Internship Report

PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH
PERFORMANCEEVALUATION
OFSELECTEDMUTUALFUNDS
INBANGLADESH
SUBMITTEDTO
DR.MAHMOODOSMANIMAM
PROFESSOR
DEPARTMENTOFFINANCE
UNIVERSITYOFDHAKA
SUBMITTEDBY
KAWSERAHMEDSHIBLU
BBA13THBATCH,SECTION:B
IDNO.:13008
DEPARTMENTOFFINANCE
UNIVERSITYOFDHAKA
OCTOBER31,2011
OCTOBER31,2011
OCTOBER31,2011
LETTEROFTRANSMITTAL
October31,2011.
Dr.MahmoodOsmanImam
Professor,
DepartmentofFinance
UniversityofDhaka
DearSir,
IamverygladtosubmityoutheinternshipreportonPerformanceEvaluationofSelected
Mutual Funds in Bangladesh. I would like to say that this report was helpful for me to
applyourbookishknowledgeaboutdifferentstrategiestoevaluateportfolioperformance
in practical case. I am very thankful to you for giving me such a fantastic opportunity to
makeareportonthistopicaccordingtoyourguideline.
Analyzingthemutualfunds,Ihavealsogatheredknowledgeabouttheconditionofmutual
marketsectorofthestockexchange.Wehavetriedtoshowourfindingsinthisreport.
Iwillbehonoredifyoufindthissubmissioninappropriatemanner.Ifyouhaveanyquery
regardingmyanalysis,hopethatyouwillcalluponme.
Yours
Sincerely
.
KAWSERAHMEDSHIBLU
IDNo.:13008
SectionB,13thBatchB.B.A.
Dept.ofFinance
UniversityofDhaka
OCTOBER31,2011
DECLARATION
IamverythankfulandgratefultoalmightyAllahwhohasgivenmethestrengthandability
tocompletethisreport.IamalsogratefultomyhonorableteacherDr.MahmoodOsmanImam.
I also do sincerely declare that this internship report has been submitted, in partial
fulfillment of the requirement for the fulfillment of my graduation degree. The report is written
from my knowledge; but it is mentionable that I have gathered ideas from some articles, report
which is mentioned in the reference part. I understand that the paper may be cancelled if
subsequently it is discovered that this is not our primeval work and that it consists of materials
copiedorplagiarizedorborrowedwithoutproperacknowledgement.
I,atlast,expressspecialthanksfromthebottomofmyhearttoallwhohelpmedirectly&
indirectlytocompletethisreport.
TABLEOFCONTENTS
OCTOBER31,2011
ExecutiveSummary..................................................................................................................................................................................07
1.0Introduction.........................................................................................................................................................................................09
1.1ObjectiveoftheStudy.............................................................................................................................................................................10
1.2Methodology...............................................................................................................................................................................................10
1.2.1ResearchApproach...........................................................................................................................................................10
1.2.2SamplingPlan......................................................................................................................................................................10
1.2.3SelectionofIndex..............................................................................................................................................................10
1.2.4Sourcesofdata.....................................................................................................................................................................10
1.2.5SoftwareUsed.....................................................................................................................................................................10
1.2.6MeasuresUsed.....................................................................................................................................................................11
1.2.7proceduresofDataAnalysis........................................................................................................................................11
1.3ResearchTimeHorizon..........................................................................................................................................................................11
1.4Limitations..................................................................................................................................................................................................11
2.0LiteratureReviewonPerformanceEvaluationofMutualFunds......................................................................................12
2.1Concepts&Terminology:..........................................................................................................................................................1314
2.1.1MutualFund.........................................................................................................................................................................13
2.1.2TheRiskFreeRate............................................................................................................................................................13
2.1.3SystematicRisk.................................................................................................................................................................13
2.1.4UnsystematicRisk............................................................................................................................................................13
2.1.5CapitalMarketLine...........................................................................................................................................................13
2.1.6SecurityMarketLine........................................................................................................................................................14
2.2PerformanceEvaluationTools:..............................................................................................................................................1519
2.2.1TheTreynorMeasure(1965).......................................................................................................................................15
2.2.2TheSharpeMeasure(1966).........................................................................................................................................16
2.2.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................16
2.2.4MarketadjustedRiskPerformance(MRAP)..........................................................................................................17
2.2.5JensenAlpha(1968).........................................................................................................................................................17
2.2.6HighermomentmeasureofHwangandSatchell(1998)................................................................................18
2.2.7InformationRatio..............................................................................................................................................................19
2.2.8EfficiencyRatio..................................................................................................................................................................19
2.2.9CoEfficientofDetermination(R2).............................................................................................................................19
2.3FamaDecompositionofMutualFundsReturns:...........................................................................................................2021
2.3.1RiskpremiumDuetoRisk............................................................................................................................................20
2.3.2InvestorsRisk....................................................................................................................................................................20
2.3.3Managers;Risk.....................................................................................................................................................................20
2.3.4RiskpremiumDuetoGrossSelectivity...................................................................................................................20
2.3.5ImpactofImperfectDiversification...........................................................................................................................20
2.3.6NetSuperiorReturnforSelectivity............................................................................................................................21
2.4TimingSkill:......................................................................................................................................................................................2223
2.4.1TheTreynor&MazuyModel(1966)........................................................................................................................22
2.4.2HenrikssonandMerton.......................................................................................................................................2223
3.0MutualFundsinBangladesh:AnOverview...............................................................................................................................24
3.1BangladeshEconomy,CapitalMarket&MutualFunds:...........................................................................................2529
3.1.1BangladeshEconomy.................................................................................................................................................2526
3.1.2CapitalMarket...............................................................................................................................................................2728
3.1.3MutualFunds.......................................................................................................................................................................29
3.2SelectionofMutualFund(M.F.):Profile............................................................................................................................3036
3.2.1ICBM.F.................................................................................................................................................................................31
3.2.1.14thICBM.F....................................................................................................................................................31
3.2.1.26thICBM.F...................................................................................................................................................31
3.2.1.38thICBM.F...................................................................................................................................................31
3.2.2ICBAMCL..............................................................................................................................................................................32
3.2.2.1ICBAMCL1stM.F......................................................................................................................................32
3.2.2.2ICBAMCLIslamicM.F.............................................................................................................................32
3.2.3AIMSM.F.............................................................................................................................................................................33
3.2.3.1AIMS1stM.F................................................................................................................................................33
3.2.3.2GrameenOneM.F.....................................................................................................................................33
OCTOBER31,2011
3.2.4RaceM.F..............................................................................................................................................................................34
3.2.4.1EBL1stM.F...................................................................................................................................................34
3.2.4.2TrustBank1stM.F....................................................................................................................................34
3.2.5LRGlobalM.F....................................................................................................................................................................35
3.2.5.1DBH1stMutualM.F..................................................................................................................................35
3.2.5.2GreenDeltaM.F.........................................................................................................................................35
3.2.3BSRSM.F..............................................................................................................................................................................36
3.2.3.11stBSRSM.F................................................................................................................................................36
4.0DataAdjustment&Calculations:..................................................................................................................................................37
4.1AdjustmentofPrice.................................................................................................................................................................................38
4.2PreparingReturnSeries(UsingClosingPrice&NAV).............................................................................................................39
4.3CalculatingTBillRate(Monthly&Weekly)................................................................................................................................39
4.4CalculatingMarketReturn...................................................................................................................................................................39
4.5CalculatingMeanReturnforMarket&MutualFunds.............................................................................................................40
4.6CalculatingRiskforMarket&MutualFunds...............................................................................................................................40
4.6.1StandardDeviation...........................................................................................................................................................40
4.6.2Historical&AdjustedBeta.............................................................................................................................................41
5.0PerformanceEvaluationofM.F..............................................................................................................................................4255
5.1PerformanceEvaluations:...............................................................................................................................................................43
5.1.1TheTreynorMeasure(1965).................................................................................................................................4344
5.1.2TheSharpeMeasure(1966)...................................................................................................................................4546
5.1.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................47
5.1.4Marketriskadjustedperformance(MRAP)measure.......................................................................................48
5.1.5JensenAlpha(1968)...................................................................................................................................................4950
5.1.6HighermomentmeasureofHwangandSatchell(1998)..........................................................................5152
5.1.7InformationRatio..............................................................................................................................................................53
5.1.8EfficiencyRatio...................................................................................................................................................................54
5.1.9CoEfficientofDetermination(R2).............................................................................................................................55
5.3TimingSkill:............................................................................................................................................................................................56
5.3.1TheTreynor&MazuyModel(1966)..................................................................................................................5757
5.3.2HenrikssonandMerton......................................................................................................................................5859
5.2FamaDecompositionofMutualFundsReturns:...........................................................................................................6061
5.2.1Selectivity
5.2.2Diversification
5.2.3NetSelectivity
6.0Correlation,Comparison&Justification..............................................................................................................................6266
6.1ComparisonbetweenMarketReturn&ReturnofMutualFunds........................................................................................63
6.2CorrelationbetweenClosePrice&NAV,ClosePrice&DGEN..............................................................................................64
6.3JustifyingPrice:OverpricedorUnderpriced........................................................................................................................6566
7.0Summary.......................................................................................................................................................................................6768
8.0AppendedPart.............................................................................................................................................................................6974
OCTOBER31,2011
EXECUTIVESUMMARY
Even as the stock markets have started maturing of age over the past one decade, the
growthofmutualfundinBangladeshhasbeenslow.Onlyrecentlytherehasbeenarushfornew
funds.Manybanksandfinancialinstitutionscontinuetointhequeuewithproposalsfortheirfunds.
Mutual fund is a fund under a trust. Investment in mutual fund is ideal for investors who do not
want to take risk because the fund is managed professionally and the collective investment is
diversified. The price of a closedend fund share is normally determined by the value of the
investmentinthefund.Therefore,themarketpriceofafundshareisoftenclosetopershareNAV.
However,thematurityofmutualfundsistakingitssweettimeandNAVsofmutualfundsarestill
notclosetotheirmarketvalueofsuchfunds.Itisseenthatmarketpriceofamutualfundsharecan
attimesbemuchhigherthantheirNAVjustify.So,forsmallinvestorschoosingasuitableoneisa
complexdecision.
Theobjectiveofthemystudyistofindoutthefactsandfiguresregardingtheperformance
of the selected mutual funds which can benefit the investor and fund manger in selecting better
investment by considering the risk return factor. In such a context, an attempt has been made to
studytheperformanceofselectedmutualfundbasedontheriskandreturnrelationship.Soinmy
study,Itriedtofindtheansweroftheabovequestionswhetherthenmutualfundsharesareover
valued or under value or rightly priced. Here I also tried show whether the return of the mutual
fundonthebasisclosepriceishigherornotthanthatonthebasisofNAV,whetherthemutualfund
isoverorunderperformingthemarket,whetherthepriceofmutualfundisstronglycorrelatedto
the NAV or to the market index, DGEN etc. For this analysis purpose, I have selected 12 mutual
fundsunder6differentAssetManagementCompanies.
In completing my study on mutual fund, at first I have calculated the mean return of the
mutual funds using the both price and NAV data. Then I have compared the mean mutual fund
returnthemeanmarketreturntoseewhetherthemutualfundsareoverorunderperformingthe
market.HereIhavefoundthatincaseofthepricereturn7mutualfundsareoverperformingand
incaseoftheNAVreturn,thereareonlytwomutualfundsoverperformingthemarket.
AftercalculatingtheTmeasure,8mutualfundsareoverperformingonpricereturnbasis
andincaseoftheNAVreturn;thereareonlytwomutualfundsoverperformingthemarket,where
oneofthesegeneratednegativereturn.Inthesameway,Smeasureshowsthatthereareonlytwo
mutual funds over performing the market on price return basis and three over perform on NAV
returnbasis,whereoneofthesegeneratednegativereturn.
Jensenalphashowedthatthisnofundmanagerwhocanearnsuperiorreturnonthebasis
ofbothpriceandNAV.Ontheotherhand,rsquareisthemeasurementofdegreeofdiversifications
on the mutual fund. So the higher the higher value of r square, the better the mutual fund is
diversified.Hereonthebasisofprice,onlyonemutualfundiswelldiversifiedandonthebasisof
NAV,thereisonelowdiversifiedmutualfund.
I also try to evaluate the fund mangers timing skill by using Treynor Mazuy model and
Henriksson & Merton model. Both Treynor Mazuy and Henriksson & Merton model shows three
fund managers have significant negative timing skill. That is the fund managers are not efficient
enoughtohandlethemutualfundefficientlywhichisalsovalidatedbylowerreturnperunitofrisk.
Themanagerswhohavenegativetimingskillhavethelowerreturnperunitofrisk.
By decomposing the actual mutual fund excess return, I determine the fund managers selection
skill.Onthebasisofthepricereturn,twofundmanagershavetheselectionskillandonthebasisof
theNAV,threefundmanagershavetimingskill.
Inthefollowingtabletheabovementionresultsareprovided.
