PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
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PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDS
INBANGLADESH
SUBMITTEDTODR.MAHMOODOSMANIMAM
PROFESSORDEPARTMENTOFFINANCEUNIVERSITYOFDHAKA
SUBMITTEDBYKAWSERAHMEDSHIBLUBBA13THBATCH,SECTION:B
IDNO.:13008
DEPARTMENTOFFINANCEUNIVERSITYOFDHAKA
OCTOBER31,2011
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LETTEROFTRANSMITTAL
October31,2011.
Dr.MahmoodOsmanImamProfessor,DepartmentofFinanceUniversityofDhakaDearSir,
IamverygladtosubmityoutheinternshipreportonPerformanceEvaluationofSelectedMutual Funds in Bangladesh. Iwould like to say that this reportwas helpful forme toapplyourbookishknowledgeaboutdifferentstrategiestoevaluateportfolioperformanceinpractical case. I amvery thankful toyou forgivingmesucha fantasticopportunity tomakeareportonthistopicaccordingtoyourguideline.
Analyzingthemutualfunds,Ihavealsogatheredknowledgeabouttheconditionofmutualmarketsectorofthestockexchange.Wehavetriedtoshowourfindingsinthisreport.
Iwillbehonoredifyoufindthissubmissioninappropriatemanner.Ifyouhaveanyqueryregardingmyanalysis,hopethatyouwillcalluponme.YoursSincerely.KAWSERAHMEDSHIBLUIDNo.:13008SectionB,13thBatchB.B.A.Dept.ofFinanceUniversityofDhaka
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DECLARATION
IamverythankfulandgratefultoalmightyAllahwhohasgivenmethestrengthandabilitytocompletethisreport.IamalsogratefultomyhonorableteacherDr.MahmoodOsmanImam.
I also do sincerely declare that this internship report has been submitted, in partial
fulfillment of the requirement for the fulfillment ofmy graduation degree. The report iswrittenfrommy knowledge; but it ismentionable that I have gathered ideas from some articles, reportwhich is mentioned in the reference part. I understand that the paper may be cancelled ifsubsequently it is discovered that this is not ourprimevalwork and that it consists ofmaterialscopiedorplagiarizedorborrowedwithoutproperacknowledgement.
I,atlast,expressspecialthanksfromthebottomofmyheart toallwhohelpmedirectly&indirectlytocompletethisreport.
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TABLEOFCONTENTSExecutiveSummary..................................................................................................................................................................................071.0Introduction.........................................................................................................................................................................................09
1.1ObjectiveoftheStudy.............................................................................................................................................................................101.2Methodology...............................................................................................................................................................................................10
1.2.1ResearchApproach...........................................................................................................................................................101.2.2SamplingPlan......................................................................................................................................................................101.2.3SelectionofIndex..............................................................................................................................................................101.2.4Sourcesofdata.....................................................................................................................................................................101.2.5SoftwareUsed.....................................................................................................................................................................101.2.6MeasuresUsed.....................................................................................................................................................................111.2.7proceduresofDataAnalysis........................................................................................................................................11
1.3ResearchTimeHorizon..........................................................................................................................................................................111.4Limitations..................................................................................................................................................................................................11
2.0LiteratureReviewonPerformanceEvaluationofMutualFunds......................................................................................122.1Concepts&Terminology:..........................................................................................................................................................1314
2.1.1MutualFund.........................................................................................................................................................................132.1.2TheRiskFreeRate............................................................................................................................................................132.1.3SystematicRisk.................................................................................................................................................................132.1.4UnsystematicRisk............................................................................................................................................................132.1.5CapitalMarketLine...........................................................................................................................................................132.1.6SecurityMarketLine........................................................................................................................................................14
2.2PerformanceEvaluationTools:..............................................................................................................................................15192.2.1TheTreynorMeasure(1965).......................................................................................................................................152.2.2TheSharpeMeasure(1966).........................................................................................................................................162.2.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................162.2.4MarketadjustedRiskPerformance(MRAP)..........................................................................................................172.2.5JensenAlpha(1968).........................................................................................................................................................172.2.6HighermomentmeasureofHwangandSatchell(1998)................................................................................182.2.7InformationRatio..............................................................................................................................................................192.2.8EfficiencyRatio..................................................................................................................................................................192.2.9CoEfficientofDetermination(R2).............................................................................................................................19
2.3FamaDecompositionofMutualFundsReturns:...........................................................................................................20212.3.1RiskpremiumDuetoRisk............................................................................................................................................202.3.2InvestorsRisk....................................................................................................................................................................202.3.3Managers;Risk.....................................................................................................................................................................202.3.4RiskpremiumDuetoGrossSelectivity...................................................................................................................202.3.5ImpactofImperfectDiversification...........................................................................................................................202.3.6NetSuperiorReturnforSelectivity............................................................................................................................21
2.4TimingSkill:......................................................................................................................................................................................22232.4.1TheTreynor&MazuyModel(1966)........................................................................................................................222.4.2HenrikssonandMerton.......................................................................................................................................2223
3.0MutualFundsinBangladesh:AnOverview...............................................................................................................................243.1BangladeshEconomy,CapitalMarket&MutualFunds:...........................................................................................2529
3.1.1BangladeshEconomy.................................................................................................................................................25263.1.2CapitalMarket...............................................................................................................................................................27283.1.3MutualFunds.......................................................................................................................................................................29
3.2SelectionofMutualFund(M.F.):Profile............................................................................................................................30363.2.1ICBM.F.................................................................................................................................................................................31
3.2.1.14thICBM.F....................................................................................................................................................313.2.1.26thICBM.F...................................................................................................................................................313.2.1.38thICBM.F...................................................................................................................................................31
3.2.2ICBAMCL..............................................................................................................................................................................323.2.2.1ICBAMCL1stM.F......................................................................................................................................323.2.2.2ICBAMCLIslamicM.F.............................................................................................................................32
3.2.3AIMSM.F.............................................................................................................................................................................333.2.3.1AIMS1stM.F................................................................................................................................................333.2.3.2GrameenOneM.F.....................................................................................................................................33
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3.2.4RaceM.F..............................................................................................................................................................................343.2.4.1EBL1stM.F...................................................................................................................................................343.2.4.2TrustBank1stM.F....................................................................................................................................34
3.2.5LRGlobalM.F....................................................................................................................................................................353.2.5.1DBH1stMutualM.F..................................................................................................................................353.2.5.2GreenDeltaM.F.........................................................................................................................................35
3.2.3BSRSM.F..............................................................................................................................................................................36 3.2.3.11stBSRSM.F................................................................................................................................................36
4.0DataAdjustment&Calculations:..................................................................................................................................................374.1AdjustmentofPrice.................................................................................................................................................................................384.2PreparingReturnSeries(UsingClosingPrice&NAV).............................................................................................................394.3CalculatingTBillRate(Monthly&Weekly)................................................................................................................................394.4CalculatingMarketReturn...................................................................................................................................................................394.5CalculatingMeanReturnforMarket&MutualFunds.............................................................................................................404.6CalculatingRiskforMarket&MutualFunds...............................................................................................................................40 4.6.1StandardDeviation...........................................................................................................................................................40 4.6.2Historical&AdjustedBeta.............................................................................................................................................41
5.0PerformanceEvaluationofM.F..............................................................................................................................................42555.1PerformanceEvaluations:...............................................................................................................................................................43
5.1.1TheTreynorMeasure(1965).................................................................................................................................43445.1.2TheSharpeMeasure(1966)...................................................................................................................................45465.1.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................475.1.4Marketriskadjustedperformance(MRAP)measure.......................................................................................485.1.5JensenAlpha(1968)...................................................................................................................................................49505.1.6HighermomentmeasureofHwangandSatchell(1998)..........................................................................51525.1.7InformationRatio..............................................................................................................................................................535.1.8EfficiencyRatio...................................................................................................................................................................545.1.9CoEfficientofDetermination(R2).............................................................................................................................55
5.3TimingSkill:............................................................................................................................................................................................565.3.1TheTreynor&MazuyModel(1966)..................................................................................................................57575.3.2HenrikssonandMerton......................................................................................................................................5859
5.2FamaDecompositionofMutualFundsReturns:...........................................................................................................60615.2.1Selectivity5.2.2Diversification5.2.3NetSelectivity
6.0Correlation,Comparison&Justification..............................................................................................................................62666.1ComparisonbetweenMarketReturn&ReturnofMutualFunds........................................................................................636.2CorrelationbetweenClosePrice&NAV,ClosePrice&DGEN..............................................................................................646.3JustifyingPrice:OverpricedorUnderpriced........................................................................................................................6566
7.0Summary.......................................................................................................................................................................................67688.0AppendedPart.............................................................................................................................................................................6974
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EXECUTIVESUMMARY
Even as the stock markets have started maturing of age over the past one decade, thegrowthofmutual fundinBangladeshhasbeenslow.Onlyrecentlytherehasbeenarushfornewfunds.Manybanksandfinancialinstitutionscontinuetointhequeuewithproposalsfortheirfunds.Mutual fund isa fundundera trust. Investment inmutual fund is ideal for investorswhodonotwant to take risk because the fund is managed professionally and the collective investment isdiversified. The price of a closedend fund share is normally determined by the value of theinvestmentinthefund.Therefore,themarketpriceofafundshareisoftenclosetopershareNAV.However,thematurityofmutualfundsistakingitssweettimeandNAVsofmutualfundsarestillnotclosetotheirmarketvalueofsuchfunds.ItisseenthatmarketpriceofamutualfundsharecanattimesbemuchhigherthantheirNAVjustify.So,forsmallinvestorschoosingasuitableoneisacomplexdecision.
