Investment Management Cost Management

Question: Discuss about the Investment Managementfor Cost Management. Answer: Annualized standard deviation is given by standard deviation multiplied by square root of twelve. Australian = SD x 12 = 4.9 x 12 = 16.97 International = 5.5 x 12 = 19.05 Sharpe ratio is a way of measuring risk adjusted return on an investment. = (annual return T bill)/ standard deviation Australia = (10.58 1.02) / 4.9 = 1.95 International = (11 1.0) / 5.5 = 1.82 Tracking error is comparison between a portfolio and benchmark. = square root of observed frequency x active standard deviation Australia = (5 x 12) x 2.8 = 2.1 International = (5 x 12) x 2.5 = 19.36 Information ratio = mean of active return / standard deviation) x square root of number of years Australia = (-0.05 / 2.8) x 60 = -0.138 International = (-0.1 /2.5) x 60 = -0.31 According to the equity exposures, Australia did not perform well. The standard deviation was larger than the international value indicating there were larger swings in return series. The Sharpe ratio showed that Australia was able to have better returns in view of the risks that they experienced. The international community did not do well in this front as demonstrated by their lower ratio. Australia performed poorly as compared to the bench mark. On the other hand the international was very okay. The tracking error was low for Australia than the international. The information ration for Australia was lower which signals a poor performance. Annualised return = (1 + R) years 1 30 June 2010 2012 Australian = (1 75) 2 1 = 5475 Bench mark = (1 - 4003)2 -1 = 16 016 003 30 June 2012 2015 Australia = (1 76)3 1 = 421 874 Bench mark = (1 5452)3 1 = 1.619e11 Australia performed well just like the benchmark. The annualised return increased tremendously for 5 years. This can be attributed to the active management system that is in place to deal with most of the investments. The indexing strategy adopted is not very good this has affected the performance. Another strategy is required to replace index strategy. They also might have had incompetent managers who might have not been able to control the swings. They need to look into a change of management style and system. The investment using private equity fund approach may not be working under the circumstances. Clearly, a different one should be adopted. The calculations above indicates poor performance of the fund. All comparisons with the international and bench mark shows Australia fund is lagging behind. There is need to have a closer view and overhaul every aspect like management, the fund approach, index method etc. the index funds are good since they provide estimates and are ratios which can be used for comparisons of many aspects of a countrys economy. The comparison can be extended to inter countries. The disadvantage that makes such funds inappropriate are that it tends to leave out many things pertaining to the economy. This subsequently leads to an underestimation of the growth economic wise in a country. Actively managed funds offer a disadvantage in that there is constant engagement which then makes it possible to detect any shortfalls or downward trends which can be corrected in time before the fund is depleted. However, this method has several overheads which are not good and may affect the overall performance in that it utilises a substantial amount of the fund. The actively managed funds have performed better than the index fund in Australia. This can be observed from the annualised returns when viewed from the 2010 to 2015. Based on the figures obtained I would certainly root for the active fund because of its eminent advantages and outstanding performance in Australia. The growths are real and one can easily predict them. For the last five years i.e. 2010 2015, the growth style adopted which is active currency hedging was adopted. The equity exposures in Australia did not perform well meaning this style is wanting. The trustees surely need to go for the value style. It is superior to the one that was used and it can promote tangible economic growth in Australia. The investment of inflows is indeed a major issue from the analysis. It does not allow the proper flow of funds to all the sectors where they might be required within the shortest time. The inflow system should be greatly enhanced so that no sector is suffocated of funds. There should be constant monitoring of the trickling down effects of the funds to detect any shortfalls or any obstacle that might delay the flow. Adding value to an active management is important and requires appointment of managers to head various aspects of the economy. It also demands that investment be made on short term things that can give quick returns and be adjusted accordingly. Constant monitoring is crucial to seal any loopholes that might arise in this porous style. In a situation where the bond points are changing in an unprecedented fashion like is expected in this system the only way out is to adopt an index strategy that is flexible so that the shocks are well taken care of without harming the economy per se. In the Australian fixed interest risks are very common leading low annualised returns if not well managed by managers. Australian and international property is also quite expensive and has suffered a lot form the recent experiences, the management cost has been sky rocketing leading to excesses. Private equity is very unpredictable and cannot be easily correlated with other classes. It can therefore be hectic trying to draw comparisons and parallels of its performance. The alternative would be value added form which promotes management and injects fresh impetus into the whole investment. The next is index management which is very stable and is suitable for comparisons with other sectors and inter countries (Clinton, Van der Merwe, 2006). Managers A has done exceptionally well in terms of the results that he has put forward. For instance, the reported annual dividend is higher (4.51%) signifying good profits for the investment chosen. The fully flanked dividend was quite stable during manager As period. Fund managers should try a combination of value addition and active management. This will enable them to have better control of the investment, the trickling effect will be very high and there will be good monitoring and comparison of the investments in many fronts van der (Merwe, 2011; Clinton, Matuszewski, Tidrick, 2011). References Clinton, D., Matuszewski, L.,Tidrick, D. (2011). "Escaping Professional Dominance?". Cost Management. New York: Thomas Reuters RIA Group (Sep/Oct). Clinton, D., Van der Merwe, A. (2006). "Management Accounting - Approaches, Techniques, and Management Processes". Cost Management. New York: Thomas Reuters RIA Group (May/Jun). Friedl, G., Hans-Ulrich, K., Burkhard, P. (2005). "Relevance Added: Combining ABC with German Cost Accounting". Strategic Finance (June): 5661. Sharman, A. (2003). "Bring on German cost accounting". Strategic Finance (December): 29. Kilger, W. (2002). Flexible Plankostenrechnung und Deckungsbeitragsrechnung. Wiesbaden, Germany: Gabler GmbH. van der Merwe, A. (2011). Presentation at IMA's annual conference - Managerial Costing Conceptual Framework Session. Orlando, FL: Unpublished.