Tratio
Sratio
OCTOBER31,2011
Rsquare
Jesenalpha
TimingSkill
SelectionSkill
CP
NAV
CP
NAV
CP
NAV
CP
NAV
CP
NAV
CP
NAV
4thICB
Over(+)
Undr()
Over(+)
Undr()
low
High
insg(+)
Insg()
Insg()
insg(+)
Supr
Infr*
6thICB
Over(+)
Undr()
Undr(+)
Undr()
low
High
insg(+)
Insg()
Sig()
insg(+)
infr
infr
8thICB
Over(+)
Undr()
Undr(+)
Undr()
low
High
insg(+)
Insg()
Insg()
insg(+)
infr
infr
AMCL1st
Over(+)
Undr(+)
Undr(+)
Undr()
low
High
insg(+)
Insg()
Insg()
inig(+)
infr
infr
AMCL
Islmc
Over(+)
Undr()
Undr(+)
Undr()
low
low
insg(+)
Insg()
Insg()
insg(+)
infr
infr
AIMS1st
Over(+)
Undr(+)
Undr(+)
Undr(+)
low
High
insg(+)
Insg()
Insg()
insg(+)
infr
infr
Gramn1
Over(+)
Undr(+)
Undr(+)
Undr(+)
low
High
insg(+)
Insg()
Sig()
insg(+)
infr
infr
1stBSRS
Over(+)
Rm;(+)
Over(+)
Over(+)
low
High
insg(+)
insg(+)
Sig()
Insg()
Supr
Supr
EBL1st
Undr()
Undr()
Undr()
Over()
low
High
Insg()
Insg()
Insg()
insg(+)
infr
infr
Trust1st
Undr()
Over(+)
Undr()
Over(+)
low
High
Insg()
insg(+)
Insg()
insg(+)
infr
Supr*
DBH
Undr()
Over()
Undr()
Undr()
low
High
Insg()
insg(+)
Insg()
Insg()
infr
Supr
GrnDlta
Undr()
Undr()
Undr()
Undr()
High
High
Insg()
Insg()
Insg()
insg(+)
infr
infr
**Suprindicatesuperiorskillandinfrisinferiorskill.
By looking into the ratio of close price to NAV, we see that there are five fund are over
performing. By calculating the correlation coefficient between price and NAV; price and DGEN, I
have learnt that mutual fund price is highly positively correlated with DGEN, not to NAV., which
indicate the market inefficiency. That is the price of mutual fund share will increase if the DGEN
increaseswhethertheNAVisincreasingordecreasingisnotanymatter.
In concluding words lack of skilled investor, weak institutional frameworks, asymmetric

regulation,smallamountofacademicresearcharemovingthisprudentialsectorofcapitalmarket,
Bangladeshtoanunclearway.Alltherelatedpartiesshouldcomeforwardtodirectthissectorto
therightway.Performanceanalysiswithlargersamplesize,persistenceofreturns,expensesand
fee adjusted performance evaluation, validity of CAPM, Fama French three factor model can be
verygoodfutureresearchintheareaofactivefundmanagementinBangladesh.
OCTOBER31,2011
INTRODUCTION
OCTOBER31,2011
1.0INTRODUCTION
Mutual fund is a trust that pools the savings, which are then invested in capital market
instruments such as share, debentures and other securities. Recently the capital market of
Bangladesh is featured by a plethora of mutual fund scheme consisting of varying portfolio mix,
investment objective and expertise of professional management. For small investors choosing a
suitable one is a complex decision. The objective of the present study is to find out the facts and
figuresregardingtheperformanceoftheselectedmutualfundswhichcanbenefittheinvestorand
fundmangerinselectingbetterinvestmentbyconsideringtheriskreturnfactor.Insuchacontext,
anattempthasbeenmadetostudytheperformanceofselectedmutualfundbasedontheriskand
return relationship. Early studies on mutual fund included the several works of Jensen, Sharpe,
Treynorwhousedcapitalassetpricingmodeltocompareriskadjustedreturnoffundwiththatof
thebenchmarkmarketportfolio.ThefindingofSharpeandJensendemonstratedthatmutualfunds
under perform market indexes and suggest that the returns are not sufficient to compensate the
investorfordiversemutualfundcharges.
The paper tries to present prominent performance evaluation models and examine
empiricallythemarkettimingandselectivityofasampleofmutualfunds.
1.1OBJECTIVEOFTHESTUDY
Thespecificobjectivesofthestudyare:
9 Tomeasure thereturnearnedbythesamplemutualfundsandtherebycomparedagainst
thereturnofthemarketportfoliotodistinguishthebestperformerfromthelaggards.
9 Findoutthosemutualfundsofferingtheadvantageofdiversification,alongwithadequate
systematicriskcomparedtomarketbetarisk.
9 To analyze the excess return per unit of risk evidenced by the mutual fund belongings to
publicsectorandprivatesectorandtodrawcomparisons
9 Toevaluatetheeffectivenessofthemutualfunds
9 Tohelpthepotentialinvestorsforassessingtheinvestmentdecision
9 Toevaluatethemutualfundsfortakinginvestmentdecision.
1.2METHODOLOGYOFTHESTUDY
Thestudyhasbeendesignedinthefollowingway
1.2.1 RESEARCH APPROACH: for convenience of the study, the explanatory research
approachesappliedtoconductthestudyandpresentedtheresultsoon.
1.2.2 SAMPLING PLAN: Convenience sampling techniques were used to select the
representativemutualfund.PresentlyalmostallmutualfundsareissuedandmanagedbytheICB.
OthermutualfundsareoperatedbyAMCL,BSRS,AIMSandfinancialinstitutions.Altogetherthere
are36mutualfundsareinoperationinthecapitalmarket.Thestudydoesnotfocustheentirefund;
thisstudywasfocusedonly12mutualfundsfrom6AssetManagementCompany.
1.2.3 SELECTION OF INDEX:astherearethreeindexesinDSEi.e.DSI(DSEallshareindex),

DSE20andDGEN(DSEgeneralindex).HereDGENisusedasabenchmark.
1.2.4 SOURCESOFDATA:allthedatausedinthestudycollectedfromthesecondarysources.
Secondary data were collected from DSE library, different websites, annual reports, journals,
articlesetc.
1.2.5 SOFTWAREUSED:MSExcel,SPSS(StatisticalPackageforSocialScience)wereusedfor
processingandanalyzingthedata.
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OCTOBER31,2011
1.2.6 MEASURES USED:Incompletingthestudyonmutualfunds,Ihaveusedthefollowing

measures
9
9
9
9
9
9
9
9
9
9
9
TheTreynorMeasure(1965)
TheSharpeMeasure(1966)
Mmeasure:ModiglianiandModigliani(1997)
Marketriskadjustedperformancemeasure
JensenAlpha(1968)
HighermomentmeasureofHwangandSatchell(1998)
InformationRatio
EfficiencyRatio
CoEfficientofDetermination(R2)
FamaDecompositionofMutualFundsReturns:
TheTreynor&MazuyModel(1966)
1.2.7 PROCEDURE OF DATA ANALYSIS : several statistical tools were used to analyze and
evaluatethedata.Speciallymeanreturn,standarddeviation,coefficientofcorrelation,coefficientof
determinationusedasbasictoolsofanalysisandevaluation.Thedataprocessthroughthesetools
andinterpretedbythemeanofbetacoefficient,Treynorratio,Sharperatio.Jensenalphaandmany
morediscussedinthefollowingchapters.
1.3RESEARCHTIMEHORIZON:
The study analyzed the mutual fund over the past 5 years in case of price basis analysis.
ButincaseofNAVbasisanalysis,thestudyanalyzedthemutualfundonthebasisofavailabilityof
NAVdataofmutualfunds.Buthereitismentionablethatinanytypeofanalysisatleast18months
or65weeksanalysisisdone.
1.4LIMITATIONS:
Insomecasesthere are only18 monthsdataare usedtoanalyze theperformancedueto
lackofdataavailability..Butasweknowthataverylongtimeintervalisneededinordertobeable
toobtainameasureofriskadjustedperformancethatcandistinguishskillfromluckonthepartof
theinvestmentmanager.
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OCTOBER31,2011
LITERATUREREVIEWON
PERFORMANCEEVALUATION
OFMUTUALFUNDS
12
OCTOBER31,2011
2.1CONCEPTS&TERMINOLOGY:
Beforestartingourjourneytoevaluatethemutualfunds,heresomeofthebasicconceptand
terminologyareprovided.
2.1.1MUTUALFUND
Aninvestmentvehiclethatismadeupofapooloffundscollectedfrommanyinvestorsforthe
purposeofinvestinginsecuritiessuchasstocks,bonds,moneymarketinstrumentsandsimilarassets.
Mutualfundsareoperatedbymoney managers,whoinvestthefund'scapitalandattemptto produce
capitalgainsandincomeforthefund'sinvestors.Amutualfund'sportfolioisstructuredandmaintained
tomatchtheinvestmentobjectivesstatedinitsprospectus.
One of the main advantages ofmutual funds is that they givesmall investors access
toprofessionallymanaged,diversifiedportfoliosofequities,bondsandothersecurities,whichwouldbe
quitedifficult(ifnotimpossible)tocreatewithasmallamountofcapital.Eachshareholderparticipates
proportionallyinthegainorlossofthefund.Mutualfundunits,orshares,areissuedandcantypically
be purchased or redeemed as needed at the fund's current net asset value (NAV)per share, whichis
sometimesexpressedasNAVPS.
2.1.2THERISKFREERATE
The theoretical rate of return attributed to an investment with zero risk.The riskfree rate
representstheinterestonaninvestor'smoneythatheorshewouldexpectfromanabsolutelyriskfree
investmentoveraspecifiedperiodoftime.
In theory, the riskfree rate is the minimum return an investor should expect for any
investment,asanyamountofriskwouldnotbetoleratedunlesstheexpectedrateofreturnwasgreater
thantheriskfreerate.
In practice, however, the riskfree rate does not technically exist; even the safest investments
carryaverysmallamountofrisk.Thus,investorscommonlyusetheinterestrateonathreemonthU.S.
Treasury bill as a proxy for the riskfree rate becauseshortterm governmentissued securities have
virtuallyzeroriskofdefault.
2.1.3SYSTEMATICRISK
Systematic Risk is the risk inherent tothe entire market or entire market segment. It is
alsoknown as "undiversifiablerisk" or "market risk.. Interest rates, recession and wars all
representsources of systematic risk because they affect the entire market and cannot be avoided
throughdiversification.Whereasthistypeofriskaffectsabroadrangeofsecurities,unsystematicrisk
affectsaveryspecificgroupofsecuritiesoranindividualsecurity.Systematicriskcanbemitigatedonly
bybeinghedged.Evenaportfolioofwelldiversifiedassetscannotescapeallrisk
2.1.4UNSYSTEMATICRISK
Unsystematic Risk is the Company or industryspecific risk that is inherent in each

investment.The amount of unsystematic risk can be reduced through appropriate diversification.It is
alsoknownas"specificrisk","diversifiablerisk"or"residualrisk".Forexample,newsthatisspecifictoa
smallnumberofstocks,suchasasuddenstrikebytheemployeesofacompanyyouhavesharesin,is
consideredtobeunsystematicrisk.
2.1.5CAPITALMARKETLINE
Capitalmarketline(CML)isthetangentlinedrawnfromthepointoftheriskfreeassettothe
feasibleregionforriskyassets.ThetangencypointMrepresentsthemarketportfolio,sonamedsinceall
rationalinvestors(minimumvariancecriterion)shouldholdtheirriskyassetsinthesameproportions
astheirweightsinthemarketportfolio.
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OCTOBER31,2011
TheCMLresultsfromthecombinationofthemarketportfolioandtheriskfreeasset(thepoint
L).AllpointsalongtheCMLhavesuperiorriskreturnprofilestoanyportfolioontheefficientfrontier,
with the exception of the Market Portfolio, the point on the efficient frontier to which the CML is the
tangent.FromaCMLperspective,thisportfolioiscomposedentirelyoftheriskyasset,themarket,and
has no holding of the risk free asset, i.e., money is neither invested in, nor borrowed from the money
marketaccount.
2.1.6SECURITYMARKETLINE
Security Market Line is a line thatgraphs the systematic, or market,risk versus return of the
whole market at a certain time and shows all risky marketable securities. It is also referred to as the
"characteristicline".
The SMLessentially graphs the results from thecapital asset pricing model (CAPM) formula.
Thexaxis represents the risk (beta), and the yaxis represents the expected return. The market risk
premiumisdeterminedfromtheslopeoftheSML.
Thesecuritymarketlineisausefultoolindeterminingwhetheranassetbeingconsideredfora
portfoliooffersareasonableexpectedreturnforrisk.IndividualsecuritiesareplottedontheSMLgraph.
If the security's risk versus expected return is plotted above the SML, it is undervaluedbecause the
investor can expect a greater return for the inherent risk.A security plotted below the SMLis
overvaluedbecausetheinvestorwouldbeacceptinglessreturnfortheamountofriskassumed.
14
OCTOBER31,2011
2.2PERFORMANCEEVALUATIONTOOLS:
Portfolioperformanceevaluationisakeyaspectoftheinvestmentdecisionprocess.Some
toolsofportfolioperformanceevaluationprovidethenecessaryinformationforinvestorstoassess
how effectively their money has been invested (or may be invested). One thing is important that
portfolio returns are only part of the story. Without evaluating riskadjusted returns, an investor
cannot possibly see the whole investment picture, which may inadvertently lead to clouded
investmentdecisions.
Many investors mistakenly base the success of their portfolios on returns alone. Few
consider the risk that they took to achieve those returns. Since the 1960s, investors have known
how to quantify and measure risk with the variability of returns, but no single measure actually
lookedatbothriskandreturntogether.Today,wehaveeightsetsofperformanceevaluationtools
toassistuswithourportfolioevaluations.TheTreynor,SharpeandJensenratiosetc.combinerisk
andreturnperformanceintoasinglevalue,buteachisslightlydifferent.