Theobjectiveofthemystudyistofindoutthefactsandfiguresregardingtheperformanceof the selectedmutual fundswhich canbenefit the investor and fundmanger in selecting betterinvestmentbyconsidering theriskreturn factor. Insuchacontext,anattempthasbeenmade tostudytheperformanceofselectedmutualfundbasedontheriskandreturnrelationship.Soinmystudy,Itriedtofindtheansweroftheabovequestionswhetherthenmutualfundsharesareovervaluedorundervalueor rightlypriced.Here I also triedshowwhether thereturnof themutualfundonthebasisclosepriceishigherornotthanthatonthebasisofNAV,whetherthemutualfundisoverorunderperformingthemarket,whetherthepriceofmutualfundisstronglycorrelatedtotheNAV or to themarket index,DGEN etc. For this analysis purpose, I have selected 12mutualfundsunder6differentAssetManagementCompanies.
In completingmy study onmutual fund, at first I have calculated themean returnof themutual funds using the both price and NAV data. Then I have compared themeanmutual fundreturnthemeanmarketreturntoseewhetherthemutualfundsareoverorunderperformingthemarket.HereIhavefoundthatincaseofthepricereturn7mutualfundsareoverperformingandincaseoftheNAVreturn,thereareonlytwomutualfundsoverperformingthemarket.
AftercalculatingtheTmeasure,8mutualfundsareoverperformingonpricereturnbasisandincaseoftheNAVreturn;thereareonlytwomutualfundsoverperformingthemarket,whereoneofthesegeneratednegativereturn.Inthesameway,Smeasureshowsthatthereareonlytwomutual funds over performing themarket onprice returnbasis and three over performonNAVreturnbasis,whereoneofthesegeneratednegativereturn.
JensenalphashowedthatthisnofundmanagerwhocanearnsuperiorreturnonthebasisofbothpriceandNAV.Ontheotherhand,rsquareisthemeasurementofdegreeofdiversificationson the mutual fund. So the higher the higher value of r square, the better the mutual fund isdiversified.Hereonthebasisofprice,onlyonemutualfundiswelldiversifiedandonthebasisofNAV,thereisonelowdiversifiedmutualfund.
I also try to evaluate the fundmangers timing skill by using TreynorMazuymodel andHenriksson&Mertonmodel.BothTreynorMazuyandHenriksson&Mertonmodel shows threefundmanagers have significant negative timing skill. That is the fundmanagers are not efficientenoughtohandlethemutualfundefficientlywhichisalsovalidatedbylowerreturnperunitofrisk.Themanagerswhohavenegativetimingskillhavethelowerreturnperunitofrisk.By decomposing the actualmutual fund excess return, I determine the fundmanagers selectionskill.Onthebasisofthepricereturn,twofundmanagershavetheselectionskillandonthebasisoftheNAV,threefundmanagershavetimingskill.
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Inthefollowingtabletheabovementionresultsareprovided.
Tratio Sratio Rsquare Jesenalpha TimingSkill SelectionSkill
CP NAV CP NAV CP NAV CP NAV CP NAV CP NAV
4thICB Over(+) Undr() Over(+) Undr() low High insg(+) Insg() Insg() insg(+) Supr Infr*
6thICB Over(+) Undr() Undr(+) Undr() low High insg(+) Insg() Sig() insg(+) infr infr
8thICB Over(+) Undr() Undr(+) Undr() low High insg(+) Insg() Insg() insg(+) infr infr
AMCL1st Over(+) Undr(+) Undr(+) Undr() low High insg(+) Insg() Insg() inig(+) infr infrAMCLIslmc
Over(+) Undr() Undr(+) Undr() low low insg(+) Insg() Insg() insg(+) infr infr
AIMS1st Over(+) Undr(+) Undr(+) Undr(+) low High insg(+) Insg() Insg() insg(+) infr infr
Gramn1 Over(+) Undr(+) Undr(+) Undr(+) low High insg(+) Insg() Sig() insg(+) infr infr
1stBSRS Over(+) Rm;(+) Over(+) Over(+) low High insg(+) insg(+) Sig() Insg() Supr Supr
EBL1st Undr() Undr() Undr() Over() low High Insg() Insg() Insg() insg(+) infr infr
Trust1st Undr() Over(+) Undr() Over(+) low High Insg() insg(+) Insg() insg(+) infr Supr*
DBH Undr() Over() Undr() Undr() low High Insg() insg(+) Insg() Insg() infr Supr
GrnDlta Undr() Undr() Undr() Undr() High High Insg() Insg() Insg() insg(+) infr infr
**Suprindicatesuperiorskillandinfrisinferiorskill.
By looking into the ratio of close price to NAV,we see that there are five fund are overperforming. By calculating the correlation coefficient between price andNAV; price andDGEN, Ihave learnt thatmutual fundprice is highlypositively correlatedwithDGEN,not toNAV.,whichindicate themarket inefficiency.That is thepriceofmutual fundsharewill increase if theDGENincreaseswhethertheNAVisincreasingordecreasingisnotanymatter.
Inconcludingwords lackofskilled investor,weak institutional frameworks,asymmetricregulation,smallamountofacademicresearcharemovingthisprudentialsectorofcapitalmarket,Bangladeshtoanunclearway.Alltherelatedpartiesshouldcomeforwardtodirectthissectortotherightway.Performanceanalysiswithlargersamplesize,persistenceofreturns,expensesandfee adjusted performance evaluation, validity of CAPM, Fama French three factormodel can beverygoodfutureresearchintheareaofactivefundmanagementinBangladesh.
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INTRODUCTION
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1.0INTRODUCTIONMutual fund is a trust that pools the savings,which are then invested in capitalmarket
instruments such as share, debentures and other securities. Recently the capital market ofBangladesh is featured by a plethora ofmutual fund scheme consisting of varying portfoliomix,investment objective and expertise of professional management. For small investors choosing asuitableone isa complexdecision.Theobjectiveof thepresent study is to findout the factsandfiguresregardingtheperformanceoftheselectedmutualfundswhichcanbenefittheinvestorandfundmangerinselectingbetterinvestmentbyconsideringtheriskreturnfactor.Insuchacontext,anattempthasbeenmadetostudytheperformanceofselectedmutualfundbasedontheriskandreturn relationship. Early studies onmutual fund included the several works of Jensen, Sharpe,Treynorwhousedcapitalassetpricingmodeltocompareriskadjustedreturnoffundwiththatofthebenchmarkmarketportfolio.ThefindingofSharpeandJensendemonstratedthatmutualfundsunderperformmarket indexesand suggest that the returnsarenot sufficient to compensate theinvestorfordiversemutualfundcharges.
The paper tries to present prominent performance evaluation models and examineempiricallythemarkettimingandselectivityofasampleofmutualfunds.1.1OBJECTIVEOFTHESTUDY
Thespecificobjectivesofthestudyare:
9 Tomeasurethereturnearnedbythesamplemutual fundsandtherebycomparedagainstthereturnofthemarketportfoliotodistinguishthebestperformerfromthelaggards.
9 Findoutthosemutualfundsofferingtheadvantageofdiversification,alongwithadequatesystematicriskcomparedtomarketbetarisk.
9 Toanalyze theexcess returnperunitof riskevidencedby themutual fundbelongings topublicsectorandprivatesectorandtodrawcomparisons
9 Toevaluatetheeffectivenessofthemutualfunds9 Tohelpthepotentialinvestorsforassessingtheinvestmentdecision9 Toevaluatethemutualfundsfortakinginvestmentdecision.
1.2METHODOLOGYOFTHESTUDY
Thestudyhasbeendesignedinthefollowingway
1.2.1 RESEARCH APPROACH: for convenience of the study, the explanatory researchapproachesappliedtoconductthestudyandpresentedtheresultsoon.
1.2.2 SAMPLING PLAN: Convenience sampling techniques were used to select therepresentativemutualfund.PresentlyalmostallmutualfundsareissuedandmanagedbytheICB.OthermutualfundsareoperatedbyAMCL,BSRS,AIMSandfinancialinstitutions.Altogetherthereare36mutualfundsareinoperationinthecapitalmarket.Thestudydoesnotfocustheentirefund;thisstudywasfocusedonly12mutualfundsfrom6AssetManagementCompany.
1.2.3SELECTIONOFINDEX:astherearethreeindexesinDSEi.e.DSI(DSEallshareindex),DSE20andDGEN(DSEgeneralindex).HereDGENisusedasabenchmark.
1.2.4SOURCESOFDATA:allthedatausedinthestudycollectedfromthesecondarysources.Secondary data were collected from DSE library, different websites, annual reports, journals,articlesetc.
1.2.5SOFTWAREUSED:MSExcel,SPSS(StatisticalPackageforSocialScience)wereusedforprocessingandanalyzingthedata.
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1.2.6MEASURESUSED:Incompletingthestudyonmutualfunds,Ihaveusedthefollowingmeasures
9 TheTreynorMeasure(1965)9 TheSharpeMeasure(1966)9 Mmeasure:ModiglianiandModigliani(1997)9 Marketriskadjustedperformancemeasure9 JensenAlpha(1968)9 HighermomentmeasureofHwangandSatchell(1998)9 InformationRatio9 EfficiencyRatio9 CoEfficientofDetermination(R2)9 FamaDecompositionofMutualFundsReturns:9 TheTreynor&MazuyModel(1966)
1.2.7 PROCEDURE OF DATA ANALYSIS: several statistical tools were used to analyze and
evaluatethedata.Speciallymeanreturn,standarddeviation,coefficientofcorrelation,coefficientofdeterminationusedasbasictoolsofanalysisandevaluation.Thedataprocessthroughthesetoolsandinterpretedbythemeanofbetacoefficient,Treynorratio,Sharperatio.Jensenalphaandmanymorediscussedinthefollowingchapters.
