Fund Performance Consider the following scenario: As a consultant to a pension f

Question

Fund Performance

Consider the following scenario:

As a consultant to a pension fund, you are asked whether the fund should continue to hire portfolio managers to manage its portfolios, or simply invest the proceeds in some specified indexes that are consistent with the investment goals of the pension fund. The pension fund's managers point out that they have achieved a return of one percent above the U.S. market. Therefore, they argue that the fund benefits from active management rather than investing in indexes.

Explain why you agree or disagree with the fund managers.

Explanation / Answer

Explanation:-

I do not agree with the fund manager.

The Stocks portfolio's return and risk could be measured and compared to a U.S market index.The bonds portfolio's return and risk could be measured and compared to a U.S bond index. Risk should also be considered before concluding whether the actively managed fund outerformed an index. Also, it may be useful to evaluate the performance over longer periods, such as three or five years. In addtion their salaries should be considered.

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