2.2.1THETREYNORMEASURE(1965)
Jack L. Treynor was the first to provide investors with a composite measure of portfolio
performancethatincludedrisk.Treynorsobjectivewastofindaperformancemeasurethatcould
applytoallinvestors,regardlessoftheirpersonalriskpreferences.Hesuggestedthattherewere
reallytwocomponentsofrisk:theriskproducedbyfluctuationsinthemarketandtheriskarising
fromthefluctuationsofindividualsecurities.
Treynorintroducedtheconceptofthesecuritymarketline,whichdefinestherelationship
betweenportfolioreturnsandmarketreturns,wherebytheslopeofthelinemeasurestherelative
volatility between the portfolio and the market (as represented by beta). The beta coefficient is
simplythevolatilitymeasureofastock,portfolioorthemarketitself.Thegreatertheline'sslope,
thebettertheriskreturntradeoff.
TheTreynormeasurecanbeeasilydefinedas:
Where:
E(RP)denotestheexpectedreturnoftheportfolio;
RFdenotesthereturnontheriskfreeasset;
BPdenotesthebetaoftheportfolio.
Thenumeratoridentifiestheriskpremiumandthedenominatorcorrespondswiththerisk
oftheportfolio.Theresultingvaluerepresentstheportfolio'sreturnperunitrisk.Thehigherthe
Treynormeasure,thebettertheportfolio.
Becausethismeasureonlyusessystematicrisk,itassumesthattheinvestoralreadyhasan
adequatelydiversifiedportfolioand,therefore,unsystematicrisk(alsoknownasdiversifiablerisk)
is not considered. As a result, this performance measure should really only be used by investors
whoholddiversifiedportfolios.
15
OCTOBER31,2011
2.2.2THESHARPEMEASURE(1966)
TheSharperatioisalmostidenticaltotheTreynormeasure,exceptthattheriskmeasureis
the standard deviation of the portfolio instead of considering only the systematic risk, as
represented by beta. Conceived by Bill Sharpe, This ratio measures the return of a portfolio in
excessoftheriskfreerate,alsocalledtheriskpremium,comparedtothetotalriskoftheportfolio,
measured by its standard deviation. It is drawn from the capital market line, and not the Capital
AssetPricingModel(CAPM).Thisratio,initiallycalledtherewardtovariabilityratio,isdefinedby:
Where:
E(RP)denotestheexpectedreturnoftheportfolio;
RFdenotesthereturnontheriskfreeasset;
(RP)denotesthestandarddeviationoftheportfolioreturns.
Sincethismeasureisbasedonthetotalriskoftheportfolio,madeupofthemarketriskand
theunsystematicrisktakenbythemanager,itenablesthe performanceofportfoliosthatarenot
verydiversifiedtobeevaluated.Thismeasureisalsosuitableforevaluatingtheperformanceofa
portfolio that represents an individuals total investment. The higher the Sharpe measure, the
bettertheportfolio.
2.2.3MMEASURE:MODIGLIANIANDMODIGLIANI(1997)
ModiglianiandModigliani(1997)showedthattheportfolioanditsbenchmarkmusthave
the same risk to be compared in terms of basis points of riskadjusted performance. So they
proposethattheportfoliobeleveragedordeleveragedusingtheriskfreeasset.Theydefinedthe
followingmeasure:
Where,
(M/P)istheleveragefactor.
Mdenotestheannualizedstandarddeviationofthemarketreturns;
PdenotestheannualizedstandarddeviationofthereturnsoffundP;
RPdenotestheannualizedreturnoffundP;
RFdenotestheriskfreerate.
This measure evaluates the annualized risk adjusted performance (RAP) of a portfolio in
relation to the market benchmark, expressed in percentage terms. According to Modigliani and
Modigliani,thismeasureiseasiertounderstandbytheaverageinvestorthantheSharperatio.
Modigliani and Modigliani propose the use of the standard deviation of a broadbased
marketindex,suchastheS&P500,asthebenchmarkforriskcomparison,butotherbenchmarks
couldalsobeused.Forafundwithanygivenriskandreturn,theModiglianimeasureisequivalent
to the return the fund would have achieved if it had the same risk as the market index. The
relationship therefore allows us to situate the performance of the fund in relation to that of the
market.ThemostinterestingfundsarethosewiththehighestRAPvalue.
TheModiglianimeasureisdrawndirectlyfromthecapitalmarketline.Itcanbeexpressed
as the Sharpe ratio times the standard deviation of the benchmark index: the two measures are
directlyproportional.SoSharperatioandModiglianimeasureleadtothesamerankingoffunds.
16
OCTOBER31,2011
2.2.4MARKETRISKADJUSTEDPERFORMANCE(MRAP)MEASURE:SCHOLTZANDWILKENS
Scholtz and Wilkens (2005) note that, as the RAP measure developed by Modigliani and
Modigliani(1997)usesthestandarddeviationasriskmeasure,itisrelevantonlytoinvestorswho
investtheirentiresavingsinasinglefund.Sotheyproposeameasurecalledmarketriskadjusted
performance (MRAP), following the same principle as Modigliani and Modiglianis measure, but
measuringreturnsrelativetomarketriskinsteadoftotalrisk.Asaresult,theMRAPissuitablefor
investorswhoinvestinmanydifferentassets.
Theideaistocomparefundsonthebasisofmeasureofmarketriskthatisidenticalforall
funds. The natural choice is the beta factor of the market index, M= 1. The market risk adjusted
performanceforfundiisobtainedby(de)leveringitinordertoachieveabetaequaltoone.Ifthe
fundssystematicriskexceedsthatofthemarket (i>1),thisprocedurecanbeinterpretedasa
fictitioussaleofsomefractiondioffundholdingsandthenaninvestmentoftheproceedsattherisk
freerate(di<0).
Similarly, if the funds systematic risk falls below that of the market index (i < 1 ), the
procedure corresponds to a fictitious loan at the riskfree rate, amounting to some fraction di, in
ordertoincreaseinvestmentsintothefund(di>0).Thefractiondiiscalculatedasfollows:
di=((1/i)1)
The marketriskadjusted performance of fund i (MRAPi) is obtained by averaging the
returnofthemarketriskadjustedfund(MRAF):
MRAPi=MRAFi=(1+di)*i(di*rf)=(1/i)*(irf)+rf
Onthisbasis,afund,adjustedformarketrisk,outperformedthemarketindexwheneverits
marketriskadjustedperformanceexceedsthereturnofthemarketindex.Thenrankingthefunds
accordingtotheirMRAPscanbedone.RankingbasedonMRAPisalsoequivalenttorankingbased
onalphabetaratio.LiketheMmeasure,theMRAPmeasureiseasytointerpret.
2.2.5JENSENALPHA(1968)
Like the previous performance measures discussed, the Jensen measure is also based on
CAPM.Namedafteritscreator,MichaelC.Jensen,theJensenmeasurecalculatestheexcessreturn
thataportfoliogeneratesoveritsexpectedreturn.Thismeasureisalsoknownasalpha.
TheJensenratiomeasureshowmuchoftheportfolio'srateofreturnisattributabletothe
manager'sabilitytodeliveraboveaveragereturns,adjustedformarketrisk.Thehighertheratio,
thebettertheriskadjustedreturns.Aportfoliowithaconsistentlypositiveexcessreturnwillhave
a positive alpha, while a portfolio with a consistently negative excess return will have a negative
alpha.
Jensens alpha is also defined as the differential between the return on the portfolio in
excessoftheriskfreerateandthereturnexplainedbythemarketmodel,or:
(E(RP)RF)=P+P(E(RM)RF)
Itiscalculatedbycarryingoutthefollowingregression:
RPtRFt=P+P(RMtRFt)+Pt
TheJensenmeasureisbasedontheCAPM.ThetermP(E(RM)RF)measuresthereturn
ontheportfolioforecastbythemodel.Pmeasurestheshareofadditionalreturnthatisduetothe
managerschoices.
The statistical significance of alpha can be evaluated by calculating the tstatistic of the
regression,whichisequaltotheestimatedvalueofthealpha dividedbyitsstandarddeviation.If
thealphavaluesareassumedtobenormallydistributed,atstatisticgreaterthantwoindicatesthat
theprobabilityofhavingobtainedtheresultthroughluck,andnotthroughskill,isstrictlylessthan
5%.Inthiscase,theaveragevalueofalphaissignificantlydifferentfromzero.TheJensenalphacan
beusedtorankportfolioswithinpeergroups.
17
OCTOBER31,2011
2.2.6HIGHERMOMENTMEASUREOFHWANGANDSATCHELL(1998)
When portfolios returns are not normally distributed, higher moments such as skewness
andkurtosisneedtobeconsideredtoadjustforthenonnormalityandtoaccountforthefailureof
variancetomeasureriskaccurately.
In these cases, a highermoment CAPM should prove more suitable than the traditional
CAPM and so a performance measure based on higher moments may also be more accurate.
AssumingthevalidityofthethreemomentCAPMandaquadraticreturngeneratingprocessofthe
form:
WecandefineaperformancemeasureofaportfoliounderthethreemomentCAPMas:
Where,
With:
And,
m and m are the skewness and kurtosis of the market returns, and and pm are beta and
coskewnessrespectively.Ifthemarketreturnsarenormal,thenpm1=pmand2=0andthealpha
measureisthereforeequivalenttoJensensalpha.
18
OCTOBER31,2011
2.2.7INFORMATIONRATIO
Theinformationratio,whichissometimescalledtheappraisalratio,isdefinedbytheresidual
returnoftheportfoliocomparedtoitsresidualrisk.Theresidualreturnofaportfoliocorrespondstothe
share of the return that is not explained by the benchmark. It results from the choices made by the
managertooverweightsecuritiesthathehopeswillhaveareturngreaterthanthatofthebenchmark.
Theresidual,ordiversifiable,riskmeasurestheresidualreturnvariations.Itisthetrackingerrorofthe
portfolioandisdefinedbythestandarddeviationofthedifferenceinreturnbetweentheportfolioand
itsbenchmark.Theloweritsvalueis,theclosertheriskoftheportfoliototheriskofitsbenchmark.
Sharpe(1994)presentstheinformationratioasageneralizationofhisratio,inwhichtherisk
freeassetisreplacedbyabenchmarkportfolio.
Theinformationratioisdefinedthroughthefollowingrelationship:
Where,
RBdenotesthereturnonthebenchmarkportfolio.
Managersseektomaximizeitsvalue,i.e.toreconcileahighresidualreturnandalowtracking
error.Thisratioallowsustocheckthattherisktakenbythemanager,indeviatingfromthebenchmark,
issufficientlyrewarded.
The information ratio is an indicator that allows us to evaluate the managers level of
information compared to the public information available, together with his skill in achieving a
performancethatisbetterthanthatoftheaveragemanager.Asthisratiodoesnottakethesystematic
portfolio risk into account, it is not appropriate for comparing the performance of a welldiversified
portfoliowiththatofaportfoliowithalowdegreeofdiversification.
2.2.8EFFICIENCYRATIO
Toexplainhowthismeasureworks,weconsidertheaveragemeanreturnofamutualfund
and its standard deviation. Then we calculate the return per unit of risk for the mutual fund by
dividing the mean return by its standard deviation. In the same way, we calculate the return per
unitofriskformarket.Thenbycomparingthereturnperunit ofriskofthemutualfundwiththe
returnperunitofriskofmarket,wecandeterminewhetherthemutualfundisefficientlymanaged
ornot.
Again, we can rank the mutual funds in accordance of their return per unit of risk. The
higherthereturnperunitofriskis,thebetterthemutualfundis.
2.2.9COEFFICIENTOFDETERMINATION(R2)
Coefficient of Determination (R2) explains the percentage of a portfolio's performance
explainablebytheperformanceofabenchmarkindex.ThatisCoefficientofDetermination(R2)isa
measureofdiversification.Itissimplythesquareofthecorrelationcoefficientbetweenthemarket
returnsandportfolioreturns.
TheRsquareismeasuredonascaleof0to100,withameasurementof100indicatingthat
theportfolio'sperformanceisentirelydeterminedbythebenchmarkindex..TheclosertheR2 isto
100, the more completely diversified the portfolio is. A low R square indicates that there is no
significantrelationshipbetweentheportfolioandtheindex.
19
PERFORMA
ANCEE VALUAT
TION O FS ELECT
TED MUTUALF UNDS INB ANG
GLADESH
OCTOBER31,2011
2.3FAM
MADECOMPOSITIONO
OFMUTUAL
LFUNDSACTUALE XC
CESSRETUR
RNS
Fama decom
mposed Excess return into two main
m
components which are Selectivity
andRiskk.Selectivity
yconsistsoffDiversificationandNeetSelectivityy.RiskconsiistsofMana
agers
risk and Investors risk.
r
Excesss return is defined
d
as that portion of that po
ortion of reeturn
whichhaasbeenearn
nedinexcesssofriskfreeereturn.
2.3.1RISKPREMIUM
MD UETO RISK
I :
Itt indicates the
t amountt of therisk
k premium that the po
ortfolio shou
uld have eaarned
givenitssbeta,mark
ketreturn,andriskfreeerate.Thatis,
RPRiskk=P(RMR
RF)
Iffaninvestorspecifiesaaparticulartargetlevelofrisk(i.ee.,beta)then
nwecanfurrther
decompo
osetherisk
kpremiumd
duetoriskin
ntoinvestorrsriskandmanagersrisk.