1.3RESEARCHTIMEHORIZON:Thestudyanalyzedthemutual fundover thepast5years incaseofpricebasisanalysis.
ButincaseofNAVbasisanalysis,thestudyanalyzedthemutualfundonthebasisofavailabilityofNAVdataofmutualfunds.Buthereitismentionablethatinanytypeofanalysisatleast18monthsor65weeksanalysisisdone.
1.4LIMITATIONS:Insomecasesthereareonly18monthsdataareusedtoanalyze theperformancedueto
lackofdataavailability..Butasweknowthataverylongtimeintervalisneededinordertobeabletoobtainameasureofriskadjustedperformancethatcandistinguishskillfromluckonthepartoftheinvestmentmanager.
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LITERATUREREVIEWONPERFORMANCEEVALUATION
OFMUTUALFUNDS
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2.1CONCEPTS&TERMINOLOGY:Beforestartingourjourneytoevaluatethemutualfunds,heresomeofthebasicconceptand
terminologyareprovided.
2.1.1MUTUALFUNDAninvestmentvehiclethatismadeupofapooloffundscollectedfrommanyinvestorsforthe
purposeofinvestinginsecuritiessuchasstocks,bonds,moneymarketinstrumentsandsimilarassets.Mutual fundsareoperatedbymoneymanagers,who invest the fund'scapitalandattempttoproducecapitalgainsandincomeforthefund'sinvestors.Amutualfund'sportfolioisstructuredandmaintainedtomatchtheinvestmentobjectivesstatedinitsprospectus.
One of the main advantages ofmutual funds is that they givesmall investors accesstoprofessionallymanaged,diversifiedportfoliosofequities,bondsandothersecurities,whichwouldbequitedifficult(ifnotimpossible)tocreatewithasmallamountofcapital.Eachshareholderparticipatesproportionallyinthegainorlossofthefund.Mutualfundunits,orshares,areissuedandcantypicallybe purchased or redeemed as needed at the fund's current net asset value (NAV)per share,whichissometimesexpressedasNAVPS.
2.1.2THERISKFREERATEThe theoretical rate of return attributed to an investment with zero risk.The riskfree rate
representstheinterestonaninvestor'smoneythatheorshewouldexpectfromanabsolutelyriskfreeinvestmentoveraspecifiedperiodoftime.
In theory, the riskfree rate is the minimum return an investor should expect for anyinvestment,asanyamountofriskwouldnotbetoleratedunlesstheexpectedrateofreturnwasgreaterthantheriskfreerate.
Inpractice,however, the riskfree ratedoesnot technicallyexist; even the safest investmentscarryaverysmallamountofrisk.Thus,investorscommonlyusetheinterestrateonathreemonthU.S.Treasury bill as a proxy for the riskfree rate becauseshortterm governmentissued securities havevirtuallyzeroriskofdefault.
2.1.3SYSTEMATICRISKSystematic Risk is the risk inherent tothe entire market or entire market segment. It is
alsoknown as "undiversifiablerisk" or "market risk.. Interest rates, recession and wars allrepresentsources of systematic risk because they affect the entire market and cannot be avoidedthroughdiversification.Whereasthistypeofriskaffectsabroadrangeofsecurities,unsystematicriskaffectsaveryspecificgroupofsecuritiesoranindividualsecurity.Systematicriskcanbemitigatedonlybybeinghedged.Evenaportfolioofwelldiversifiedassetscannotescapeallrisk
2.1.4UNSYSTEMATICRISKUnsystematic Risk is the Company or industryspecific risk that is inherent in each
investment.Theamountofunsystematic risk canbe reduced throughappropriatediversification.It isalsoknownas"specificrisk","diversifiablerisk"or"residualrisk".Forexample,newsthatisspecifictoasmallnumberofstocks,suchasasuddenstrikebytheemployeesofacompanyyouhavesharesin, isconsideredtobeunsystematicrisk.
2.1.5CAPITALMARKETLINECapitalmarketline(CML)isthetangentlinedrawnfromthepointoftheriskfreeassettothe
feasibleregionforriskyassets.ThetangencypointMrepresentsthemarketportfolio,sonamedsinceallrationalinvestors(minimumvariancecriterion)shouldholdtheirriskyassetsinthesameproportionsastheirweightsinthemarketportfolio.
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TheCMLresultsfromthecombinationofthemarketportfolioandtheriskfreeasset(thepointL).AllpointsalongtheCMLhavesuperiorriskreturnprofilestoanyportfolioontheefficientfrontier,with theexceptionof theMarketPortfolio, thepointon theefficient frontier towhich theCML is thetangent.FromaCMLperspective,thisportfolioiscomposedentirelyoftheriskyasset,themarket,andhasnoholdingof therisk free asset, i.e.,money isneither invested in,norborrowed fromthemoneymarketaccount.
2.1.6SECURITYMARKETLINESecurityMarketLine is a line thatgraphs the systematic, ormarket,riskversus returnof the
wholemarketat a certain timeandshowsall riskymarketable securities. It is also referred toas the"characteristicline".
The SMLessentially graphs the results from thecapital asset pricingmodel (CAPM) formula.Thexaxis represents the risk (beta), and the yaxis represents the expected return. Themarket riskpremiumisdeterminedfromtheslopeoftheSML.
Thesecuritymarketlineisausefultoolindeterminingwhetheranassetbeingconsideredforaportfoliooffersareasonableexpectedreturnforrisk.IndividualsecuritiesareplottedontheSMLgraph.If the security's risk versus expected return is plotted above the SML, it is undervaluedbecause theinvestor can expect a greater return for the inherent risk.A security plotted below the SMLisovervaluedbecausetheinvestorwouldbeacceptinglessreturnfortheamountofriskassumed.
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2.2PERFORMANCEEVALUATIONTOOLS:
Portfolioperformanceevaluationisakeyaspectoftheinvestmentdecisionprocess.Sometoolsofportfolioperformanceevaluationprovidethenecessaryinformationforinvestorstoassesshoweffectively theirmoneyhasbeen invested (ormaybe invested).One thing is important thatportfolio returnsareonlypartof thestory.Withoutevaluatingriskadjustedreturns,an investorcannot possibly see the whole investment picture, which may inadvertently lead to cloudedinvestmentdecisions.
Many investors mistakenly base the success of their portfolios on returns alone. Fewconsider therisk that they took toachieve thosereturns.Since the1960s, investorshaveknownhow to quantify andmeasure riskwith the variability of returns, but no singlemeasure actuallylookedatbothriskandreturntogether.Today,wehaveeightsetsofperformanceevaluationtoolstoassistuswithourportfolioevaluations.TheTreynor,SharpeandJensenratiosetc.combineriskandreturnperformanceintoasinglevalue,buteachisslightlydifferent.
2.2.1THETREYNORMEASURE(1965)
Jack L. Treynorwas the first to provide investorswith a compositemeasure of portfolioperformancethatincludedrisk.Treynorsobjectivewastofindaperformancemeasurethatcouldapplytoall investors,regardlessof theirpersonalriskpreferences.Hesuggestedthattherewerereallytwocomponentsofrisk:theriskproducedbyfluctuationsinthemarketandtheriskarisingfromthefluctuationsofindividualsecurities.
Treynorintroducedtheconceptofthesecuritymarketline,whichdefinestherelationshipbetweenportfolioreturnsandmarketreturns,wherebytheslopeofthelinemeasurestherelativevolatility between the portfolio and themarket (as represented by beta). The beta coefficient issimplythevolatilitymeasureofastock,portfolioorthemarketitself.Thegreatertheline'sslope,thebettertheriskreturntradeoff.
TheTreynormeasurecanbeeasilydefinedas:
Where:
E(RP)denotestheexpectedreturnoftheportfolio;RFdenotesthereturnontheriskfreeasset;BPdenotesthebetaoftheportfolio.
Thenumeratoridentifiestheriskpremiumandthedenominatorcorrespondswiththeriskoftheportfolio.Theresultingvaluerepresentstheportfolio'sreturnperunitrisk.ThehighertheTreynormeasure,thebettertheportfolio.
Becausethismeasureonlyusessystematicrisk,itassumesthattheinvestoralreadyhasanadequatelydiversifiedportfolioand,therefore,unsystematicrisk(alsoknownasdiversifiablerisk)isnot considered.As a result, thisperformancemeasure should reallyonlybeusedby investorswhoholddiversifiedportfolios.
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2.2.2THESHARPEMEASURE(1966)TheSharperatioisalmostidenticaltotheTreynormeasure,exceptthattheriskmeasureis
the standard deviation of the portfolio instead of considering only the systematic risk, asrepresented by beta. Conceived by Bill Sharpe, This ratio measures the return of a portfolio inexcessoftheriskfreerate,alsocalledtheriskpremium,comparedtothetotalriskoftheportfolio,measuredby its standarddeviation. It isdrawn from the capitalmarket line, andnot theCapitalAssetPricingModel(CAPM).Thisratio,initiallycalledtherewardtovariabilityratio,isdefinedby:
Where:
E(RP)denotestheexpectedreturnoftheportfolio;RFdenotesthereturnontheriskfreeasset;(RP)denotesthestandarddeviationoftheportfolioreturns.
