Mutual Fund Research Analysis Mutual Thesis

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98% to 43.72%. The average fund in this category has a mean total return of -0.64% and a standard deviation of 12.23

USAA Precious Metals and Minerals (USAGX), 2009).

Another factor that one should look at when contemplating investing in a mutual fund is how much the fund has rewarded shareholders relative to the risk they have taken.

One should look at a risk-adjusted measure of performance known as the Sharpe ratio. It balances volatility against total return to reveal funds that have delivered the most gains with the least risk. A good fund will have a Sharpe ratio higher than 1.0. The rule is the higher the Sharpe ratio the better. USAA Precious Metals and Minerals has a Sharpe ratio of 0.3%. The average for all funds in this same category is -0.9%

USAA Precious Metals and Minerals (USAGX), 2009).

If you look at the Modern Portfolio Theory Statistics for the USAGX fund you find the following:

Modern Portfolio Theory Statistics

Measurement

Standard Index

ML USD LIBOR 3 Mon CM

R-Squared (1-year)

Beta (1-year)

Alpha (1-year)

In this method, alpha measures the difference between a fund's actual returns and its expected returns given its risk level. A positive alpha figure indicates that the fund has outperformed its beta. A negative alpha indicates that the fund has underperformed in relation to the expectations set by the beta. Beta measures the sensitivity the fund has to swings compared to the overall market. A beta of more than 1.0 indicates higher volatility than the overall market.

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A beta of less than 1.0 indicates lower volatility than the overall market. R-squared is an indicator that ranges from o to 100 and tells what percentages of a fund's movements are explained by movements in the benchmark index. If a fund has an r-squared of 100 it means that all of the movements of a fund are completely explained by movements in the index. On the other hand a low r-squared value indicates that very few of the fund's movements are explained by movements in its benchmark index

USAA Precious Metals and Minerals (USAGX), 2009).

American investors are increasingly turning to mutual funds to save for retirement and other financial goals. Mutual funds can offer the advantages of diversification and professional management. but, as with all investments investing in mutual funds involves risk. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match the goals you want to achieve and the tolerance level or risk that you have (Invest Wisely: An Introduction to Mutual Funds, 2008).

It is recommended that one look for no-load funds that are rated five stars by Morningstar, with low or below average risk ratings. It is also a good idea to take a look at the fund's manager, the longer that it has had the same manger the better. It is also a good idea to make sure that they fund has an initial purchase requirement that is right (How.....

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