2.3.2INVVESTOR'SRISK
I :
Investorsris
n
skistherisk
kpremium thatwould havebeen earnedifth
heportfoliobeta
wasexacctlyequalto
othetargettbeta.Thatisitexplain
nstheamou
untoftherisskpremium
mdue
toriskth
hatisexplaiinedbytheinvestor'sttargetbeta.
RPInvestorrRisk=T(RMRF)
2.3.3MANAGER
A
'SRISK
I :
Iff the managgeractuallyy takes a diffferent leveel of riskthaan the targeet level (i.e.,the
actualbeetawasdiffferentthantthetargetb
beta)thenpartoftheriiskpremium
mwasduetothe
extrarisskthatthem
managersto
ook.Thatissitexpresseestheportio
onoftherisskpremium
mdue
toriskth
hatisexplaiinedbythedifferenceb
betweentheeactualbetaaandthetaargetbeta.
R ManagerRissk=(PT)(RMRF)
RP
T
Target
beta is used to evaluate th
he how clo
ose the man
nager was in targetingg the
riskinesssoftheporttfoliotothaatdesiredby
ytheclient.
2.3.4RISKPREMIUM
MD UETO GROSS
R
SELECT
TIVITY:
This is the portion
p
of the
t excess return
r
that is not explaained by th
he portfolio beta
and the market rissk premium
m. That is it
i indicatess the risk premium
p
in
n excess of
f that
explaineedbytheportfolio'sbetta,marketrreturn,andrriskfreeratte.
RPSelectivitty=RPTotalRPRisk=RP
PTotalP(RMRF)
In
n other worrds, this is the portion
n of the retu
urn that is due to the manager's skill.
Sinceitccannotbeexxplainedby
yrisk,itmusstbeduetosuperiorseecurityselecction.
2.3.5IMPACT
M
OFIMPERFECTDIVVERSIFICATION
Thisistheddifferencebeetweenthereturnthatshouldhavvebeenearnnedaccordingto
the CML
L and the return
r
thatt should haave been eaarned according to th
he SML. Th
hat is
Diversifiication is th
he differen
nce between
n the returrn explained by the total risk of the
20
OCTOBER31,2011
portfolioandthesystematicriskoftheportfolio.Thiswillbezeroforperfectlydiversified
portfolios.Thatis,
RPDiversification={(P/M)*(RMRF)P(RMRF)}
2.3.6NETSUPERIORRETURNDUETOSELECTIVITY
We can determine how much of the risk premium comes from ability to select
stocks(netselectivity)bysubtractingdiversificationfromselectivity.ThatisNetSelectivity
isthedifferencebetweentheriskpremiumduetoselectivityanddiversification.Thatis
RPNetSelectivity=RPSelectivityRPDiversification
21
OCTOBER31,2011
2.4TIMINGSKILL
Timingskillimpliesthathowwellafundmanagermatcheshisorherdecisionwiththe
movementofthemarket.Ifthetimingisperfectthenportfolioreturnwouldbeequaltomarket
return.Heretimingskillcanbeexaminedbyusingthefollowingmodel.
2.4.1THETREYNOR&MAZUYMODEL(1966)
ThismodelusedaquadraticversionoftheCAPM,whichprovides uswithabetter
frameworkfortakingtheadjustmentsmadetotheportfoliosbetaintoaccount,andthus
for evaluating a managers market timing capacity. Managers who anticipate market
evolutionscorrectlywilllowertheirportfoliosbetawhenthemarketfalls.Theirportfolio
will thus depreciate less than if they had not made the adjustment. Similarly, when they
anticipateariseinthemarket,theyincreasetheirportfoliosbeta,whichenablesthemto
makehigherprofits.Therelationshipbetweentheportfolioreturnandthemarketreturn,
inexcessoftheriskfreerate,shouldthereforebebetterapproximatedbyacurvethanbya
straightline.Themodelisformulatedasfollows:
Where:
RPtdenotestheportfolioreturnvectorfortheperiodstudied;
RMtdenotesthevectorofthemarketreturnsforthesameperiod,measuredwiththe
samefrequencyastheportfolioreturns;
RFtdenotestherateoftheriskfreeassetoverthesameperiod.
TheP,PandPcoefficientsintheequationareestimatedthroughregression.IfP
is positive and significantly different from zero, we can conclude that the manager has
successfullypracticedamarkettimingstrategy.
TreynorandMazuy(1966)usingannualreturnsfor57openendmutualfunds,findthatthe
hypothesis of no market timing ability can be rejected with 95% confidence for only one of the
funds. This model was formulated empirically by Treynor and Mazuy (1966). It was then
theoreticallyvalidatedbyJensen(1972)andBhattacharyaandPfleiderer(1983).
2.4.2THEHENRIKSSONMERTONMODEL
Henriksson and Merton (1981) derive the statistical framework for both parametric and
nonparametric tests of markettiming ability. If the managers forecasts are observable, then the
nonparametric test can be used without further assumptions about the distribution of security
returns.
If the forecasts are not observable, then the parametric test can be used under the
assumptionofeitheraCAPMoramultifactorreturnstructure.Itconsistsofamodifiedversionof
the CAPM which takes the managers two risk objectives into account, depending on whether he
forecaststhatthemarketreturnwillorwillnotbebetterthantheriskfreeassetreturn.Themodel
ispresentedinthefollowingform:
RMFtRFt= +(RMtRFt)+Max[(RMt RFt),0]+t
The , and coefficients in the equation are estimated through regression. The
coefficient allows us to evaluate the managers capacity to anticipate market evolution. If is
positiveandsignificantlydifferentfromzero,themanagerhasagoodtimingcapacity.
22
OCTOBER31,2011
Herethenewterm,,representsaninformationaladvantagerepresentedbyanocostput
optiononthemarketportfolio.HenrikssonandMertonarguethatif issignificantlypositive,we
identify selection skills, and for a positive and significant , the mutual fund manager possesses
timingability.
While the above multiple regression methods are easy to apply, statistical inference
requirescare.AspointedoutbyHenrikssonandMerton(1981)themanagedportfoliosreturnwill
exhibit conditional heteroscedasticity because of the fund managers attempt to time the market,
evenwhenstockreturnsareseriallyuncorrelatedandidenticallydistributedthroughtime.
23
OCTOBER31,2011
MUTUALFUNDSIN
BANGLADESH:
ANOVERVIEW
24
OCTOBER31,2011
3.1BANGLADESHECONOMY,CAPITALMARKET&MUTUALFUNDS:
3.1.1BANGLADESHECONOMY:
Beforegoingthroughmaintopicofmyreport,PerformanceEvaluationofSelectedMutual
FundinDSE,letshaveabrieflookonthecurrenteconomyofBangladesh.Bangladeshhasafairly
good and expanding stock of both physical and human capital, and with favorable policies, the
upgradingpotentialofbothcapitalisbright.Theremittances fromoverseasworkershavealready
becomeagreatsourceofstrengthandthiscanbeincreasedmanifoldwithrightpolicies.Relative
stability of the country's economic fundamentals has created a fairly good macroeconomic
environment.ThekeymacroeconomicindicatorsofBangladesharegivenbelow:
BangladeshKeyMacroeconomicIndicators
FY8 FY9 FY10 FY11(P.)

FY12(P.)
FiscalYear
RealGDPGrowth(%)
6.2 5.7
5.8
6.2
6.4
CPIInflation(%,average)
9.9 6.7
7.3
8.8
7.4
24.2 24.4
25
25.5
26.6
Investment(%ofGDP)
17.4
10.1
4.2
27
19.6
Export(f.o.b)Growth(%)
25.6 4.2
5.4
36.1
15
Import(f.o.b)Growth(%)
0.9 2.7
3.7
0.8
1.6
CurrentAccountBalance(%ofGDP)
Revenue(%ofGDP)
11.4 10.4 10.9
12.1
12.7
Expenditure(%ofGDP)
15 14.3 14.6
16.7
18.2
3.6 3.9 3.7

4.6
5.5
OverallBalance(%ofGDP)
46.8 45.4 41.5

41.6
41.2
PublicDebt(%ofGDP)
TherecenteconomicoutlookofBangladesheconomybecomesclearwhenwewillconsider
thefollowingeconomiceventsorfactors.Theseeconomiceventsorfactorsare
RealGDPisprojectedtogrowataround6.2percentinFY11,upfrom5.8percentinFY10.
At present GDP shows the upward trend which indicates better financial performance of the
countryandthisisthebesttimetoinvestindifferentpromisingindustryoftheeconomy.Again,The
increaseinconsumerpricesthatstartedinFY10continuedthroughthefirstninemonthsofFY11,
driven largely by a doubledigit rise in food prices. The recent trend in inflation rate (moving
average)demonstratesadecreasingtrend.Theinflationratehasdecreasedfrom8.5percentinthe
endJuneofFY200910to6.9percentintheFY201011.Thedecreasingtrendintheinflationrate
alsoindicatesthesoundeconomicperformanceofthecountry.
Inflation(%)
GDP,constantprices
8.9
8.5
6.9
5.4
6
4
2
Year
2009
2006
2003
2000
1997
1994
1991
1988
0
1985
8.1
1982
10
GDPGR(%)
200607 0708
25
0809
0910
1011
OCTOBER31,2011
Meanwhile, growth in money and credit is estimated to remain high in FY11, as it was in
FY10.Butas the global economy is yet to fully recover and struggling to attain the pre- recession
growth level, investment climate in Bangladesh continues to stagger as reflected in the

continuously high level of excess liquidity that piled up in the banking system from end-June
2007 to end-June 2009. Excess liquidity showed a decline since end-June 2010. It has further
declined in end-Sept10, showing that Bangladesh economy is responding to the recovery taking
place in developed countries. Again, both exports and imports rose in the first part of FY2011
2000
01
02
03
04
05
06
07
08
09
10
RemittanceGR
Growthrate(%)
while remittance growth fell sharply, thus narrowing the external current account surplus.
RemittancesfellsharplyinthefirsthalfofFY11buthavesincerecoveredslightly.
GrowthofRemittance
GrowthInExcessLiquidity
0.15
40%
30%
0.1
20%
0.05
10%
0%
0
10%
Year
Atlast,wecansaythatBangladesheconomyhasgrownataround6%overthepast5years,
despitenaturalshocksandexternalvolatility,andwebelievethatthebestyearsforthecountryare
aheadofusandeconomyhasthepotentialtogrowbyaround8%duringthecomingyearsandfor
thattheinvestmentmustgrowfasterthanthepresentrate.Itovercomestheglobalfinancialcrisis
well, and has consequently come out of the crisis in a position of strength, with real GDP growth
modestly impacted. To maintain a stable economy and to reduce the economic fluctuation of our
countrythefollowingstepsaretakenbyregulatorybodies:
9 OnMarch9,2011,theBangladeshBankliftedthe13percentlendingratecaponbanksthat
was introduced in April 2009 in response to the world economic crisis and increased the
CRRandtheSRRby50basispointsinDecember2010.
9 In November 2010, the Microcredit Regulatory Authority (MRA) put a 27 percent cap on
interest rates and made it mandatory to allow at least 15 days between the dates of loan
issuanceandfirstrepayment.
9 ThedraftVATlawandruleswereplacedontheNBRwebsiteforpublicdiscussion.Andthe
publicprivatepartnerships(PPP)agendaismovingforwardslowly.
9 TheBangladeshEnergyRegulatoryCommissionraisedpowertariffsbyanaverage11per
centforbulkconsumers,andissuedaninterimordertoraisetariffsforretailcustomersby
5.0percent,witheffectfromFebruary1,2011.
Apart from the risks to the global economy, there are several short and longterm risks
facingtheBangladesheconomy.Shorttermrisksincluderising foodandfuelpricesplacingstress
on fiscal and external balances deteriorating remittances and impact on the current account,
leading to the possibility of increased reserve draw down; the growing quasifiscal deficit; and
stock market volatility and its possible impact on the banking sector. The macroeconomic policy
response will need to strike a balance between maintaining a comfortable level of reserves,
containing inflation and allowing greater exchangerate flexibility. Longterm risks include the
inabilitytosufficientlyalleviatepowershortages,raisepublicinvestment,andremovebottlenecks
toprivateinvestment.Inaddition,theimpactofrisingfoodandfuelpricesonpovertywillneedto
becarefullymanaged.
26
PERFORMA
ANCEE VALUAT
TION O FS ELECT
GLADESH
OCTOBER31,2011
3.1.2CAPITAL
A
MARK
KET
In
n Bangladesh, there are 2 stock excchanges. Dhaaka Stock Exxchange (Gen
nerally know
wn as
DSE) is the
t main sto
ock exchangee of Banglad
desh. Although incorporated in 1954
4, formal traading
started in
n 1956. Prio
or to indepen
ndence in 19
971, the num
mber of listed
d companiess in DSE wass 196
withatotalpaidupccapitalofBD
DT.4billion. Thetotalnu
umberoflistedcompanieesisnow443.On
CSE) began its
i journey in
n 10th Octob
ber of 1995 from
the otherr side, Chittaagong Stock Exchange (C
Chittagon
ngCitythrou
ughthecryouttradingsy
ystem.