Sincethismeasureisbasedonthetotalriskoftheportfolio,madeupofthemarketriskandtheunsystematicrisktakenbythemanager, itenablestheperformanceofportfoliosthatarenotverydiversifiedtobeevaluated.Thismeasureisalsosuitableforevaluatingtheperformanceofaportfolio that represents an individuals total investment. The higher the Sharpe measure, thebettertheportfolio.
2.2.3MMEASURE:MODIGLIANIANDMODIGLIANI(1997)ModiglianiandModigliani(1997)showedthattheportfolioanditsbenchmarkmusthave
the same risk to be compared in terms of basis points of riskadjusted performance. So theyproposethattheportfoliobeleveragedordeleveragedusingtheriskfreeasset.Theydefinedthefollowingmeasure:
Where,
(M/P)istheleveragefactor.Mdenotestheannualizedstandarddeviationofthemarketreturns;PdenotestheannualizedstandarddeviationofthereturnsoffundP;RPdenotestheannualizedreturnoffundP;RFdenotestheriskfreerate.
Thismeasure evaluates the annualized risk adjusted performance (RAP) of a portfolio in
relation to the market benchmark, expressed in percentage terms. According to Modigliani andModigliani,thismeasureiseasiertounderstandbytheaverageinvestorthantheSharperatio.
Modigliani and Modigliani propose the use of the standard deviation of a broadbasedmarket index,suchastheS&P500,asthebenchmarkforriskcomparison,butotherbenchmarkscouldalsobeused.Forafundwithanygivenriskandreturn,theModiglianimeasureisequivalentto the return the fund would have achieved if it had the same risk as the market index. Therelationship therefore allows us to situate the performance of the fund in relation to that of themarket.ThemostinterestingfundsarethosewiththehighestRAPvalue.
TheModiglianimeasureisdrawndirectlyfromthecapitalmarketline.Itcanbeexpressedas the Sharpe ratio times the standard deviation of the benchmark index: the twomeasures aredirectlyproportional.SoSharperatioandModiglianimeasureleadtothesamerankingoffunds.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
17
2.2.4MARKETRISKADJUSTEDPERFORMANCE(MRAP)MEASURE:SCHOLTZANDWILKENSScholtz andWilkens (2005) note that, as theRAPmeasure developed byModigliani and
Modigliani(1997)usesthestandarddeviationasriskmeasure,itisrelevantonlytoinvestorswhoinvesttheirentiresavingsinasinglefund.Sotheyproposeameasurecalledmarketriskadjustedperformance (MRAP), following the same principle as Modigliani and Modiglianis measure, butmeasuringreturnsrelativetomarketriskinsteadoftotalrisk.Asaresult,theMRAPissuitableforinvestorswhoinvestinmanydifferentassets.
Theideaistocomparefundsonthebasisofmeasureofmarketriskthatisidenticalforallfunds.Thenaturalchoice is thebeta factorof themarket index,M=1.Themarket riskadjustedperformanceforfundiisobtainedby(de)leveringitinordertoachieveabetaequaltoone.Ifthefundssystematicriskexceedsthatofthemarket(i>1),thisprocedurecanbeinterpretedasafictitioussaleofsomefractiondioffundholdingsandthenaninvestmentoftheproceedsattheriskfreerate(di
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
18
2.2.6HIGHERMOMENTMEASUREOFHWANGANDSATCHELL(1998)Whenportfoliosreturnsarenotnormallydistributed,highermomentssuchasskewness
andkurtosisneedtobeconsideredtoadjustforthenonnormalityandtoaccountforthefailureofvariancetomeasureriskaccurately.
In these cases, a highermoment CAPM should prove more suitable than the traditionalCAPM and so a performance measure based on higher moments may also be more accurate.AssumingthevalidityofthethreemomentCAPMandaquadraticreturngeneratingprocessoftheform:
WecandefineaperformancemeasureofaportfoliounderthethreemomentCAPMas:
Where,
With:
And,
mandmare theskewnessandkurtosisof themarketreturns,andandpmarebetaandcoskewnessrespectively.Ifthemarketreturnsarenormal,thenpm1=pmand2=0andthealphameasureisthereforeequivalenttoJensensalpha.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
19
2.2.7INFORMATIONRATIOTheinformationratio,whichissometimescalledtheappraisalratio,isdefinedbytheresidual
returnoftheportfoliocomparedtoitsresidualrisk.Theresidualreturnofaportfoliocorrespondstotheshare of the return that is not explained by the benchmark. It results from the choicesmade by themanagertooverweightsecuritiesthathehopeswillhaveareturngreaterthanthatofthebenchmark.Theresidual,ordiversifiable,riskmeasurestheresidualreturnvariations.Itisthetrackingerroroftheportfolioandisdefinedbythestandarddeviationofthedifferenceinreturnbetweentheportfolioanditsbenchmark.Theloweritsvalueis,theclosertheriskoftheportfoliototheriskofitsbenchmark.
Sharpe(1994)presentstheinformationratioasageneralizationofhisratio, inwhichtherisk
freeassetisreplacedbyabenchmarkportfolio.Theinformationratioisdefinedthroughthefollowingrelationship:
Where,
RBdenotesthereturnonthebenchmarkportfolio.
Managersseektomaximizeitsvalue,i.e.toreconcileahighresidualreturnandalowtrackingerror.Thisratioallowsustocheckthattherisktakenbythemanager,indeviatingfromthebenchmark,issufficientlyrewarded.
The information ratio is an indicator that allows us to evaluate the managers level ofinformation compared to the public information available, together with his skill in achieving aperformancethatisbetterthanthatoftheaveragemanager.Asthisratiodoesnottakethesystematicportfolio risk into account, it is not appropriate for comparing the performance of awelldiversifiedportfoliowiththatofaportfoliowithalowdegreeofdiversification.
2.2.8EFFICIENCYRATIOToexplainhowthismeasureworks,weconsidertheaveragemeanreturnofamutualfund
and its standard deviation. Thenwe calculate the return per unit of risk for themutual fund bydividing themeanreturnby its standarddeviation. In thesameway,wecalculate thereturnperunitofriskformarket.Thenbycomparingthereturnperunitofriskofthemutualfundwiththereturnperunitofriskofmarket,wecandeterminewhetherthemutualfundisefficientlymanagedornot.
Again, we can rank themutual funds in accordance of their return per unit of risk. Thehigherthereturnperunitofriskis,thebetterthemutualfundis.
2.2.9COEFFICIENTOFDETERMINATION(R2)Coefficient of Determination (R2) explains the percentage of a portfolio's performance
explainablebytheperformanceofabenchmarkindex.ThatisCoefficientofDetermination(R2)isameasureofdiversification.Itissimplythesquareofthecorrelationcoefficientbetweenthemarketreturnsandportfolioreturns.
TheRsquareismeasuredonascaleof0to100,withameasurementof100indicatingthattheportfolio'sperformanceisentirelydeterminedbythebenchmarkindex..TheclosertheR2isto100, themore completely diversified the portfolio is. A low R square indicates that there is nosignificantrelationshipbetweentheportfolioandtheindex.
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PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
21
portfolioandthesystematicriskoftheportfolio.Thiswillbezeroforperfectlydiversifiedportfolios.Thatis,
RPDiversification={(P/M)*(RMRF)P(RMRF)}2.3.6NETSUPERIORRETURNDUETOSELECTIVITY
We can determine how much of the risk premium comes from ability to selectstocks(netselectivity)bysubtractingdiversificationfromselectivity.ThatisNetSelectivityisthedifferencebetweentheriskpremiumduetoselectivityanddiversification.Thatis
RPNetSelectivity=RPSelectivityRPDiversification
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
22
2.4TIMINGSKILLTimingskillimpliesthathowwellafundmanagermatcheshisorherdecisionwiththe
movementofthemarket.Ifthetimingisperfectthenportfolioreturnwouldbeequaltomarketreturn.Heretimingskillcanbeexaminedbyusingthefollowingmodel.
2.4.1THETREYNOR&MAZUYMODEL(1966)ThismodelusedaquadraticversionoftheCAPM,whichprovidesuswithabetter
frameworkfortakingtheadjustmentsmadetotheportfoliosbetaintoaccount,andthusfor evaluating a managers market timing capacity. Managers who anticipate marketevolutionscorrectlywilllowertheirportfoliosbetawhenthemarketfalls.Theirportfoliowill thusdepreciate less than if theyhadnotmade the adjustment. Similarly,when theyanticipateariseinthemarket,theyincreasetheirportfoliosbeta,whichenablesthemtomakehigherprofits.Therelationshipbetweentheportfolioreturnandthemarketreturn,inexcessoftheriskfreerate,shouldthereforebebetterapproximatedbyacurvethanbyastraightline.Themodelisformulatedasfollows:
Where:RPtdenotestheportfolioreturnvectorfortheperiodstudied;RMtdenotesthevectorofthemarketreturnsforthesameperiod,measuredwiththesamefrequencyastheportfolioreturns;RFtdenotestherateoftheriskfreeassetoverthesameperiod.
TheP,PandPcoefficientsintheequationareestimatedthroughregression.IfPis positive and significantly different from zero, we can conclude that the manager hassuccessfullypracticedamarkettimingstrategy.
TreynorandMazuy(1966)usingannualreturnsfor57openendmutualfunds,findthatthehypothesis of nomarket timing ability can be rejectedwith 95% confidence for only one of thefunds.Thismodelwas formulatedempiricallybyTreynorandMazuy (1966). Itwas thentheoreticallyvalidatedbyJensen(1972)andBhattacharyaandPfleiderer(1983).
