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Stock Investment Analysis - Essay Example

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Stock Investment Analysis

By careful analysis of the YTD returns it can also be observed that the short term yields for both the index as well as the FLCSX is higher than the long term yields. The yield differential between the 1 year return and 10 year return for FLCSX is 11.02% whereas the same is 9.9% for S&P 500. This implies that for the same time horizon, when the YTD returns of FLCSX is compared to that of S&P 500, the yield of FLCSX is more than S&P 500 index. Thus, while the FLCSX has yielded superior returns in long-term, the rate of fall in return is lower for S&P 500 implying that the later is less volatile compared to the former. The key drivers for fund performance as identified fidelity fund research are as follows: 1. Investor expectation mainly driven by changes in earnings and yield; 2. Short term or speculative investment; 3. Accuracy of estimates over time horizon; 4. Lower fund volatility Volatility or Risk Analysis of the Fund A portfolio is group of securities such as bonds, stocks where an investor invests his or her money. By diversifying money into a combination of securities, the investor mitigates the risk of holding a particular asset. Diversification of investment spreads the risk over many assets. A diversified portfolio gives the assurance of obtaining the anticipate return on portfolio. The concept of simple portfolio diversification is that some securities may not perform as anticipated but other assets might exceed the expected return making the actual return of the portfolio reasonably close to anticipated return (Huang, Wei and Yan, 2007, p. 2). Investing the entire sum of money in a single stock exposes the investor to the risk of that asset. So, in case when the price of that security falls in the market due to any reason, the investor will suffer huge losses. This, risk of concentration of money in a single stock is mitigated through diversification. Some of the key parameters that add risk to ones profile are discussed as follows:- The current yield of S&P 500 as on April 26, 2013 is 2.03% where as the YTD of FLCSX is 5.37%. The 10 year risk free rate of US T-bill is 1.70%. From the above information, the key parameters for assessment of risk can be calculated as follows: (Source: Bloomberg, 2013) From the above table it can be said that the beta of FLCSX is less than that of index S&P 500 which also means that the fund is less sensitive compared to the market. The standard deviation (SD) is the measure for fund’s volatility and from the above it can be said that the SD of FLCSX is much lower than that of index. The SD of S&P 500 composite index is found to be 197.18 where as the SD for FLCSX is 6.97. The higher values means that the funds are more volatile and vice-versa. The Sharpe Ratio measures the historically adjusted performance calculated by dividing the funds excess return and standard deviation of funds. Higher values indicates better performance and vice-versa and in this case it can be said that Sharpe ratio of FLCSX is higher than that of the index implying that the large cap funds of fidelity has performed better than S&P 500. The fund managers are advised to regularly examine the vital ...Show more

Summary

STOCK INVESTMENT ANALYSIS Fund Performance and it’s Key Drivers The year to date (YTD) returns of Fidelity Large cap stocks (FLCSX)is 15.62% as on May 13, 2013 where as the S&P 500 returns for YTD was found to be 14.55%. This means that the stocks of FLCSX have performed 6.85% higher than the YTD performance of S&P 500 index…
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Stock Investment Analysis essay example
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