AsIhaveused
A
dtheDSEprrice,NAV,DG
GENIndexdaatainmymu
utualfundan
nalysis,soin allof
theremaainingpartoffmyreport IwilldiscussaboutDSE,,notCSE.Th
hemajorfun
nctionsofDSEare
listingof Companies, providingth
hescreenbaasedautomattedtradingo
oflistedSecu
urities,settleement
valtothetraansactionor transferof shareoutsid
dethe
oftradingg,giftingofsshareorgrantingapprov
tradingsystemoftheeexchange,m
marketadmiinistration&
&control,maarketsurveilllance,publiccation
hly review, monitoring the activities of listed companies,, Investors Protection Fund,
F
of month
announceementofpriccesensitiveo
orotherinformationaboutlistedcom
mpaniesthroughonline.
H
HereIhavepr
rovidedaDSSEmarketou
utlookasonSSeptember,2
2011.
DSEMa
arketOutlo
ook
Partticulars
Unit
200607
200
0708
200809
20091
10
Ex.Turn
nover
Tk.Crore 16
6467.46
54323.9
89378.92
256350
0.54 325914.01
FTTrun
nover
Tk.Crore
1922.42
1183.92
Mcap
Tk.Crore 47
7585.54 93102.52 124133.89
Sim.WgghtAvgDiv.
989.53
1869
9.85
20101
11
201112**
45739.4
41
2887.17
933.5
56
270.074
4.46 285389.22
283321.2
22
Percent
16.37
19.34
21.78
28
8.72
34.73
15
5.5
MarketY
Yield
WghtdAvg
W
2.85
1.94
2.17
1.7
3.02
3.1
11
MarketP
PE
WghtdAvg
W
17.28
22.8
18.44
24
4.08
16.55
15.5
58
Percent
10.18
17.18
20.19
43
3.92
41
1.1
35.9
98
MCapto
oGDP
**UptoSep
ptember,2011
ThemarketcaapitalizationofDSEisdisstributedinttwentysectors.TheseareeCorporateB
Bond,
und,IT,Ceraamic,Cemen
nt,Insurancee,Telecom,T
TraveandLeiisure,FIs,En
ngineering,F
Foods,
MutualFu
Fuel and Power, Jutee, Textile, Ph
harmaceuticaals, Paper an
nd printing, Service, Tan
nnery, Bankss and
nSeptember30,2011isggiven:
Miscellsaaneous.HerethesectoriallMCapason
Bond
IT
MF
0.31%
1
1.6%
0.18%
l.
Miscel
3.52%
%
Telecom
Ceramics
9.81%
1.53%
Cement
3.61%
Banks
Insu.
29.65%
5.67%
&L
T&
Tannery
0.3
32%
0.64%
FI
10.34%
Service
0.83%
Fuel&
Jute
Engg.
Power
%
0.04%
5.07%
12.88
Pharma.
Food
8.72% Textile
P&
&P
2.36%
0.04
4%
2.9%
27
OCTOBER31,2011
Jul11
May11
Mar11
Jan11
Nov10
Sep10
Jul10
May10
Mar10
Jan10
Currently share market is well known to all. It is known that the economic stability and
prosperityofacountrydependontheconditionofhersharemarket.Manybrokeragehousesare
nowoperatinginourcountrytohelpinvestors.WhenBangladesheconomylookslikeagoodshape
based on capital/share market, that time Trading on the Dhaka Stock Exchange index was halted
afteritfellby660points,or9.25%,inlessthananhour.ChittagongStockMarketalsometasimilar
fate. An abrupt crash of the market sparked violent protests from the Bangladeshi investors.
Itwasthebiggestonedayfallinits55yearhistory.Itisestimatedthatoverthreemillionpeople,
many of them smallscale individual investors, have lost money because of the plunging share
prices.Thebenchmarkindexhadclimbedby80%in2010buthaslostmorethan27%sinceearly
December. The regulators efforts to deal with the stock price surge that built up after July 2009,
andthesubsequentreversalofthesepolicies,mayhaveincreasedvolatilityinthestockindexinthe
pastfewmonths.
DGENIndex
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
As a result Investment in the share market is a popular business among the educated
middleclassofBangladeshwhowereleftfrustratedwiththesuddenlosstotheircapital.Theywere
finding ways and means to exit from the market in order to minimize the losses
Why this is happen our question is raise, it is not expected for us miracle index up and suddenly
down.Theexpertsgivetheircommentthattheimmediatereason forthiscrashwasthepolicyof
theregulatorsofthemarketwholaiddownalimitforinvestmentbythebanksandotherfinancial
institutions in the stocks. This was done in order to avoid the market being overvalued. As the
banksandotherbiginvestorinstitutionswithdrewthecapitalfromthemarket,thepanicensued.
CurrentBangladeshsharemarketcanexperiencehugedeclinebecauseof:
9 Mostofthesharepricesareveryhigh(lacksupportoffundamentals).
9 People who are involved in the market have egger to make quick profit by short trading
only.Mostofthemdonotwanttoholdsharesforlittlelong.
9 Excess liquidity in the market also pushing share prices without solid reason (only
speculation).Manipulatorsareactive!
9 Ourbankingandotherfinancialinstitutionshaveexposedtheirselvestoverymuchriskby
involvingspeculativesharetradingnow.Whenthemarketwilldownturnorcrashtheywill
inserioustrouble.
Lastbutnotleast,seriousactwithprudencetostrengthenoursharemarketandbewareof
manipulators.AndthegovernmentofBangladeshmaybeunderpressuretointerveneinorderto
protectthehardearnedmoneyofthesmallinvestorsfrombeinglostduetothisunusualcrashof
thestockmarket.So,thisistherighttimetoworktogether(Governmentaswellasotherfinancial
institutes)todecidewhatactionstotaketosavethemarketfromfurtherfalls.
28
PERFORMA
ANCEE VALUAT
TION O FS ELECT
GLADESH
OCTOBER31,2011
3.1.3MUTUAL
U
FUND
DS
Even as the stock markeets have started maturinng of age ovver the pastt one decadee, the
growtho
ofmutualfun
ndinBangladeshhasbeeenslow.Onllyrecentlyth
herehasbeeenarushforrnew
funds.Maanybanksan
ndfinancialin
nstitutionscontinuetoin
nthequeuew
withproposaalsfortheirffunds.
Mutual fu
und is a fund
d under a trrust. Investm
ment in mutu
ual fund is id
deal for investors who do not
want to take risk beecause the fund
f
is manaaged professsionally and the collectiive investmeent is
ormally deteermined by the value of
o the
diversifieed. The price of a closeedend fund share is no
investmeentinthefun
nd.Thereforee,themarkettpriceofafu
undshareis oftenclosettopershare NAV.
Howeverr,thematurittyofmutual fundsistak
kingitssweetttimeandN
NAVsofmutu
ualfundsareestill
notclosetotheirmarrketvalueofsuchfunds.Itisseenthaatmarketpriiceofamutu
ualfundsharrecan
bemuchhigh
herthantheirNAVjustify
y.
attimesb
U
Unliketheoth
herdevelopeedanddevellopingstock marketswh
hereinvestorrsprefertoinvest
intheopenendedmu
utualfunds,ttheconcepto
ofopenendeedmutualfu
undshasstarrtedcatchinggpace
o
the passt three yeaars, ever sincce the SEC, the stock market
m
regulatory
in Banglaadesh only over
authority
y,hasallowed
dfloatingofopenendedmutualfund
ds,apartfrom
mtheexistinggformatofclosed
ended mutual
m
funds,, which tend
d to maturee in 10 to 20
2 years fro
om incorporaation and listing.
Howeverr,whiletheo
openendedm
mutualfundssarestillinaanascentstaagesincetheywereperm
mitted
to launch
h in the cou
untry, the en
ntire mutual funds secto
or continues to be heaviily dominateed by
closeden
ndedmutualfunds,floateedmostlybybanksandin
nstitutions.
Ju
ust an aggreegate of 36 mutual
m
fund
ds were listeed on the Dh
haka Stock Exchange
E
tilll last
month, unlike
u
the oth
her neighborring countries like Indiaa and Hong Kong,
K
wheree the mutual fund
culture has
h really piccked up over the past th
hree decadess, ever sincee the permisssion provideed by
local stocck market reegulatory authorities to allow privatte sector to come out wiith new scheemes.
The SEC policy of allowing
a
theese funds in
n phases in Bangladesh
h seems to be rationall. But
notbecreateedintheirno
ormalgrowthanddevelo
opmentofmutualfundsh
hould
impedimentsshouldn
beencouraged.Moreinstitutionaalandprofessionalinvesttmentislikeelytostabilissethemarkeetand
ucerumorbaasedinvestm
ment.
helpredu
M
Mutualfunds
areusually managedby
yfundmanaggerswhoundertaketrad
dingofthepo
ooled
money an
nd are responsible for managing
m
th
he portfolio of holdings. Generally, mutual
m
fund
ds are
organized
dunderthe lawascomp
paniesorbu
usinesstrustssandmanagged byseparrate entities. Here
aresomeoftheassetmanagemen
ntcompaniess(AMCs)and
dtheirMCap..
ICB
MFMarkettcapitalizationunderAM
MCs
ICBAMCL
BDBL
VIPB ICB
AIMS
2% 7%
LRGlobal
RACE
ICBAMCL
RACE
31%
23%
VIPB
BDBL
AIMS 2%
LRGlobal
%
23%
12%
Bangladeshm
mutualfunds areexpected
dtogrowfro
omnascentsstagetoamo
orestageoveerthe
t show mo
ore interest towards inv
vestment in stock
next one decade as the investorrs continue to
hroughmutu
ualfundsanddirectlyto
oovercomettheinflation problems.In
nBangladesh
h,the
marketth
numbero
ofmutualfun
ndsissmallh
havinglowisssuedcapital.
29
OCTOBER31,2011
3.2SELECTIONOFMUTUALFUND(M.F.):PROFILE
InBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment
CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.
AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,ICB
employeemutualfund,ICBIslamicmutualfundsetc.
later on, three subsidiaries were created, they are ICB Capital Management Ltd, ICB Asset
ManagementCompanyLtdandICBsecuritiesTradingCompaniesLtd.ICBCapitalManagementLtd
ismainlyconcernedwithunderwritingofshare,issuemanagement,placementofshare,investment
counseling,managinginvestmentaccounts;ICBAssetManagementLtdisinvolvedwithinvestment
management (floating and managing mutual funds); and ICB securities Trading Companies Ltd
provides the trading facility, depository participant facility of CDBL, brokerage service, managing
ownportfolioandworkingassellingagentofDSE.
Meanwhile another government agency, Bangladesh Shilpa Rin Sangstha (BSRS), now
merged into Bangladesh Development Bank, launched it solitary mutual fund in1997, which is
runningunderitsownstatute.
The first ever private asset management company AIMS First Guaranteed Mutual Fund, a
closedendbalancedfundinMarch2000;Whereguaranteedmeans,thecapitalofthefundthatwas
underwrittenatredemptionbyIDLCandAIMSduringtheinitialfiveyearsoflife.Laterin2005,the
unitholdersresolvedtoreducethegranteeto50%underwrittenonlybyAIMS.Thistranslatesthat
50%ofthepaidupcapitallosswillbebornebyAIMSatthetimeofredemption.Theportfolioof
thismutualfundwillbeagrowthvaluebendbasketoflargecapaswellassmallcapstocksanda
mixoffixedincomesecurities.
Besides AIMS, currently few other private fund managers are also doing the business,
namely,RACE,LRGlobal,VIPBetc.Alltogether,36closedendfundaretradedintheDSEwithfew
waitinginthequeueforstartingtheiroperation.
Nowadays commercial banks and non bank financial institutions are getting involved in
mutual fund issue firmly. There are 15 funds of different banks, financial institutions and the
insurancecompaniesoutof36fundstradedinDSE.
Ihavechosen12mutualfundsof6AssetManagementCompaniesinordertoanalyzethe
performanceofthosemutualfunds.Theseare:
AssetManager
SelectedMF
AssetManager
4thICBM.F.
ICB
AIMS
6thICBM.F.
8thICBM.F.
ICBAMCL
BSRS
RACE
ICBAMCL1stM.F.
ICBAMCLIslamicM.F.
LRGlobal
1stBSRS
SelectedMF
Aims1stM.F.
GrameenM.F.one
EBLFirstMutualFund
TrustBank1stM.F.
DBHFirstMutualFund
GreenDeltaM.F.
Inthenextpage,therewillbegivenabriefdiscussionaboutthemutualfundswhichIhave
selectedforevaluatingtheirperformance.
30
OCTOBER31,2011
3.2.1ICBM.F.
InBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment
CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.
AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,4th
ICB,6thICB,8thICB,ICBemployeemutualfund,ICBIslamicmutualfundsetc.ICBMutualFundsare
independent of one another. In Bangladesh ICB has pioneered Mutual Funds for the sake of
investorsandofthecapitalmarket.Herearethebriefon4th,6thand8thICBmutualfundisgiven.
3.2.1.14THICBMF
BasicInfo.
Particulars
Sponsor
Trustee&Custodian
Size
MarketLot
FaceValue
PaidUpCapital
4thICBMutualFund
ICBCapitalManagementLimited(ICML)
InvestmentCorporationofBangladesh(ICB)
Tk.10.00Crore
10Units
Tk.100.00perunit
Tk.10Million
NetAssetValue(Ason30092011)
Atmarketpricetk.2223.46
EarningPerUnit(Ason30092010)
Tk.114.28
3.2.1.26THICBMF
BasicInfo.
