annualized standard deviation 30.37 19.48 Annualized return 60.61 20.93 Pro value fund Holding Period = [Ending – Beginning] / Beginning= [$4.03060084 – $1.00000000] / $1.00000000= 3.03060084 x 100= 303.06% Daily Return Holding Period Return / Trading days = [3.03060084 / 1260 (5x252)] x 100= 0.2405 Annualized Return Holding Period Return / Trading’s Year Return = [3.03060084 / 5] x 100= 60.6120% Standard Deviation 1.91% Annualized Standard Deviation 1.9% x √252 = 30.37% Correlation 65.1% Beta 1.23% x √252 = 19.52% = [0.3032 / 0.1952] x 0.6511 = 1.0

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Surname 4 Characteristics and Statistics Holding period return The overall return earned by owning an asset or portfolio of assets over time is known as the holding period return and is often stated as a percentage. It is especially helpful for comparing the returns of assets kept for various lengths of time. The holding term return is a significant metric in investment management. The statistic provides a comprehensive understanding of an asset's or investment's financial performance since it accounts for both the asset's income distributions and the investment's appreciation. Along with evaluating investment success, the HPR may also be used to measure the performance of various assets or investments. The proper tax rate is also determined using this measure. Return to the portfolio during a particular time period, computed as (ending value-starting value) / (starting value. Pro value fund= 20 million 7828719-20000000/ 20000000 = -0.608 -0.608 * 100= -60.8% yearly -60.8% / 252 days = 0.24% daily. Thompson Asset Management should increase the value-generating activities within its value chain and utilize the marketing mix tools to elicit the necessary responses from its target market to meet its overall corporate and business level objectives. Process of choosing the appropriate asset allocation (portfolio) based on index funds and value funds. Return on investment is the simplest and most apparent metric for evaluating performance. We advised Thompson to analyze his optimized portfolio using the Sharpe ratio, beta coefficient, and information ratio since it would provide more accurate performance ratings. Sharpe ratio Pro Index Fund and Pro Value Fund are both over 1, at 1.90 and 1.64 respectively, and are regarded as solid portfolio investments. A greater Sharpe ratio is advantageous when investors are making decisions. It may be used to assess the overall performance of a stock portfolio or a whole investment portfolio. According to the Sharpe ratio, an equity investment's performance is measured against the return on a risk-free investment. The Sharpe ratio's goal is to enable investors to examine how much more of a return they are getting in comparison to the amount of additional risk they are taking to create that return.

Surname 5 Beta coefficient ratio The Pro value fund's greater beta of 1.34 indicates that it is riskier than the pro index fund's beta of 1.01. The pro-index fund is the greatest option for a portfolio since it offers a better Sharpe ratio and lower beta. Information ratio If a portfolio exceeds a benchmark index fund, the information ratio is utilized to assess this. A management team's objective should be to outperform the benchmark since it serves as a reference portfolio for active managers. Higher information ratios suggest the required level of consistency. Information ratios should be greater than they now are. Thompson must decide whether to hold the fund's single long position or take a short position.