2.4.2THEHENRIKSSONMERTONMODELHenriksson andMerton (1981) derive the statistical framework for bothparametric and
nonparametric testsofmarkettimingability. If themanagers forecastsareobservable, then thenonparametric test can be usedwithout further assumptions about the distribution of securityreturns.
If the forecasts are not observable, then the parametric test can be used under theassumptionofeitheraCAPMoramultifactorreturnstructure.ItconsistsofamodifiedversionoftheCAPMwhich takes themanagers two riskobjectives into account, dependingonwhetherheforecaststhatthemarketreturnwillorwillnotbebetterthantheriskfreeassetreturn.Themodelispresentedinthefollowingform:
RMFtRFt=+(RMtRFt)+Max[(RMt RFt),0]+t
The , and coefficients in the equation are estimated through regression. The coefficient allows us to evaluate the managers capacity to anticipate market evolution. If ispositiveandsignificantlydifferentfromzero,themanagerhasagoodtimingcapacity.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
23
Herethenewterm,,representsaninformationaladvantagerepresentedbyanocostputoptiononthemarketportfolio.HenrikssonandMertonarguethatifissignificantlypositive,weidentifyselectionskills,and forapositiveandsignificant, themutual fundmanagerpossessestimingability.
While the above multiple regression methods are easy to apply, statistical inferencerequirescare.AspointedoutbyHenrikssonandMerton(1981)themanagedportfoliosreturnwillexhibit conditional heteroscedasticity because of the fundmanagers attempt to time themarket,evenwhenstockreturnsareseriallyuncorrelatedandidenticallydistributedthroughtime.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
24
MUTUALFUNDSINBANGLADESH:ANOVERVIEW
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
25
3.1BANGLADESHECONOMY,CAPITALMARKET&MUTUALFUNDS:
3.1.1BANGLADESHECONOMY:Beforegoingthroughmaintopicofmyreport,PerformanceEvaluationofSelectedMutual
FundinDSE,letshaveabrieflookonthecurrenteconomyofBangladesh.Bangladeshhasafairlygood and expanding stock of both physical and human capital, and with favorable policies, theupgradingpotentialofbothcapitalisbright.Theremittances fromoverseasworkershavealreadybecomeagreatsourceofstrengthandthiscanbeincreasedmanifoldwithrightpolicies.Relativestability of the country's economic fundamentals has created a fairly good macroeconomicenvironment.ThekeymacroeconomicindicatorsofBangladesharegivenbelow:
TherecenteconomicoutlookofBangladesheconomybecomesclearwhenwewillconsiderthefollowingeconomiceventsorfactors.Theseeconomiceventsorfactorsare
RealGDPisprojectedtogrowataround6.2percentinFY11,upfrom5.8percentinFY10.At present GDP shows the upward trend which indicates better financial performance of thecountryandthisisthebesttimetoinvestindifferentpromisingindustryoftheeconomy.Again,TheincreaseinconsumerpricesthatstartedinFY10continuedthroughthefirstninemonthsofFY11,driven largely by a doubledigit rise in food prices. The recent trend in inflation rate (movingaverage)demonstratesadecreasingtrend.Theinflationratehasdecreasedfrom8.5percentintheendJuneofFY200910to6.9percentintheFY201011.Thedecreasingtrendintheinflationratealsoindicatesthesoundeconomicperformanceofthecountry.
BangladeshKeyMacroeconomicIndicatorsFiscalYear FY8 FY9 FY10 FY11(P.) FY12(P.)
RealGDPGrowth(%) 6.2 5.7 5.8 6.2 6.4CPIInflation(%,average) 9.9 6.7 7.3 8.8 7.4Investment(%ofGDP) 24.2 24.4 25 25.5 26.6Export(f.o.b)Growth(%) 17.4 10.1 4.2 27 19.6Import(f.o.b)Growth(%) 25.6 4.2 5.4 36.1 15CurrentAccountBalance(%ofGDP) 0.9 2.7 3.7 0.8 1.6Revenue(%ofGDP) 11.4 10.4 10.9 12.1 12.7Expenditure(%ofGDP) 15 14.3 14.6 16.7 18.2OverallBalance(%ofGDP) 3.6 3.9 3.7 4.6 5.5PublicDebt(%ofGDP) 46.8 45.4 41.5 41.6 41.2
0
2
4
6
8
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
GDPGR(%)
Year
GDP,constantprices
8.18.9
5.4
8.56.9
0
2
4
6
8
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200607 0708 0809 0910 1011
Inflation(%)
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
26
Meanwhile, growth inmoneyandcredit isestimated to remainhigh inFY11,as itwas inFY10.Butas the global economy is yet to fully recover and struggling to attain the pre- recession growth level, investment climate in Bangladesh continues to stagger as reflected in the continuously high level of excess liquidity that piled up in the banking system from end-June 2007 to end-June 2009. Excess liquidity showed a decline since end-June 2010. It has further declined in end-Sept10, showing that Bangladesh economy is responding to the recovery taking place in developed countries. Again, both exports and imports rose in the first part of FY2011while remittance growth fell sharply, thus narrowing the external current account surplus.RemittancesfellsharplyinthefirsthalfofFY11buthavesincerecoveredslightly.
Atlast,wecansaythatBangladesheconomyhasgrownataround6%overthepast5years,despitenaturalshocksandexternalvolatility,andwebelievethatthebestyearsforthecountryareaheadofusandeconomyhasthepotentialtogrowbyaround8%duringthecomingyearsandforthattheinvestmentmustgrowfasterthanthepresentrate.Itovercomestheglobalfinancialcrisiswell,andhasconsequentlycomeoutof thecrisis inapositionofstrength,withrealGDPgrowthmodestly impacted.Tomaintaina stableeconomyand to reduce theeconomic fluctuationofourcountrythefollowingstepsaretakenbyregulatorybodies:
9 OnMarch9,2011,theBangladeshBankliftedthe13percentlendingratecaponbanksthatwas introduced inApril2009 in response to theworldeconomic crisisand increased theCRRandtheSRRby50basispointsinDecember2010.
9 InNovember2010, theMicrocredit RegulatoryAuthority (MRA)put a 27percent cap oninterest ratesandmade itmandatory toallowat least15days between thedatesof loanissuanceandfirstrepayment.
9 ThedraftVATlawandruleswereplacedontheNBRwebsiteforpublicdiscussion.Andthepublicprivatepartnerships(PPP)agendaismovingforwardslowly.
9 TheBangladeshEnergyRegulatoryCommissionraisedpowertariffsbyanaverage11percentforbulkconsumers,andissuedaninterimordertoraisetariffsforretailcustomersby5.0percent,witheffectfromFebruary1,2011.
Apart from the risks to the global economy, there are several short and longterm risksfacingtheBangladesheconomy.Shorttermrisksincluderising foodandfuelpricesplacingstresson fiscal and external balances deteriorating remittances and impact on the current account,leading to the possibility of increased reserve draw down; the growing quasifiscal deficit; andstockmarket volatility and its possible impact on thebanking sector. Themacroeconomicpolicyresponse will need to strike a balance between maintaining a comfortable level of reserves,containing inflation and allowing greater exchangerate flexibility. Longterm risks include theinabilitytosufficientlyalleviatepowershortages,raisepublicinvestment,andremovebottleneckstoprivateinvestment.Inaddition,theimpactofrisingfoodandfuelpricesonpovertywillneedtobecarefullymanaged.
0
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2000 01 02 03 04 05 06 07 08 09 10
Growthrate(%
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Year
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PERFORMA
3.1.2CAIn
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Atheremalistingofoftradingtradingsof monthannounce
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dtheDSEprfmyreportprovidingthshareorgraeexchange,mmonitoringcesensitiveo
rovidedaDS
apitalizationamic,Cemene, Textile, Phthesectorial
Unit 2
Tk.Crore 16Tk.CroreTk.Crore 47Percent
WghtdAvgWghtdAvg
Percent
Textile2.9%
Pharma.8.72%
Jute0.04%
Service0.83%
Tannery0.64%
Miscel3.52%
TEDMUTUALF
2 stock exce of Bangladndence in19DT.4billion.Exchange (Cuttradingsy
rice,NAV,DGIwilldiscushescreenbantingapprovmarketadmithe activiti
orotherinfo
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ofDSEisdisnt,InsuranceharmaceuticalMCapason
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6467.46 54989.53 19
7585.54 93116.372.85
17.2810.18
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FUNDSINBANG
27
changes. Dhadesh. Althou971, thenumThetotalnuCSE)began iystem.
