Martingale Asset Management LP in 2008 13030 Funds and a Low-Volatility Strategy Harvard Case Solution & Analysis

QUESTION # 01: Which issues should investors consider when deciding whether to invest in a 130/30 fund? Is Martingale well suited to manage 130/30 funds successfully?

ANSWER # 01:

130/30 is known as short extension strategy. Short extension strategy or 130/30 is a type of investment that returns with a minimum level of risk associated with it. 130/30 ratio indicates that stock shorting can only be exercisedup to the 30% of the portfolio. The basic knowledge of the investment is the return on investment which the investor should consider in any project which he has to invest in. These are the basic circumstances in which investment first looks out the criteria of the invested company. One more thing which investor has to look the matters is that the potentiality on the project and the number of years in which investment will be returned back. Furthermore the quality of the investment project is as follows with the depth, details about the one thirty/thirty.

  • Market Sustainability
  • Business Nature
  • Law and Regulation of the economy
  • Financial Position in the company

Moreover, in the market sustainability the investor considers the market environment in which the business is operating. An investorshould lookat the internal and external environment of the organization that what are the risk associated with the internal environment and external environment of the business. Industry growth is also another factor that the investor should consider while making an investment in the project of the company that what is the expected growth the industry in which the company is operating, an industry retention ratio that what the company has retained and investors would also look at the returns of the company and industry in which the investor is investing.

The investors should also consider the nature of business in which it is operating and industry nature in which the company is operating. An investor should also look at the industry average returnsand compare these returns with the company average return and earning make its investment more effective and efficient. Company going concern should bechecked by the investor before making an investment that how long company will able to survive in the industry.

Laws and regulation of the economy should be considered by the investors before its investment that the environment of the company is stable, rule and regulation implemented in the company, taxes imposed on the organization, under what the tax regime company is falling, and also look at the political influence of the government and other political parties in the operation of the business.

The financial statement is the key for the investor to analyze the returns generated by the company, what are the strategies adopted by the organization. Financial ratios tell the actual worth of the company, different financial ratios of financial management tells the return on the company’s investment and policies adopted by them. Key financial ratios to be undertaken are returns on equity, return on assets, Du Pont analysis and some other key financial ratios which tells the actual performance of the company.

Martingale asset management well manages the fund 130/30 that the company has generated a good return on its fund, financial ratio calculated on these funds shows that 130/30 fund is the best investment opportunity for the investors.The different financial ratios, such as returns on assets and return on equity show constant return, on the other hand standard deviation of the company shows the less deviation. These financial ratios indicate that funds are well managed by the company.

QUESTION # 02:Is it a good idea to invest in low volatility strategies? If so, is a 130/30 structure a good way of doing it?

Low volatility strategies give high returns as compared to high volatility strategy, as there is a high level of risk associated with the strategy. The Russell 1000 index is the best benchmark set for the low volatile strategies that index return is good investment opportunities at a high level of risk at high returns.Strategies having low volatility would not incorporate the transaction cost and management fees or any other cost into it. The strategy also comprises the performance on the basis of the returns that were already calculated having the gross return on the portfolio. These returns also include the capital gains on invested capital and dividend income based on the holdings of the investments.

Martingale Assets Management has the standard fee that is chargedfor long-only volatilitystrategy and that fee is 0.70% of its first fund that is around $25 million and.30% on remaining fund balance. So the results show that investment in the low volatility strategy is better in terms of returns and investment must be made in this strategy................

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In early July 2008, William (Bill) Jacques, chief investment officer at Martingale Asset Management, the quantitative value of the investment manager based in Boston, Massachusetts, was busy preparing for the upcoming meeting with the group, which made the new product solutions within the firm. The purpose of the meeting was to review the backtesting real-time results of investment in new minimum variance strategy within the Fund 130/30. Performance results have been very encouraging, but Bill still wondering if they were a fluke of data, analysis of data, and not a reflection of the true anomaly of the market. He wanted to discuss several possible explanations for this phenomenon, and to decide whether the martingale strategy should offer to their customers. "Hide
by Luis M. Viceira, Helen H. Tung Source: HBS Premier Case Collection 22 pages. Publication Date: August 21, 2008. Prod. #: 209047-PDF-ENG

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