Particulars
Sponsor
Trustee&Custodian
Size
MarketLot
FaceValue
PaidUpCapital
6th ICBMutualFund
Tk.10.00Crore
10Units
Tk.100.00perunit
Tk.10Million
Atmarket pricetk.454.78
Tk.37.00
3.2.1.38THICBMF
BasicInfo.
Particulars
Sponsor
Trustee&Custodian
Size
MarketLot
FaceValue
PaidUpCapital
8th ICBMutualFund
Tk.10.00Crore
10Units
Tk.100.00perunit
Tk.10Million
Atmarket pricetk.513.72
Tk.32.00
31
OCTOBER31,2011
3.2.2ICBAMCL
AmongthemutualfundsunderAssetManagementCompanyICBAMCL,IhaveselectedICB
AMCL1standICBIslamicmutualfundformyevaluationpurpose.Hereisbriefaboutthosefunds.
3.2.2.1ICBAMCL1STM.F.
The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore
dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsare
incirculationandtherestunitsareheldbythesponsorareunderlockinforthelifeofthefund.
After deducting total expenditure including provision against investment for the current
year,thefundhadanetincomeofTk.707.77lacs.TheearningperunitforthecurrentFY200910
stoodatTk. 70.78,whichwas Tk. 37.98in FY200809.As onJune 30, 2010,the fundhad atotal
investmentofTk.2755.04lacsatcostofwhich2725.03lacswereinordinaryshares,Tk.30.00lacs
in debenture securities. The market value of the investment was Tk. 5526.98 lacs as on June 30,
2010showingappreciationof100.61%.
Particulars
Sponsor
Trustee&Custodian
Auditor
PublicationofProspectus
SubscriptionPeriod
Size
MarketLot
FaceValue
DividendforFY200910
BasicInfo.
ICBAMCLFirstMutualFund
M.A.MalekSiddiquiWali&Co.,CharteredAccounts
June09,2003
June16,2003 June30,2003
Tk.10.00Crore
50Units
Tk.100.00perunit
Tk.50.00perunit
Atcostpricetk.424.08
AtmarketpriceTk.585.56
Tk.55.00
3.2.2.2ICBAMCLISLAMICM.F.
The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore
dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsare
incirculationandtherestsareheldbythesponsorareunderlockinforthelifeofthefund.
After deducting total expenditure including provision against investment for the current
year,thefundhadanetincomeofTk.497.64lacs.TheearningperunitforthecurrentFY200910
stood at Tk. 49.76, which was Tk.26.60 in FY 200809. As on June 30, 2010, the fund had a total
investmentofTk.1975.86lacsatcostprice,themarketvalueofwhichwasTk.2869.34lacsonthe
samedateshowingappreciationof45.22%.Besides,thefundinvestedTk.100.00lacsintermsof
MudarabaTermDepositReceipt(MTDR).
Particulars
Sponsor
Trustee&Custodian
Auditor
SubscriptionPeriod
Size
MarketLot
FaceValue
DividendforFY200910
BasicInfo.
ICBAMCLIslamicMutualFund
M.A.MalekSiddiquiWali&Co.,CharteredAccounts
September15,2004
October12,2004 October17,2004
Tk.10.00Crore
50Units
Tk.100.00perunit
Tk.35.00perunit
Atcostpricetk.248.86
Tk.36.00
32
OCTOBER31,2011
3.2.3AIMSM.F.
UnderAIMS,AIMS1standGrameenoneisselectforevaluation.Letsabriefaboutthem.
3.2.3.1AIMS1stM.F.
AIMS of Bangladesh conceived the idea and launched the Tk70 million pioneering first
mutualfundinBangladeshunderprivateinitiativetheAIMSFirstGuaranteedMutualFundinyear
2000 with a five year initial tenure, as the Asset Manager. Initially the size was contemplated at
Tk50milliononlybutowingtounprecedentedoversubscriptionfortheIPO(aboutninetimes)the
sizewasincreasedbyanotherTk20milliononpublicdemand.
ThesizeofthefundwaslaterincreasedtoTk140millionbytheenthusiasticgeneralunit
holdersandthelifeextendedbyanothertenyearsin2005.In2007thepaidupcapitalwasfurthert
raised to TK168 million through distribution 20% stock dividend to all unitholders. In 2010 the
paidup capital further raised to Tk414.5 million after isuing 70% bonus and 130% right to the
unitholders.
Fund&SchemeName
Size
PaidupCapital
Tenure
FaceValue
MarketLot
Manager
Sponsors
Trustee
Custodian
Nature&Style
NetAssetValue
EarningsperShare
BasicInfo.
AIMSFirstGuaranteedMutualFund
Tk.50million
Tk.414.5million
RedemptionatmaturityonJune30,2015afteroriginalmaturityoffiveyearsendedin
June2005.
Tk1(Takaoneonly)
2,500unitsofTk1each
AIMSofBangladeshLimited
IPDC of Bangladesh Limited, IDLC Finance Limited, Southeast Bank Limited, Uttara
Finance&InvestmentsLimited,PangaeaPartners(BD)Limited,SandhaniLifeInsurance
Company Limited, Sandhani Credit Cooperative Society Limited and Bangladesh
IndustrialFinanceCompanyLimited.
BangladeshGeneralInsuranceCompanyLimited(BGIC)
BRACBankLimited
Closedendcapitalguaranteedbalancedmutualfund
AtCostPricetk.1.62
AtMarketPriceTk.4.69
Tk.0.28
3.2.3.2GrameenOneM.F.
AIMS of Bangladesh is the Asset Manager for the Grameen Mutual Fund One, the second
closedend private mutual fund in Bangladesh, the Grameen Mutual Fund One sponsored by the
GrameenBank,foundedbyNobelLaureateProfessorMuhammadYunus,regardedastheinnovator
ofmicrocredit.GrameenFund,anotforprofitventurecapitalfinancingenterpriseoftheGrameen
familyistheTrusteeandtheStandardCharteredBankistheCustodianofthefund.
Fund&SchemeName
PaidupCapital
Tenure
FaceValue
MarketLot
TaxStatus
Manager
Sponsors
Trustee
Custodian
Nature&Style
NetAssetValue
EarningsperShare
BasicInfo.
GrameenMutualFundOne
TK170million
RedemptionatMaturityonJune30,2015.
Tk10(TakaTenonly)
500unitsofTk10each
Investmentandincome,includingcapitalgain,oftheFundistaxexempt
AIMSofBangladeshLimited
GrameenBank
GrameenFund
StandardCharteredBank
Closedendcapitalguaranteedbalancedmutualfund
AtCostPriceTk.28.98
AtMarketPriceTk.52.71
Tk.6.00
33
OCTOBER31,2011
3.2.4RACEM.F.
NowletsdiscussabouttheEBL1stAndTrustBank1stmutualfund.
3.2.4.1EBL1STM.F.
Eastern Bank Limited (EBL) had decided to be the first Bangladeshi commercial bank to
sponsoraMutualFundtomanageitscapitalmarketinvestmentsinasafeandprofessionalmanner.
EBLsseniormanagementbelievedthatreturnsfromthemutualfundareexpectedtohelpdiversify
EBLsrevenuestream.Inaddition,bylaunchingtheEBLFirstMutualFund,EBLalsolookstodoits
parttoimprovetheefficiencyoftheBangladeshicapitalmarkets.
TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaview
tobroadenthebaseofinvestmentanddevelopthecapitalmarket.
In this endeavor, EBL has chosen two highly capable partners: RACE Management PCL as
the Fund Manager and the Investment Corporation of Bangladesh (ICB) as the Trustee and
CustodianoftheFund.
BasicInfo.
Name
EBLFirstMutualFund
SizeoftheFund
FaceValue
Sponsor
SponsorsContribution
Auditor
PublicOffer
Trustee&Custodian
AssetmanagementCompany
SubscriptionPeriod
Nature:
Tk.100croredividedinto100,000,000units.Infuturethesizewillnotbechanged.
Tk.10.00perunit.
EasternBankLimited
20,000,000UnitsofTk10eachatparforTK200,000,000
HodaVasiChowdhury&Co.CharteredAccountants
InvestmentCorporationofBangladesh (ICB)
RACEManagementPCL
May26,2009
June21,2009 July4,2009
ClosedendMutualFundoftenyearstenure.
Atcostpricetk.13.29
Atmarketprice Tk. 14.51
NetAssetValue
3.2.4.2TRUSTBANK1STM.F.
TomakeourstockmarketmorevibrantandefficientfurthermoreTrustBank1stMutual
Fundwouldexpandthebanksproductofferingstoclients.InordertoefficientlylaunchTrustBank
1stMutualFund,theBankhasappointedRACEManagementthathasalreadymadeitsmarkinthe
localmarketbysuccessfullylaunchingthefirstevercommercialbanksponsoredmutualfund,EBL
First Mutual Fund. The Fund is established with a view to broaden the base of investment and
developthecapitalmarket.
BasicInfo.
Name:
SizeoftheFund
FaceValue
Sponsor
Auditor
TrustBank1stMutualFund
Tk.200croredividedinto200,000,000units.
Tk.10.00perunit.
TrustBankLimited
40,000,000UnitsofTk.10eachatparforTk.400,000,000
SFAhmed&Co.CharteredAccountants
PublicOffer
Trustee&Custodian
NetAssetValue
RACEManagementPCL
Atcostpricetk.12.66
34
OCTOBER31,2011
3.2.5LRGLOBALM.F.
HereisabriefaboutDBH1standGreenDelta.
3.2.5.1DBH1STMUTUALM.F.
DBHisoneofthefirstnonbankingfinancialinstitutionsinBangladeshtosponsoramutual
fund. Shares of DBH are quoted on the Bangladesh stock exchanges and have a total market
capitalizationofapproximatelyTk.6,513millionandshareholdersequityisaboutTk.942million.
TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaview
tobroadenthebaseofinvestmentanddevelopthecapitalmarket.TheTrustDeedalsoprovidesthe
flexibilitytotheunitholderstoextendthetenureoftheFundbeyondtheinitial10yearsasperSEC
regulations.
BasicInfo.
Name
DBHFirstMutualFund
SizeoftheFund
FaceValue&Marketlot
Sponsor
Auditor
PublicOffer
Trustee
Custodian
Tk.120croredividedinto120,000,000units.
Tk.10.00perunit,500unitsperlot.
DeltaBracHousingFinanceCorporationLtd.(DBH
20,000,000unitsofTk.10eachatparforTk200,000,000
40,000,000unitsofTk.10eachatparforTk400,000,000
StandardCharteredBank(SCB)
LRGlobalBangladeshAssetManagementCompanyLimited
November09,2009
Atcostpricetk.12.51
NetAssetValue
3.2.5.2GREENDELTAM.F.
GDIChasalonghistoryofinvestinginthecapitalmarketofBangladeshthathasdecidedto
sponsor a mutual fund for enhancing their active participation in the countrys capital market.
GDICsstrongcorporategovernanceanddynamicmanagementteamistherightpartnertohavein
furtherbuildingthemutualfundindustry.
GDIChasanauthorized paidupcapitalofTk500millionandissuedpaidupcapitalofTk
408 million. The companys shares are trading on both DSE and CSE, and are listed in the A
category.ThecompanyhasatotalmarketcapitalizationofapproximatelyTk7,150milliononDSE.
The Fund will be a closedend mutual fund of 10 (Ten) years tenure, established with a view to
broadenthebaseofinvestmentanddevelopthecapitalmarket.
Name
SizeoftheFund
FaceValue&Marketlot
Sponsor
Auditor
PublicOffer
Trustee
Custodian
NetAssetValue
BasicInfo.
GreenDeltaMutualFund
Tk.150,00,00,000dividedinto15,00,00,000unitsatparvalueofTk.10.00 each.
Tk.10.00perunit,500unitsperlot.
GreenDeltaInsuranceCompanyLtd.
1,50,00,000unitsofTk.10eachatparforTk.15,00,00,000
7,50,00,000unitsofTk.10eachatparforTk.75,00,00,000
StandardCharteredBank(SCB)
LRGlobalBangladeshAssetManagementCompanyLimited
Atcostpricetk.10.27
35
OCTOBER31,2011
3.2.3BSRSM.F.
3.2.3.11stBSRSM.F.
Bangladesh Shilpa Rin Sangstha (BSRS) was established on October 31, 1972 under the
BangladeshShilpaRinSangsthaOrder,1972(President'sOrderNo.128of1972)toprovidecredit
facilities and other assistance to industrial concerns and to encourage and broaden the base of
investment in Bangladesh. BSRS extends medium and longterm credit facilities to industrial
projectsmainlyintheprivatesector.
Besides,itprovidesunderwritingfinance/bridgefinance/debentureloanstoPublicLimited
Companies. BSRS provides underwriting commitment to issuers of stocks and debentures. BSRS
also floats and manages mutual fund thereby providing impetus to the capital market. It also
regularlyundertakestransactionintheDhakaStockExchange.BSRShastwocommercialbanking
branches.
TheNAVvalueof1stBSRSmutualfundisatmarketpriceifTk.1812.15andatcostvalueis
Tk.292.78asonSeptember30,2011.