GENIndexdasaboutDSE,asedautomatvaltothetrainistration&es of listedrmationabo
utlookasonS
stributedinte,Telecom,Tals, Paper annSeptember
arketOutlo0708 2008
323.9 893722.42 11802.52 1241319.34 21.9422.8 1
17.18 2
Bond0.31%
Telecom9.81%
1
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&P4%
GLADESH
aka Stock Exgh incorpormberof listedumberoflistits journey in
atainmymu,notCSE.Thtedtradingoansactionor&control,ma
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September,2
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ook09 20091
8.92 2563503.92 18693.89 270.0741.78 282.178.44 240.19 43
MF1.6%
IT0.18%
Ceramics1.53%
Insu.5.67%
T&0.3
FI10.34%
Engg.5.07%
xchange (Genated in 1954dcompaniesedcompanien10thOctob
utualfundanhemajorfunoflistedSecutransferof
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10 20101
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4.08 16.3.92 41
Cement3.61%
&L32%
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OCTOBER31,
nerally know4, formal tras inDSEwasesisnow44berof1995
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PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
28
Currently sharemarket iswell known to all. It is known that the economic stability andprosperityofacountrydependontheconditionofhersharemarket.Manybrokeragehousesarenowoperatinginourcountrytohelpinvestors.WhenBangladesheconomylookslikeagoodshapebasedoncapital/sharemarket, that timeTradingon theDhakaStockExchange indexwashaltedafteritfellby660points,or9.25%,inlessthananhour.ChittagongStockMarketalsometasimilarfate. An abrupt crash of the market sparked violent protests from the Bangladeshi investors.Itwasthebiggestonedayfallinits55yearhistory.Itisestimatedthatoverthreemillionpeople,many of them smallscale individual investors, have lost money because of the plunging shareprices.Thebenchmarkindexhadclimbedby80%in2010buthaslostmorethan27%sinceearlyDecember.Theregulatorsefforts todealwith thestockprice surge thatbuiltupafter July2009,andthesubsequentreversalofthesepolicies,mayhaveincreasedvolatilityinthestockindexinthepastfewmonths.
As a result Investment in the share market is a popular business among the educatedmiddleclassofBangladeshwhowereleftfrustratedwiththesuddenlosstotheircapital.Theywerefinding ways and means to exit from the market in order to minimize the lossesWhythis ishappenourquestion israise, it isnotexpected forusmiracle indexupandsuddenlydown.Theexpertsgivetheircommentthattheimmediatereason forthiscrashwasthepolicyoftheregulatorsofthemarketwholaiddownalimitforinvestmentbythebanksandotherfinancialinstitutions in the stocks. Thiswas done in order to avoid themarket being overvalued. As thebanksandotherbiginvestorinstitutionswithdrewthecapitalfromthemarket,thepanicensued.
CurrentBangladeshsharemarketcanexperiencehugedeclinebecauseof:
9 Mostofthesharepricesareveryhigh(lacksupportoffundamentals).9 Peoplewhoare involved in themarkethaveegger tomakequickprofit by short trading
only.Mostofthemdonotwanttoholdsharesforlittlelong.9 Excess liquidity in the market also pushing share prices without solid reason (only
speculation).Manipulatorsareactive!9 Ourbankingandotherfinancialinstitutionshaveexposedtheirselvestoverymuchriskby
involvingspeculativesharetradingnow.Whenthemarketwilldownturnorcrashtheywillinserioustrouble.
Lastbutnotleast,seriousactwithprudencetostrengthenoursharemarketandbewareofmanipulators.AndthegovernmentofBangladeshmaybeunderpressuretointerveneinordertoprotectthehardearnedmoneyofthesmallinvestorsfrombeinglostduetothisunusualcrashofthestockmarket.So,thisistherighttimetoworktogether(Governmentaswellasotherfinancialinstitutes)todecidewhatactionstotaketosavethemarketfromfurtherfalls.
0.00
2000.00
4000.00
6000.00
8000.00
10000.00
Jan10
Mar
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May
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Jul1
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UTUALFUNDEven as theofmutual funanybanksanund isa fundtake risk beed. The pricentinthefunr,thematurittotheirmarbemuchhigh
Unliketheothenendedmuadesh only oy,hasallowedmutual funds,r,whiletheoh in the coundedmutual
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herdevelopeutualfunds,tover the pasdfloatingof, which tendopenendedmuntry, the enfunds,floate
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edanddeveltheconceptost three yeaopenendedd to maturemutualfundsntire mutualedmostlyby
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FUNDSINBANG
29
rted maturinenslow.Onlontinuetoin
ment inmutuaged professshare is notpriceofafukingitssweetItisseenthay.
lopingstockofopenendears, ever sincmutualfunde in 10 to 2sarestillinafunds sectobanksandin
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PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
30
3.2SELECTIONOFMUTUALFUND(M.F.):PROFILEInBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment
CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,ICBemployeemutualfund,ICBIslamicmutualfundsetc.
lateron, threesubsidiarieswerecreated, theyare ICBCapitalManagementLtd, ICBAssetManagementCompanyLtdandICBsecuritiesTradingCompaniesLtd.ICBCapitalManagementLtdismainlyconcernedwithunderwritingofshare,issuemanagement,placementofshare,investmentcounseling,managinginvestmentaccounts;ICBAssetManagementLtdisinvolvedwithinvestmentmanagement (floating and managing mutual funds); and ICB securities Trading Companies Ltdprovides the trading facility,depositoryparticipant facility ofCDBL,brokerageservice,managingownportfolioandworkingassellingagentofDSE.
Meanwhile another government agency, Bangladesh Shilpa Rin Sangstha (BSRS), nowmerged into Bangladesh Development Bank, launched it solitary mutual fund in1997, which isrunningunderitsownstatute.
The first everprivate assetmanagement companyAIMSFirstGuaranteedMutual Fund, aclosedendbalancedfundinMarch2000;Whereguaranteedmeans,thecapitalofthefundthatwasunderwrittenatredemptionbyIDLCandAIMSduringtheinitialfiveyearsoflife.Laterin2005,theunitholdersresolvedtoreducethegranteeto50%underwrittenonlybyAIMS.Thistranslatesthat50%ofthepaidupcapital losswillbebornebyAIMSatthetimeofredemption.Theportfolioofthismutualfundwillbeagrowthvaluebendbasketoflargecapaswellassmallcapstocksandamixoffixedincomesecurities.
Besides AIMS, currently few other private fund managers are also doing the business,namely,RACE,LRGlobal,VIPBetc.Alltogether,36closedendfundaretradedintheDSEwithfewwaitinginthequeueforstartingtheiroperation.
Nowadays commercialbanksandnonbank financial institutionsaregetting involved inmutual fund issue firmly. There are 15 funds of different banks, financial institutions and theinsurancecompaniesoutof36fundstradedinDSE.
Ihavechosen12mutual fundsof6AssetManagementCompanies inordertoanalyzetheperformanceofthosemutualfunds.Theseare:
Inthenextpage,therewillbegivenabriefdiscussionaboutthemutualfundswhichIhave
selectedforevaluatingtheirperformance.
AssetManager SelectedMF AssetManager SelectedMF
ICB
4thICBM.F.AIMS
Aims1stM.F.
6thICBM.F. GrameenM.F.one
8thICBM.F.RACE
EBLFirstMutualFund
ICBAMCLICBAMCL1stM.F. TrustBank1stM.F.
ICBAMCLIslamicM.F.LRGlobal
DBHFirstMutualFund
BSRS 1stBSRS GreenDeltaM.F.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
31
3.2.1ICBM.F.InBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment
CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,4thICB,6thICB,8thICB,ICBemployeemutualfund,ICBIslamicmutualfundsetc.ICBMutualFundsareindependent of one another. In Bangladesh ICB has pioneered Mutual Funds for the sake ofinvestorsandofthecapitalmarket.Herearethebriefon4th,6thand8thICBmutualfundisgiven.
3.2.1.14THICBMF
BasicInfo.
Particulars 4thICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10Million
NetAssetValue(Ason30092011) Atmarketpricetk.2223.46
EarningPerUnit(Ason30092010) Tk.114.283.2.1.26THICBMF
BasicInfo.
Particulars 6th ICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10MillionNetAssetValue(Ason30092011) Atmarket pricetk.454.78EarningPerUnit(Ason30092010) Tk.37.00
3.2.1.38THICBMF
BasicInfo.
Particulars 8th ICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10MillionNetAssetValue(Ason30092011) Atmarket pricetk.513.72EarningPerUnit(Ason30092010) Tk.32.00
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
32
3.2.2ICBAMCLAmongthemutualfundsunderAssetManagementCompanyICBAMCL,IhaveselectedICB
AMCL1standICBIslamicmutualfundformyevaluationpurpose.Hereisbriefaboutthosefunds.
3.2.2.1ICBAMCL1STM.F.The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore
dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsareincirculationandtherestunitsareheldbythesponsorareunderlockinforthelifeofthefund.
After deducting total expenditure including provision against investment for the currentyear,thefundhadanetincomeofTk.707.77lacs.TheearningperunitforthecurrentFY200910stoodatTk.70.78,whichwasTk.37.98 inFY200809.AsonJune30,2010, the fundhadatotalinvestmentofTk.2755.04lacsatcostofwhich2725.03lacswereinordinaryshares,Tk.30.00lacsindebenture securities.Themarket valueof the investmentwasTk.5526.98 lacs ason June30,2010showingappreciationof100.61%.
BasicInfo.Particulars ICBAMCLFirstMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Auditor M.A.MalekSiddiquiWali&Co.,CharteredAccountsPublicationofProspectus June09,2003SubscriptionPeriod June16,2003 June30,2003Size Tk.10.00CroreMarketLot 50UnitsFaceValue Tk.100.00perunitDividendforFY200910 Tk.50.00perunit
NetAssetValue(Ason31082011) Atcostpricetk.424.08AtmarketpriceTk.585.56EarningPerUnit(Ason30092011) Tk.55.00
3.2.2.2ICBAMCLISLAMICM.F.The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore
dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsareincirculationandtherestsareheldbythesponsorareunderlockinforthelifeofthefund.
