Mutual Funds
INVESTIGATING MUTUAL FUNDS IN GHANA: IT’S RISK, RETURN AND PERFORMANCE
ABSTRACT
Over the years, investors have been attracted to mutual funds. This study seeks to do an-depth analysis of the Ghanaian mutual fund industry between the years 2006 and 2010. An exhaustive literature review on mutual funds and portfolio diversification will be conducted. An assessment of the performance of mutual funds will be done using the Sharpe and Sortino ratios as well as the Jensen Alpha. Comparisons will be made with analogous indices to determine the attractiveness of the industry. The investment strategy of fund managers will also be analysed and recommendations made. This paper will provide investors with a broad overview of the Ghanaian mutual fund industry, its inherent risks and returns. INTRODUCTION
The potential conflict between mutual fund companies and the people who invest in them is a classic example of an agency problem. Consumers would like the fund in which they invest to use its judgment to maximize risk-adjusted expected returns (Chevalier and Ellison, 1997). Measuring the performance, risk and returns of mutual funds thus becomes imperative as rational investors need such information to make investment decisions.
According to an article published by All Africa on the 8th of November, 2010, figures released by Ghana’s statistical service indicated that the country’s economy stood at GH¢44 billion, 60% more than estimated earlier. Per this figure, the country was deemed to have attained middle income status. Ghana recorded at the time, the largest Per Capita Income in West Africa and ranked 21st in the continent. The Ghanaian economy’s steady growth has attracted both domestic and international investors. Among the many investment opportunities in the country available to investors is the attractive mutual fund industry which provides numerous benefits to its investors.
According to the Securities and Exchange Commission, the number of mutual fund
ABSTRACT
Over the years, investors have been attracted to mutual funds. This study seeks to do an-depth analysis of the Ghanaian mutual fund industry between the years 2006 and 2010. An exhaustive literature review on mutual funds and portfolio diversification will be conducted. An assessment of the performance of mutual funds will be done using the Sharpe and Sortino ratios as well as the Jensen Alpha. Comparisons will be made with analogous indices to determine the attractiveness of the industry. The investment strategy of fund managers will also be analysed and recommendations made. This paper will provide investors with a broad overview of the Ghanaian mutual fund industry, its inherent risks and returns. INTRODUCTION
The potential conflict between mutual fund companies and the people who invest in them is a classic example of an agency problem. Consumers would like the fund in which they invest to use its judgment to maximize risk-adjusted expected returns (Chevalier and Ellison, 1997). Measuring the performance, risk and returns of mutual funds thus becomes imperative as rational investors need such information to make investment decisions.
According to an article published by All Africa on the 8th of November, 2010, figures released by Ghana’s statistical service indicated that the country’s economy stood at GH¢44 billion, 60% more than estimated earlier. Per this figure, the country was deemed to have attained middle income status. Ghana recorded at the time, the largest Per Capita Income in West Africa and ranked 21st in the continent. The Ghanaian economy’s steady growth has attracted both domestic and international investors. Among the many investment opportunities in the country available to investors is the attractive mutual fund industry which provides numerous benefits to its investors.
According to the Securities and Exchange Commission, the number of mutual fund
References: 1. All Africa. Ghana: Nation Attains Middle Income Status. [Online]. Retrieved from: http://allafrica.com/stories/201011081261.html (accessed 30 August, 2011) 2 3. Chevalier, J. and Ellison, G., Risk Taking by Mutual Funds as a Response to Incentives. The Journal of Political Economy, Vol. 105, No.6. (Dec., 1997) pp.1167 – 1200. 4. Christopherson, J. A., Carino D. R. and Ferson, W. E., Portfolio Performance Measurement and Benchmarking. McGraw-Hill (2009), USA. 5. Haslem, J. A., Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship. John Wiley and Sons (2009), New Jersey. 6. Kaminsky, G. L., Lyons, R. K. and Schmukler, S. L., Mutual Fund Investment in Emerging Markets: An Overview. The World Bank Economic Review, Vol. 15, No. 2 (2001), pp. 315-340 7 8. Russell. Jensen Alpha. [Online]. Retrieved from: http://www.russell.com/us/glossary/analytics/jensen_alpha.htm (accessed 20 July, 2011) 9 10. Securities and Exchange Commission (2009) Annual Report, Accra Ghana. 11. Sharpe, W. F., Mutual Fund Performance. The Journal of Business, Vol. 39, No. 1, Part 2: Supplement on Security Prices. (Jan., 1996). Pp. 119- 138 APPENDIX TABLE 1.0 NET ASSET VALUE OF MUTUAL FUNDS IN GHANA (2009) Source: Securities and Exchange Commission Report (2009) TABLE 2.0 FUNDS MOBILISED BY GHANAIAN MUTUAL FUNDS (2008 AND 2009) Source: Securities and Exchange Commission Report (2009)