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The Liberty All - Star Fund, Blue Chip Value Fun and The Latin America Equity Fund: Which of these is the best long term investment One of the three recognized types of investment company is companies with a closed-end fund. Their legally name is closed-end companies. The main difference from an open-end fund is in the price of a share. In a closed-end fund one part of it is determined by the value of the investments in the fund, and the other by the discount placed on it by the market.
If the fund is launched new shares cannot be issued. Only after the fund is liquidated, shares can be redeemed. Funds management companies are the main source sponsoring closed-end funds. They control the invested money. Shares of a closed-end fund can be acquired by investors on a secondary market from a broker, market maker, or other investors. There are some distinguishing features that separate a closed-end fund from an ordinary open-end mutual fund.
As it was pointed, a new capital cannot be involved after it begins operating. A closed-end fund enhances returns using leverage or gearing. Closed-end funds are typically traded on global stock exchanges at price the market supports; while open-end funds are redeemed directly by the fund. There are financial advantages of closed-end funds.
CEFs' fees are usually much lower. Closed-end funds companies keep less cash in their portfolio. Closed-end funds companies do not worry about market fluctuations: the closed-end fund fixes a bargain if a stock drops irrationally. We have been proposed to evaluate three different close-end funds and estimate their investment capacity. With the purpose to follow the task, it is necessary to give a general overlook of them and look at the historical performance of the indices they are based on. The All - Star Fund was renamed in 1994 from Sector Ace.
The company uses two types of investment vehicles; from mutual funds and exchange traded funds. It helps to reduce risk transaction costs. The company based its strategy on sector rotation and investment style rotation. The All Star Fund is constantly following its investment philosophy: fund rotation or fund upgrading. The All Star Fund uses the special investment strategy which is known as sector rotation. It is known that various sectors of the economy give different results during the same time-period.
With the purpose to take into account these changes, the company has worked out sector rotation strategy that includes industry sectors, geographic sectors, and style sectors. It analyzes which market sectors and investment styles show the best results. According to the reports made by the Hulbert Financial Digest, the All Star Fund has been pointed among the top Mutual Fund Newsletters. It has a solid 22. 4 % annualized return due to its investment strategy as well as to model portfolios, and recommendations. Depending on market conditions it invests from 10 % to above 50 % of its net assets. Performance History (Data reflects performance over the previous 12 months) Blue Chip Value Fund is the other closed-end mutual fund.
It has high level of total return. If market conditions are normal it invests about 80 % of its net assets. It has quite different approach towards investment policy. It provides a growth and income portfolio investing in the largest companies in the United States which have above-average return potential and are engaged in solid or improving businesses. The companys current quarterly distribution is equal to 2. 5 % of its Net Asset Value. It has a 17. 1 % annualized return.
Performance History (Data reflects performance over the previous 12 months) Latin America Equity Fund is a closed-end management investment company, seeking for long-term capital appreciation. It invests about 80 % of its net assets in Latin American securities and about 20 % in corporate or government debt. Its annualized return at the period of 10 years is 13. 57 %. Performance History (Data reflects performance over the previous 12 months) When investing in closed-end funds, certain types of risk should be taken into account. They are: market risk, price risk, interest rate risk, credit risk, leverage risk, lack of diversification, and foreign investment risk. The Sharpe ratio adjusts risk performance of an investment asset.
The asserts that have higher Sharpe ratio will provide better return for the same risk. Investors should make investments in companies with high Sharpe ratios. It can be defined as: Then the Sharpe ratio will be for the All Star Fund = 1. 07; for Blue Chip Value Fund = 0. 9; for Latin America Equity Fund = 0. 86. Having examined the data, it should be pointed that it will be better to invest in The All Star Fund. First of all, because it has a lower risk approach in market activity. The second, it delivers better net performance and has a portfolio that increased ten-fold during last years.
If a company invests in real estate it can be defined as A Real Estate Investment Trust or REIT. Such corporations has reduced or eliminated corporate income taxes. The structure of REITs is similar to the structure of mutual funds providing investment in stocks; but they pay little or no federal income tax. Most of all REITs should follow special requirements which are set in the Internal Revenue Code. According to the Commercial Glossary, 2004, one of them is to distribute annually at least 90 % of its taxable income in the form of dividends to its shareholders.
There are certain disadvantages from these requirements. They can stand in a way of retaining earnings and generating growth from internal resources. Such corporations are not the best way for growth-oriented investors. Bibliography: Blue Chip Value Fund. (2006) Blue Chip. com.
Retrieved December 4, 2006 from web Latin America Equity Fund. (2001). Nutten Investments. Retrieved December 4, 2006 from web The All - Star Fund. (2002). AllStar Investor.
com. Retrieved December 4, 2006 from web
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Research essay sample on Mutual Fund Latin America