After deducting total expenditure including provision against investment for the currentyear,thefundhadanetincomeofTk.497.64lacs.TheearningperunitforthecurrentFY200910stoodatTk.49.76,whichwasTk.26.60 inFY200809.Ason June30,2010, the fundhada totalinvestmentofTk.1975.86lacsatcostprice,themarketvalueofwhichwasTk.2869.34lacsonthesamedateshowingappreciationof45.22%.Besides,thefundinvestedTk.100.00lacsintermsofMudarabaTermDepositReceipt(MTDR).
BasicInfo.Particulars ICBAMCLIslamicMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Auditor M.A.MalekSiddiquiWali&Co.,CharteredAccountsPublicationofProspectus September15,2004SubscriptionPeriod October12,2004 October17,2004Size Tk.10.00CroreMarketLot 50UnitsFaceValue Tk.100.00perunitDividendforFY200910 Tk.35.00perunit
NetAssetValue(Ason31082010)Atcostpricetk.248.86AtmarketpriceTk.270.06
EarningPerUnit(Ason30062010) Tk.36.00
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
33
3.2.3AIMSM.F.UnderAIMS,AIMS1standGrameenoneisselectforevaluation.Letsabriefaboutthem.
3.2.3.1AIMS1stM.F.AIMS of Bangladesh conceived the idea and launched the Tk70 million pioneering first
mutualfundinBangladeshunderprivateinitiativetheAIMSFirstGuaranteedMutualFundinyear2000with a five year initial tenure, as theAssetManager. Initially the sizewas contemplated atTk50milliononlybutowingtounprecedentedoversubscriptionfortheIPO(aboutninetimes)thesizewasincreasedbyanotherTk20milliononpublicdemand.
ThesizeofthefundwaslaterincreasedtoTk140millionbytheenthusiasticgeneralunitholdersandthelifeextendedbyanothertenyearsin2005.In2007thepaidupcapitalwasfurthertraised to TK168million through distribution 20% stock dividend to all unitholders. In 2010 thepaidup capital further raised to Tk414.5million after isuing 70%bonus and 130% right to theunitholders.
BasicInfo.Fund&SchemeName AIMSFirstGuaranteedMutualFundSize Tk.50millionPaidupCapital Tk.414.5millionTenure
RedemptionatmaturityonJune30,2015afteroriginalmaturityoffiveyearsendedinJune2005.
FaceValue Tk1(Takaoneonly)MarketLot 2,500unitsofTk1eachManager AIMSofBangladeshLimited
Sponsors
IPDC of Bangladesh Limited, IDLC Finance Limited, Southeast Bank Limited, UttaraFinance&InvestmentsLimited,PangaeaPartners(BD)Limited,SandhaniLifeInsuranceCompany Limited, Sandhani Credit Cooperative Society Limited and BangladeshIndustrialFinanceCompanyLimited.
Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC) Custodian BRACBankLimitedNature&Style Closedendcapitalguaranteedbalancedmutualfund
NetAssetValueAtCostPricetk.1.62AtMarketPriceTk.4.69
EarningsperShare Tk.0.28
3.2.3.2GrameenOneM.F.
AIMS of Bangladesh is the AssetManager for the GrameenMutual FundOne, the secondclosedend privatemutual fund in Bangladesh, the GrameenMutual FundOne sponsored by theGrameenBank,foundedbyNobelLaureateProfessorMuhammadYunus,regardedastheinnovatorofmicrocredit.GrameenFund,anotforprofitventurecapitalfinancingenterpriseoftheGrameenfamilyistheTrusteeandtheStandardCharteredBankistheCustodianofthefund.
BasicInfo.Fund&SchemeName GrameenMutualFundOnePaidupCapital TK170millionTenure RedemptionatMaturityonJune30,2015.FaceValue Tk10(TakaTenonly)MarketLot 500unitsofTk10eachTaxStatus Investmentandincome,includingcapitalgain,oftheFundistaxexemptManager AIMSofBangladeshLimitedSponsors GrameenBankTrustee GrameenFundCustodian StandardCharteredBankNature&Style Closedendcapitalguaranteedbalancedmutualfund
NetAssetValueAtCostPriceTk.28.98AtMarketPriceTk.52.71
EarningsperShare Tk.6.00
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
34
3.2.4RACEM.F.NowletsdiscussabouttheEBL1stAndTrustBank1stmutualfund.
3.2.4.1EBL1STM.F.EasternBankLimited (EBL) haddecided to be the firstBangladeshi commercial bank to
sponsoraMutualFundtomanageitscapitalmarketinvestmentsinasafeandprofessionalmanner.EBLsseniormanagementbelievedthatreturnsfromthemutualfundareexpectedtohelpdiversifyEBLsrevenuestream.Inaddition,bylaunchingtheEBLFirstMutualFund,EBLalsolookstodoitsparttoimprovetheefficiencyoftheBangladeshicapitalmarkets.
TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaviewtobroadenthebaseofinvestmentanddevelopthecapitalmarket.
In thisendeavor,EBLhaschosen twohighlycapablepartners:RACEManagementPCLasthe Fund Manager and the Investment Corporation of Bangladesh (ICB) as the Trustee andCustodianoftheFund.
BasicInfo.
Name EBLFirstMutualFund
SizeoftheFund Tk.100croredividedinto100,000,000units.Infuturethesizewillnotbechanged.FaceValue Tk.10.00perunit.Sponsor EasternBankLimitedSponsorsContribution 20,000,000UnitsofTk10eachatparforTK200,000,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 20,000,000UnitsofTk10eachatparforTK200,000,000Trustee&Custodian InvestmentCorporationofBangladesh (ICB)AssetmanagementCompany RACEManagementPCLPublicationofProspectus May26,2009SubscriptionPeriod June21,2009 July4,2009Nature: ClosedendMutualFundoftenyearstenure.
NetAssetValueAtcostpricetk.13.29Atmarketprice Tk. 14.51
3.2.4.2TRUSTBANK1STM.F.TomakeourstockmarketmorevibrantandefficientfurthermoreTrustBank1stMutual
Fundwouldexpandthebanksproductofferingstoclients.InordertoefficientlylaunchTrustBank1stMutualFund,theBankhasappointedRACEManagementthathasalreadymadeitsmarkinthelocalmarketbysuccessfullylaunchingthefirstevercommercialbanksponsoredmutualfund,EBLFirst Mutual Fund. The Fund is establishedwith a view to broaden the base of investment anddevelopthecapitalmarket.
BasicInfo.
Name: TrustBank1stMutualFund
SizeoftheFund Tk.200croredividedinto200,000,000units.FaceValue Tk.10.00perunit.Sponsor TrustBankLimitedSponsorsContribution 40,000,000UnitsofTk.10eachatparforTk.400,000,000Auditor SFAhmed&Co.CharteredAccountantsPublicOffer 20,000,000UnitsofTk10eachatparforTK200,000,000Trustee&Custodian InvestmentCorporationofBangladesh(ICB)AssetmanagementCompany RACEManagementPCLNetAssetValue
Atcostpricetk.12.66AtmarketpriceTk.14.08
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
35
3.2.5LRGLOBALM.F.HereisabriefaboutDBH1standGreenDelta.
3.2.5.1DBH1STMUTUALM.F.DBHisoneofthefirstnonbankingfinancialinstitutionsinBangladeshtosponsoramutual
fund. Shares of DBH are quoted on the Bangladesh stock exchanges and have a total marketcapitalizationofapproximatelyTk.6,513millionandshareholdersequityisaboutTk.942million.
TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaviewtobroadenthebaseofinvestmentanddevelopthecapitalmarket.TheTrustDeedalsoprovidestheflexibilitytotheunitholderstoextendthetenureoftheFundbeyondtheinitial10yearsasperSECregulations.
BasicInfo.
Name DBHFirstMutualFund
SizeoftheFund Tk.120croredividedinto120,000,000units.FaceValue&Marketlot Tk.10.00perunit,500unitsperlot.Sponsor DeltaBracHousingFinanceCorporationLtd.(DBHSponsorsContribution 20,000,000unitsofTk.10eachatparforTk200,000,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 40,000,000unitsofTk.10eachatparforTk400,000,000Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC)Custodian StandardCharteredBank(SCB)AssetmanagementCompany LRGlobalBangladeshAssetManagementCompanyLimitedPublicationofProspectus November09,2009
NetAssetValueAtcostpricetk.12.51AtmarketpriceTk.12.07
3.2.5.2GREENDELTAM.F.
GDIChasalonghistoryofinvestinginthecapitalmarketofBangladeshthathasdecidedtosponsor a mutual fund for enhancing their active participation in the countrys capital market.GDICsstrongcorporategovernanceanddynamicmanagementteamistherightpartnertohaveinfurtherbuildingthemutualfundindustry.
GDIChasanauthorizedpaidupcapitalofTk500millionandissuedpaidupcapitalofTk408 million. The companys shares are trading on both DSE and CSE, and are listed in the Acategory.ThecompanyhasatotalmarketcapitalizationofapproximatelyTk7,150milliononDSE.The Fundwill be a closedendmutual fundof 10 (Ten) years tenure, establishedwith a view tobroadenthebaseofinvestmentanddevelopthecapitalmarket.
BasicInfo.Name GreenDeltaMutualFundSizeoftheFund Tk.150,00,00,000dividedinto15,00,00,000unitsatparvalueofTk.10.00 each.FaceValue&Marketlot Tk.10.00perunit,500unitsperlot.Sponsor GreenDeltaInsuranceCompanyLtd.SponsorsContribution 1,50,00,000unitsofTk.10eachatparforTk.15,00,00,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 7,50,00,000unitsofTk.10eachatparforTk.75,00,00,000Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC)Custodian StandardCharteredBank(SCB)AssetmanagementCompany LRGlobalBangladeshAssetManagementCompanyLimited
NetAssetValue Atcostpricetk.10.27AtmarketpriceTk.9.58
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
36
3.2.3BSRSM.F.3.2.3.11stBSRSM.F.
