Beta Management Company Memo Harvard Case Solution & Analysis

Beta Management Company Memo Case Solution

Situation Analysis

The primary concern to discuss under this particular scenario is to identify the selected index funds and individual stocks subjected to maximize the return and minimize the risks associated with it (Volatility). In this case, Beta Management Company was a newly formed firm whose purpose was to manage the high-income people’s funds to maximize their returns with risk adjustments. Sarah Wolfe was an equity strategist; she was focusing on managing and controlling the risks associated with the market conditions (Systematic risk).Her strategy to manage the expected risk, drove the company’s market exposure from 50% to 99%. Most of the stocks would be held in  their particular index instead of having a major portion invested towards the individual stock (California REIT and Brown in the case).

Under this strategy, the portfolio would be managed with lower expenses as well as volatility to satisfy the investor’s demand and to attract the potential investors shortly. However, after the first quarter of 1990, it seemed that more than half of the exposure was reduced by liquid investment to protect the company from economic recession. Sarah Wolfe was fortunate enough to manage things in a suitable manner for the investor’s criteria, she then reinvested in the particular index to outperform the expected return by the market consideration.

After the execution of the portfolio, Sarah Wolfe decided to increase the portfolio size by focusing more on the individual stocks with an expected high risk and return so that she could sustain the projected results that Beta Management could consider. Thus, to pick one of the two companies (California REIT and Brown Group), she would have to decide the related risk exposure involved with the individual investment of these firms and try to find the expected returns that would match the company’s criteria towards the long-term.

Beta Management Company Memo Harvard Case Solution & Analysis



The biggest issue for Sarah Wolfe was to determine the risk of loss associated with the investment in individual stocks. Also, many analysts and companies considered investments in an index fund to be improper to manage the portfolio in the long-term. Therefore, to handle the particular situation, it was decided to invest more in the individual stocks and in equity funds to maximize the returns and control the related risk associated with it. However, it is hard to handle such portfolios because of the inevitable negative returns that they will bring in a short period which can be clearly seen through their track records. So, to overcome the problem, a suitable investment in the individual stock would be required to make the portfolio efficient for the company as well as for the investors..............

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