36
DATAADJUSTMENT
&CALCULATIONS
37
OCTOBER31,2011
OCTOBER31,2011
4.0DATAADJUSTMENT&CALCULATIONS:
Inthissection,Iwilldiscussaboutthedataadjustmentprocessandperformsome
calculationswhicharenecessaryformyfinalevaluationprocess.
4.1ADJUSTMENTOFPRICE:
Beforeadjustingthepricedataofpreviouslydiscussedtwelvemutualfunds,Ihavetoperform
anumberofcalculationsteps.Theseinclude
9 UNADJUSTEDMONTHLYCLOSEPRICEDATAENTRY
Inthiscase,atfirstIhaveplacedthedividendunadjustedmonthlyclosingpricesfor69
monthsfromDec2005toAug2011forICB4th,ICB6th,ICB8th,ICBAMCL1st,ICBAMCLIslamic,
Grameenone,1stBSRSmutualfundandagaindividendunadjustedweeklyclosingpricesfor66
weeks from 26 May, 2010 to 25 August, 2011 for EBL 1st, Trust Bank 1st, DBH 1st and Green
Deltamutualfunds..Theformatissomehowlikebelow:
Assetmanager
ICB
ICBAMCL
AIMS
BSRS
4thICB
6thICB
8th
ICB
6Aug11
2220.00
681.75
680.00
579.00
361.00
6.99
99.70
1449.00
8Jul11
2200.75
741.50
795.00
629.75
348.25
10.06
121.90
1513.50
9Jun11
2261.00
673.00
708.50
640.25
343.00
7.17
84.30
1395.50
11May11
2360.00
656.25
670.25
593.75
362.25
7.08
80.40
1428.00
12Apr11
2317.00
675.00
732.25
610.50
358.75
7.78
85.10
1483.50
MutualFund
AMCL
1st
AMCL
Islamic
Aims
1st
Grameen
1
1stBSRS
Months
9 CALCULATINGDIVIDEND
NowIpreparedaDividendDeclarationScheduletoreflectthetimeandpercentage
ofdividend(Cash,Bonus&RightShare)declaredforeachoftheselectedmutualfunds.
Then I determined the Cash Dividend Amount for each mutual funds for the time of
Dec2005toAug2011byusing (FaceValue*DeclaredCashDividendPercentage).These
schedulesaregiveninAppendix.
9 ADJUSTINGTHERIGHT&BONUSSHAREWITHUNADJUSTEDDATA
Toadjustthestockdividend,Ihavedividedthepriceofcumdividendmonth,whichis
the immediate month of exdividend month, by (1+Stock Dividend Rate). But in the month
when both stock and right share are offered and benefits are included in the price, then the
procedureforadjustmentinthecumdividendandrightwillbeasfollows:
=(((PricebeforeRight*1)+(RightPrice*(1+RightRatio))/(1+RightRatio))/(1+StockDividendRate))
Then I have found Stock Dividend and Right Adjusted Price and the result is
somehowlikebelow:
6th
8th
AMCL
AMCL
Aims
Grameen
1st
MutualFunds
4thICB
FaceValue
100.00
ICB
100.00
Months
ICB
100.00
1st
100.00
1st
1.00
1
10.00
BSRS
100.00
6Aug11
2220.00 681.75
680.00
579.00
361.00
6.99
99.70
1449.00
8Jul11
2200.75
741.50
795.00
629.75
348.25
10.06
121.90
1513.50
9Jun11
2261.00 673.00
708.50
640.25
343.00
7.17
84.30
1395.50
Islamic
100.00
38
OCTOBER31,2011
4.2PREPARINGRETURNSERIES(USINGCLOSINGPRICE&NAV)
ThenIhavecalculatedtheReturnbythefunction:
=LN ((' Next Month Right & Stock Dividend Adjusted Price + Cash Dividend Amount)/ ' Prior Month Stock
DividendAdjustedPrice').
Wehavefound68monthlyreturnsand65weeklyreturnsbasedonclosepricebecausethe
returnofbeginningmonth(Dec2006)andthereturnofbeginningweek(26May,2010)cannotbe
calculated due to unavailability of prior month price (Nov2005) and week price (19 May, 2010)
respectively.ButthereturnbasedonNAVis18returnsfor4 th,6thand8thICB,22returnsforAMCL
1st,AMCLIslamic,Grameen1,AIMS1stand1stBSRSmutualfund,65returnforEBL1st,Trust1st,
DBH 1st and 47 for Green Delta mutual fund. Here the differences between returns are due to
unavailabilityofNAVdata.Thereturnsresemblesomethinglikebelow:
Month
4thICB
AMCL
1st
AMCL
Islamic
AIMS1st
Grameen1
1stBSRS
6Aug11
0.10589
0.20274
0.18915
0.17873
0.19681
0.03971
0.07825
0.07532
8Jul11
0.11468
0.16089
0.17418
0.10875
0.13618
0.05259
0.08605
0.10501
9Jun11
0.04470
0.10375
0.11031
0.09685
0.05538
0.05551
0.10834
0.10920
11May11
0.13795
0.12815
0.15441
0.07754
0.03582
0.01810
0.05210
0.09500
0.10804
0.10740
0.10965
0.03966
0.08034
0.00447
0.00986
0.04704
0.09223
0.09713
0.07598
0.02539
0.05390
0.38777
0.01087
0.08918
6thICB 8thICB
12Apr11
14Mar11
4.3CALCULATINGTBILLRATE(MONTHLY&WEEKLY)
TocalculatetheAverageMonthly&WeeklyRiskFreeRate,Ihavecollectedthe364days
TBillrateformJan2006toAug2011(ForPricebasisreturn)andfromOct2009toAug2011(For
NAVbasisreturn).Thethenbydividingthe360daysTbillratebytwelve,IgetthemonthlyTBill
rateforeachofthemonthsfromOct2009toAug2011.AgainbydividingthemonthlyTbillrateby
four,IgettheweeklyTBillrateforeachoftheweeksfrom3June,2010to25August,2011(For
bothpriceandNAVbasisreturn).
ThecalculationsoftheMonthly&WeeklyRiskFreeRatearegivenbelow:
Year
6Aug11
TBill
Rate
0.079000
BangladeshBankTBillRate(364day)
MonthlyTBill
TBill
Month
Weeks
Rate
Rate
0.006583
8/25/2011
8Jul11
0.076000
0.006333
9Jun11
0.075500
0.006292
11May11
0.070000
0.005833
Aug,
2011
0.079
WeeklyTBill
Rate
0.001519
8/18/2011
0.001519
8/11/2011
0.001519
8/4/2011
0.001519
4.4CALCULATINGMARKETRETURN
InthisstepIhavepreparedreturnseriesofmarketfor68month(ForPricebasisreturn)
form Jan2006 to Aug2011 and 22 months (For NAV basis return) from Oct2009 to Aug2011.
Again,Ihavepreparedreturnseriesofmarketfor65weeks(ForbothpriceandNAVbasisreturn)
from3June,2010to25August,2011.IhaveusedDSEGeneralIndexforthispurposeandIhave
usedmarketportfolioasmybenchmarkportfolio.Thereturniscalculatedusingtheformula:
=LN(nextmonthindexcurrentmonthindex)/currentmonthindex.
39
Thereturnsresemblesomethinglikebelow:
Market
DGEN
Months
Return
Index
(Monthly)
6Aug11
6212.00
0.03909
8Jul11
6459.62
0.05446
9Jun11
6117.23
0.06047
11May11
5758.26
0.04956
Weeks
OCTOBER31,2011
DGEN
Index
Market
Return
(Weekly)
8/25/2011
6212.00
0.01524
8/18/2011
6118.02
0.01538
8/11/2011
6212.86
0.00754
8/4/2011
6259.90
0.05106
4.5CALCULATINGMEANRETURNFORMARKET&MUTUALFUNDS
TocalculatethemonthlyMeanReturnforMarketandMutualFunds,theformulais,
=AVERAGE(FirstReturn:LastReturn).
Here alternatively, I can sum all of the monthly returns and dividing the result by the
number of month for which returns are available. The monthly Mean Return for Market and
MutualFundsofeachcompanyisgivenbelow:
MutualFund
MeanReturn
Price
MeanReturn
MutualFund
NAV
Price
NAV
4thICB
2.729%
0.185%
EBL1st
0.149%
0.018%
6thICB
2.630%
0.269%
Trust1st
0.193%
0.245%
8thICB
2.637%
0.166%
DBH
0.275%
0.101%
AMCL1st
1.862%
1.536%
GreenDelta
0.988%
0.154%
Market(Weekly)
0.035%
0.035%
AMCLIslamic
2.228%
0.349%
AIMS1st
2.722%
1.127%
Grameen1
2.999%
1.391%
1stBSRS
4.409%
2.434%
Market(Monthly)
1.925%
2.788%
4.6CALCULATINGRISKFORMARKET&MUTUALFUNDS
MarketandmutualfundsriskismeasuredbyvarianceorstandarddeviationofMarketand
mutual funds returns. The variance/standard deviation of Market and mutual funds reflects not
onlythevariance/standarddeviationofthestocksinwhichmutualfundsinvestedtheirmoneybut
alsohowthereturnsonthestocksvaryalongwiththereturnofthemarket.Twomeasuresofhow
the returns on the stocks vary along with the return of the market are the covariance and the
correlationcoefficient.
4.6.1STANDARDDEVIATION
StandardDeviationisthesquarerootofvariance.Itisameasureofhowmuchspreador
variabilityispresentinthereturns.Ifthenumbersarewelldispersed,thestandarddeviationwill
tend to be large. To find out the dispersion among the returns, I have calculated the Standard
Deviation. Besides this, the calculation of Standard Deviation is used in many other cases. To
calculatethestandarddeviationofMarketandmutualfundsreturns,theformulais,
=STDEV(FirstReturn:LastReturn).
40
OCTOBER31,2011
4.6.2HISTORICAL&ADJUSTEDBETA
HISTORICAL BETA: I have calculated Historical Beta using the Data Analysis command
under the menu bar Data in Microsoft Excel 2007. Then I selected the Regression command
andinputSpecificMutualFundreturnasYvariableandinputMarketreturnasXvariable.
Thenselecttheconfidencelevel95%andclickOKandafterthattheresultbecomeslikeasbelow
table.
Alternatively, I can have calculated the covariance between portfolio return and market
returnusingCOVAR(Arrayofmarketreturns:arrayofMutualFundreturns)formulaandvarianceof
market return using VARP (Array of market returns) formula. Using these I have calculated
HistoricalBetaofspecificmutualfundwiththeformula:
=(CovariancebetweenMutualFundreturnandmarketreturn/Varianceofmarketreturn).
AdjustedBeta:AftercalculatingthehistoricalBeta,IhavecalculatedtheadjustedBetaby
usingthefollowingformula:
=(0.67*1)+(0.33*HistoricalBeta)
HerearetheStandardDeviation,Historicalandadjustedbetasaregivenforallmutual
funds.
ClosePrice
MutualFund
HistoricalBeta
NAV
ICB4th
0.239730
Adjusted
Beta
0.749111
Standard
Deviation
0.107178
Historical
Beta
0.706460
Adjusted
Beta
0.903132
Standard
Deviation
0.105277
ICB6th
0.576721
0.860318
0.154329
0.694345
0.899134
0.111958
ICB8th
0.502093
0.835691
0.156516
0.662146
0.888508
0.112773
AMCL1st
0.638012
0.880544
0.133654
0.508392
0.837769
0.089694
AMClIslamic
0.683636
0.895600
0.160859
0.451385
0.818957
0.129800
Aims1st
0.723593
0.908786
0.215974
0.978381
0.992866
0.180106
Grameen1
0.903864
0.968275
0.193779
0.519356
0.841387
0.082868
BSRSOne
0.730081
0.910927
0.233071
0.659669
0.887691
0.101656
EBL
0.572722
0.858998
0.068554
0.443182
0.816250
0.028210
Trust1st
0.652357
0.885278
0.062755
0.466984
0.824105
0.025634
DBH
0.629100
0.877603
0.062149
0.589297
0.864468
0.032607
GreenDelta
0.693115
0.898728
0.069444
0.593236
0.865768
0.036349
41
OCTOBER31,2011
PERFORMANCE
EVALUATIONOFM.F.
42
PERFORMA
ANCEE VALUAT
TION O FS ELECT
GLADESH
OCTOBER31,2011
5.1PER
RFORMANCEE VALUAT
TIONOFM..F.
HereIamshoowingthepeerformanceoofmyselectedmutualfunndbyusingm
measurementt
toolswhiichIdiscusseedintheliterraturereview
wchapter.Th
hesearedesccribingbelow
winsequenttial
manner.