Bangladesh Shilpa Rin Sangstha (BSRS) was established on October 31, 1972 under theBangladeshShilpaRinSangsthaOrder,1972(President'sOrderNo.128of1972)toprovidecreditfacilities and other assistance to industrial concerns and to encourage and broaden the base ofinvestment in Bangladesh. BSRS extends medium and longterm credit facilities to industrialprojectsmainlyintheprivatesector.
Besides,itprovidesunderwritingfinance/bridgefinance/debentureloanstoPublicLimitedCompanies. BSRS provides underwriting commitment to issuers of stocks and debentures. BSRSalso floats and manages mutual fund thereby providing impetus to the capital market. It alsoregularlyundertakestransactionintheDhakaStockExchange.BSRShastwocommercialbankingbranches.
TheNAVvalueof1stBSRSmutualfundisatmarketpriceifTk.1812.15andatcostvalueisTk.292.78asonSeptember30,2011.
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
37
DATAADJUSTMENT&CALCULATIONS
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
38
4.0DATAADJUSTMENT&CALCULATIONS:Inthissection,Iwilldiscussaboutthedataadjustmentprocessandperformsome
calculationswhicharenecessaryformyfinalevaluationprocess.
4.1ADJUSTMENTOFPRICE:Beforeadjustingthepricedataofpreviouslydiscussedtwelvemutualfunds,Ihavetoperform
anumberofcalculationsteps.Theseinclude
9 UNADJUSTEDMONTHLYCLOSEPRICEDATAENTRYInthiscase,atfirstIhaveplacedthedividendunadjustedmonthlyclosingpricesfor69
monthsfromDec2005toAug2011forICB4th,ICB6th,ICB8th,ICBAMCL1st,ICBAMCLIslamic,Grameenone,1stBSRSmutualfundandagaindividendunadjustedweeklyclosingpricesfor66weeks from26May, 2010 to25August, 2011 forEBL1st, TrustBank1st,DBH1st andGreenDeltamutualfunds..Theformatissomehowlikebelow:
9 CALCULATINGDIVIDENDNowIpreparedaDividendDeclarationScheduletoreflectthetimeandpercentage
ofdividend(Cash,Bonus&RightShare)declaredforeachoftheselectedmutualfunds.
Then Idetermined theCashDividendAmount foreachmutual funds for the timeofDec2005toAug2011byusing(FaceValue*DeclaredCashDividendPercentage). TheseschedulesaregiveninAppendix.
9 ADJUSTINGTHERIGHT&BONUSSHAREWITHUNADJUSTEDDATAToadjustthestockdividend,Ihavedividedthepriceofcumdividendmonth,whichis
the immediatemonth of exdividendmonth, by (1+StockDividendRate). But in themonthwhen both stock and right share are offered and benefits are included in the price, then theprocedureforadjustmentinthecumdividendandrightwillbeasfollows:
=(((PricebeforeRight*1)+(RightPrice*(1+RightRatio))/(1+RightRatio))/(1+StockDividendRate))
Then I have found Stock Dividend and Right Adjusted Price and the result issomehowlikebelow:
Assetmanager ICB ICBAMCL AIMS BSRS
MutualFund 4thICB 6thICB8thICB
AMCL1st
AMCLIslamic
Aims1st
Grameen1
1stBSRS
Months
6Aug11 2220.00 681.75 680.00 579.00 361.00 6.99 99.70 1449.00
8Jul11 2200.75 741.50 795.00 629.75 348.25 10.06 121.90 1513.50
9Jun11 2261.00 673.00 708.50 640.25 343.00 7.17 84.30 1395.50
11May11 2360.00 656.25 670.25 593.75 362.25 7.08 80.40 1428.00
12Apr11 2317.00 675.00 732.25 610.50 358.75 7.78 85.10 1483.50
MutualFunds 4thICB6thICB
8thICB
AMCL1st
AMCLIslamic
Aims1st
Grameen1
1stBSRS
FaceValue 100.00 100.00 100.00 100.00 100.00 1.00 10.00 100.00Months 6Aug11 2220.00 681.75 680.00 579.00 361.00 6.99 99.70 1449.008Jul11 2200.75 741.50 795.00 629.75 348.25 10.06 121.90 1513.509Jun11 2261.00 673.00 708.50 640.25 343.00 7.17 84.30 1395.50
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
39
4.2PREPARINGRETURNSERIES(USINGCLOSINGPRICE&NAV)ThenIhavecalculatedtheReturnbythefunction:
=LN ((' NextMonth Right & Stock Dividend Adjusted Price + Cash Dividend Amount)/ ' PriorMonth StockDividendAdjustedPrice').
Wehavefound68monthlyreturnsand65weeklyreturnsbasedonclosepricebecausethereturnofbeginningmonth(Dec2006)andthereturnofbeginningweek(26May,2010)cannotbecalculateddue tounavailabilityofpriormonthprice (Nov2005)andweekprice (19May,2010)respectively.ButthereturnbasedonNAVis18returnsfor4th,6thand8thICB,22returnsforAMCL1st,AMCLIslamic,Grameen1,AIMS1stand1stBSRSmutualfund,65returnforEBL1st,Trust1st,DBH 1st and 47 for Green Delta mutual fund. Here the differences between returns are due tounavailabilityofNAVdata.Thereturnsresemblesomethinglikebelow:
4.3CALCULATINGTBILLRATE(MONTHLY&WEEKLY)
TocalculatetheAverageMonthly&WeeklyRiskFreeRate,Ihavecollectedthe364daysTBillrateformJan2006toAug2011(ForPricebasisreturn)andfromOct2009toAug2011(ForNAVbasisreturn).Thethenbydividingthe360daysTbillratebytwelve,IgetthemonthlyTBillrateforeachofthemonthsfromOct2009toAug2011.AgainbydividingthemonthlyTbillratebyfour,IgettheweeklyTBillrateforeachoftheweeksfrom3June,2010to25August,2011(ForbothpriceandNAVbasisreturn).
ThecalculationsoftheMonthly&WeeklyRiskFreeRatearegivenbelow:
4.4CALCULATINGMARKETRETURNInthisstepIhavepreparedreturnseriesofmarketfor68month(ForPricebasisreturn)
form Jan2006 to Aug2011 and 22months (ForNAV basis return) fromOct2009 to Aug2011.Again,Ihavepreparedreturnseriesofmarketfor65weeks(ForbothpriceandNAVbasisreturn)from3June,2010to25August,2011.IhaveusedDSEGeneralIndexforthispurposeandIhaveusedmarketportfolioasmybenchmarkportfolio.Thereturniscalculatedusingtheformula:
=LN(nextmonthindexcurrentmonthindex)/currentmonthindex.
Month 4thICB 6thICB 8thICBAMCL1st
AMCLIslamic
AIMS1st Grameen1 1stBSRS
6Aug11 0.10589 0.20274 0.18915 0.17873 0.19681 0.03971 0.07825 0.07532
8Jul11 0.11468 0.16089 0.17418 0.10875 0.13618 0.05259 0.08605 0.10501
9Jun11 0.04470 0.10375 0.11031 0.09685 0.05538 0.05551 0.10834 0.10920
11May11 0.13795 0.12815 0.15441 0.07754 0.03582 0.01810 0.05210 0.09500
12Apr11 0.10804 0.10740 0.10965 0.03966 0.08034 0.00447 0.00986 0.04704
14Mar11 0.09223 0.09713 0.07598 0.02539 0.05390 0.38777 0.01087 0.08918
BangladeshBankTBillRate(364day)
YearTBillRate
MonthlyTBillRate
MonthTBillRate
WeeksWeeklyTBill
Rate6Aug11 0.079000 0.006583
Aug,2011
0.079
8/25/2011 0.001519
8Jul11 0.076000 0.006333 8/18/2011 0.001519
9Jun11 0.075500 0.006292 8/11/2011 0.001519
11May11 0.070000 0.005833 8/4/2011 0.001519
PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011
40
Thereturnsresemblesomethinglikebelow:
4.5CALCULATINGMEANRETURNFORMARKET&MUTUALFUNDSTocalculatethemonthlyMeanReturnforMarketandMutualFunds,theformulais,
=AVERAGE(FirstReturn:LastReturn).
Here alternatively, I can sum all of the monthly returns and dividing the result by thenumber of month for which returns are available. Themonthly MeanReturn forMarket andMutualFundsofeachcompanyisgivenbelow:
MutualFundMeanReturn
MutualFundMeanReturn
Price NAV Price NAV
4thICB 2.729% 0.185% EBL1st 0.149% 0.018%
6thICB 2.630% 0.269% Trust1st 0.193% 0.245%
8thICB 2.637% 0.166% DBH 0.275% 0.101%
AMCL1st 1.862% 1.536% GreenDelta 0.988% 0.154%
AMCLIslamic 2.228% 0.349% Market(Weekly) 0.035% 0.035%
AIMS1st 2.722% 1.127%
Grameen1 2.999% 1.391%
1stBSRS 4.409% 2.434%
Market(Monthly) 1.925% 2.788%
4.6CALCULATINGRISKFORMARKET&MUTUALFUNDS
MarketandmutualfundsriskismeasuredbyvarianceorstandarddeviationofMarketandmutual funds returns. The variance/standard deviation ofMarket andmutual funds reflects notonlythevariance/s
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