5.1.1THE
H T REYNOR MEASURE(1
1965)
To calculate Tmeasure of
o Mutual fun
nds and marrket I have used
u
the following formu
ula in
excelprogramandfou
undthefollo
owingresults:
Month
hly
CloseP
Price
hly
Month
NAV
TMeassure
TMeasu
ure
CP
4thICB
0.0281
161
0.003219
6thICB
0.0233
378
0.008285
8thICB
0.0241
152
AMCL1st
AMCL
Islamic
AIMS1sst
0.0141
117
Mutu
ual
Fun
nd
Weeklly
ClosePrrice
y
Weekly
NAV
NAV
Mutu
ual
Fun
nd
TMeasu
ure
TMeasure
CP
NA
AV
EBL1
1st
0.003109
0.00106
66
3
3
5
4
Trust1st
0.003512
0.001692
0.007220
DBH
H
0.004475
0.00004
43
2
3
1
1
2
2
0.01265
55
GreenD
Delta
0.012305
0.00299
96
Rank
k
0.0179
963
0.001547
0.0231
138
0.00655
59
Gramee
en1
0.0245
578
0.01088
82
6
3
4
3
1stBSR
RS
0.0416
601
0.02205
58
MARKET
0.0130
064
0.023117
MARK
KET
0.0008
833
0.00070
06
Rank
4
4
Here,wecanseethat1stBSRSmutuallfundisthemosst
wellm
managedmutua
alfundamongth
hetwelve.Thisiss
reflecctedinitsranki
inbothcaseofclosingpriceand
d
NAV.
INTERPRETATION:
Fromthetablewecanseeethatincasseofmonthlyydataconsidderation,theeTmeasure ofall
themutu
ualfundsishigherthanth
hatofmarkeetwhenweconsidermon
nthlycloseprriceandwheenwe
considermonthlyNAV,andthenttheTmeasureofallthem
mutualfundssislowerthaanthatofmaarket.
ualfundssh
harehigherth
hanthesesh
houldbevalu
uedin
Thisindiccatesthatinvestorsvaluethesemutu
an efficieent market. That
T
is sharees of these mutual
m
fund are not priceed accordingg to those mutual
m
fundfund
damentals.
A
Againincase
ofweeklydataconsiderration,TheT
Tmeasureof
f allthemutu
ualfundsisllower
thanthattofmarketw
whenwecon
nsidermonth
hlyclosepricce.TheTmeeasureofall themutualffunds
exceptTrrustBank1sttandDBH1sttmutualfund
dislowerth
hanthatofmarketwhereDBH1stprovides
anegativ
veTmeasureevaluewhen
nweconsiderrmonthlyNA
AV.Hereweseetheoppo
ositescenario
osfor
st
st
Trust Bank 1 and DBH
D
1 muttual funds. According
A
to their fundaamentals theese mutual funds
f
ould be priced higher th
han the current market price
p
becausse their NAV
V better wheen we
share sho
considerwholemarketscenario.B
Buttheseareenotgettingtheirproperrpriceintheemarket.
Iffweranktheemutualfun
ndaccordinggtheirTmeaasurebased onthemontthlydataanaalysis,
then1stB
BSRSwillbe placedinthe1strankin termsofbotthClosePricce(CP)andN
NAV.Onthe other
st
th
hand, ICB
B AMCL 1 will
w be placed in the 8 rank in term
ms of Close Price
P
(CP) an
nd 6th ICB mutual
m
th
fundwillbeplacedin
nthe8 rank
kintermsof NAV.Again, whenweraankthemutu
ualfundaccording
measure baseed on the weeekly data analysis, then
n EBL 1st willl be placed in the 1st raank in
their Tm
43
OCTOBER31,2011
termsofClosePrice(CP)andTrustBank1stwillbeplacedinthe1strankintermsofNAV.Onthe
otherhand,GreenDeltawillbeplacedinthe4thrankintermsofbothClosePrice(CP)andNAV.
AverageWeeklyReturn
AverageMontlyReturn
NowIwillshowgraphicalpresentationofthismeasurement:
0.05
TMeasure(WeeklyPrice)
TMeasure(MonthlyPrice)
0.005
0.04
MF
0.000
Beta
0.03
0
0.5
1
1.5
0.02
0.005
0.01
MF
0.010
Mkt
0.00
Beta
0
0.5
1
1.5
0.015
INTERPRETATION:
MonthlyReturn
WeeklyReturn
From the graph we can see that when we consider monthly close price data then the T
measureofallthemutualfundsareplacedabovethesecuritymarketline(SML)exceptICBAMCL
1stmutualfundwhichistangenttotheSML.Thatmeans,exceptICBAMCL1stmutualfund,allother
mutualfundareprovidinghigherreturnatalowerrisk(systematic).Thatismutualfundsarewell
managed.Ontheotherhand,whenweconsiderweeklyclosepricedatathentheTmeasureofall
themutualfundsareplacedbelowthesecuritymarketline(SML).Thatmeans,allmutualfundsare
providinglowerreturnatahigherrisk(systematic).Thatismutualfundsareverypoorlymanaged.
TMeasure(weeklyNAV)
0.004
TMeasure(MonthlyNAV)
M.F.
0.03
Mkt
M.F.
MKT
0.002
0.02
0.01
0.000
Beta
Beta
0.00
0
0.5
1
1.5
0.50
1.00
1.50
0.01 0.00
0.002
INTERPRETATION:
FromthegraphwecanseethatwhenweconsidermonthlyNAVdatathentheTmeasureof
allthemutualfundsareplacedbelowthesecuritymarketline(SML)except1stBSRSmutualfund
whichalmostistangenttotheSML.Thatmeans,except1stBSRSmutualfund,allothermutualfunds
are providing lower return at a higher risk. That is except 1st BSRS mutual fund, all other mutual
fundsareverypoorlymanaged.
On the other hand, when we consider weekly NAV data then the Tmeasure of two the
mutualfundsi.e.TrustBank1standDBH1stmutualfundareplacedabovethesecuritymarketline
(SML).Thatmeans,TrustBank1standDBH1stmutualfundareprovidinghigherreturnatalower
risk (systematic) than that of market. That is mutual funds are well managed and again the T
measure of two the mutual funds i.e. EBL 1st and Green Delta mutual funds are placed below the
securitymarketline(SML).Thatmeans,EBL1standGreenDeltamutualfundsareprovidinglower
returnatahigherrisk(systematic).Thatismutualfundsareverypoorlymanaged.
44
PERFORMA
ANCEE VALUAT
TION O FS ELECT
GLADESH
OCTOBER31,2011
5.1.2THE
H S HARPEM EASURE(19
966)
To calculate Tmeasure of
o my portfo
olio and marrket I have used
u
the following formu
ula in
excelprogramandfou
undthefollo
owingresultss:
Monthly
ClosePrice
e
SMeasure
e
Monthly
NAV
SMeasure
e
CP
N
NAV
4thICB
0.196830
0.027613
3
6thICB
0.130325
0.066536
6
8thICB
0.128954
0.056887
7
DBH
AMCL1st
0.093006
0.118205
GreenDeelta
AMCL
Islamic
AIMS1st
0.100010
0.009762
2
MARKET
0.097361
0.036158
Grameen1
0.122809
0.110487
0.162591
0.192619
0.151406
6
0.189386
6
Mutual
Fund
1stBSRS
MARKET
Weeklly
ClosePrrice
SMeasu
ure
y
Weekly
NAV
SMeasu
ure
CP
NA
AV
EBL1st
0.0389
953
0.03085
52
Trust1stt
0.0495
543
0.05440
09
0.0631
198
0.00115
50
0.1592
242
0.07135
50
0.0161
105
0.013650
Rank
k
Mutu
ual
Fund
d
Rank
k
Here, we
e can conclude that 1st BSRS iss the well mana
aged
mutual fund among alll where it yield
d higher Sratio
o in
termsoffClosepriceand
dNAV.
INTERPRETATION:
Fromthetablewecanseeethatincaseeofmonthlydataconsideeration,theSSmeasureoffonly
twomutu
ualfundsi.e.4thICBand 1stBSRSish
higherthantthatofmarkeetwhenwe considermo
onthly
closepricceandwhen
nweconsidermonthlyNAVthenthe Smeasureo
ofallthemu
utualfundsexcept
1stBSRS mutualfund
dislowerthaanthatofmaarket.That is1stBSRSistheonlym
mutualfundw
which
ntalsarefulllyreflectediinitsmarkettprice.Ontheotherhan
ndthemarketpricesof other
fundamen
mutual fu
und not refleect their fun
ndamentals. That is why
y some of mu
utual price is
i overpriced
d and
othersarreunderpriceed.
Againincase ofweeklydataconsiderration,TheSmeasureof
A
f allthemutu
ualfundsisllower
thanthattofmarketw
whenweconsidermonthlycloseprice.TheSmeaasuresofalltthemutualffunds,
except Trust Bank 1st and DBH 1st mutual fund,
f
are low
wer than th
hat of markeet where DB
BH 1st
Smeasurevaaluewhenw
weconsiderm
monthlyNAV
V.Hereweek
klyNAVindiicates
provides anegativeS
k1standDBH
H1stmutual fundshould behigherth
hancurrentp
price.
thatthat thepricesofTrustBank
mutualfundsislower.
Butactuaalmarketpriceofthesem
Iffweranktheemutualfun
ndaccordinggtheirSmeaasurebasedo
onthemontthlydataanaalysis,
then1stB
BSRSwillbep
placedinthee1strankinttermsofboth
hClosePrice(CP)and4thhICBplacediinthe
1strankintermsofN
NAV.Ontheo
otherhand,IICBAMCL1sts willbeplaccedinthe8thhrankinterm
msof
th
6 ICBmutu
ualfundwillb
beplacedin the8thrankintermsofN
NAV.Again,w
when
ClosePricce(CP)and6
weranktthemutualfu
undaccordin
ngtheirSmeeasurebased
dontheweek
klydataanallysis,thenEB
BL1st
will be placed in the 1st rank in terms
t
of Close Price (CP
P) and Trust Bank 1st mu
utual fund will
w be
st
nthe1 rank
kintermsof NAV.Ontheotherhand,GreenDeltaawillbeplaccedinthe4thhrank
placedin
intermso
ofbothCloseePrice(CP)aandNAV.
45
OCTOBER31,2011
AverageWeeklyReturn
AverageMontlyReturn
NowIwillshowgraphicalpresentationofthismeasurement:
0.050
SMeasure(WeeklyPrice)
SMeasure(MonthlyPrice)
0.002
CML
0.040
0.000
S.D.
0.1
0.2
0.3
0.002 0
0.030
CML
0.004
MF
0.020
0.006
Mkt
0.010
0.008
MF
0.000
0.010
S.D.
Mkt
0.012
0
0.05 0.1 0.15 0.2 0.25
INTERPRETATION:
MonthReturn
AverageWeeklyReturn
From the graph we can see that when we consider monthly close price data then the S
measureofonlytwomutualfundsi.e.4thICBand1stBSRSareplacedabovethecapitalmarketline
(CML)whenallothersareplacedbelowtheCMLline.Thatmeans,only4thICBand1stBSRS mutual
fundsareproviding higherreturn at alowerrisk.Thatismutualfundsarewellmanaged.Onthe
otherhand,whenweconsiderweeklyclosepricedatathentheSmeasureofallthemutualfunds
areplacedbelowthecapitalmarketline(CML).Thatmeans,allmutualfundsareprovidinglower
returnatahigherrisk.Thatismutualfundsareverypoorlymanaged.
0.030
SMeasure
0.003
(MonthlyNAV)
SMeasure(WeeklyNAV)
0.025
0.002
MF
0.020
Mkt
0.015
0.001
0.010
0.000
S.D.
0.005
0.001
0.000
0.005 0.00
0.05
0.10
0.15
S.D.
0.20
0.002
0.02
0.04
0.06
M.F.
Mkt
INTERPRETATION:
FromthegraphwecanseethatwhenweconsidermonthlyNAVdatathentheSmeasureof
all the mutual funds are placed below the capital market line (CML) except 1st BSRS mutual fund
whichishigherthantheCML.Thatmeans,except1stBSRSmutualfund,allothermutualfundare
providinglowerreturnatahigherrisk.Thatisthesemutualfundsareverypoorlymanaged.Only
1stBSRSmutualfundiswellmanaged.
On the other hand, when we consider weekly NAV data then the Smeasure of two the
mutualfundsi.e.TrustBank1standDBH1stmutualfundareplacedabovethecapitalmarketline
(CML).Thatmeans,TrustBank1standDBH1stmutualfundareprovidinghigherreturnatalower
riskthanthatofmarket.ThatismutualfundsarewellmanagedandagaintheSmeasureofother
twothemutualfundsi.e.EBL1standGreenDeltamutualfundareplacedbelowthecapitalmarket
line(CML).Thatmeans,EBL1standGreenDeltamutualfundareprovidinglowerreturnatahigher
risk.Thatismutualfundsareverypoorlymanaged.
46
OCTOBER31,2011
5.1.4MMEASURE:MODIGLIANIANDMODIGLIANI(1997)
M measure evaluates the annualized risk adjusted performance (RAP) of a portfolio in
relation to the market benchmark, expressed in percentage terms. The Modigliani measure is
drawn directly from the capital market line. It can be expressed as the Sharpe ratio times the
standard deviation of the benchmark index. So the two measures are directly proportional. So
SharperatioandModiglianimeasureleadtothesamerankingoffunds.HereIhavecalculatedthe
Mmeasurebyusingthefollowingformulaandtheresultsaregivenbelow:
Mutual
Fund
Monthly
ClosePrice
MonthlyNAV
M2
M2
CP
NAV
Rank
Mutual
Fund
Weekly
ClosePrice
M2
Weekly
NAV
M2
CP
NAV
Rank
4thICB
0.023173
0.001388
EBL1st
0.000836
0.000544
6thICB
0.017435
0.003362
Trust1st
0.001383
0.003865
8thICB
0.017317
0.002185
DBH
0.002089
0.000992
AMCL1st
0.014215
0.019188
0.007056
0.002638
0.014819
0.003567
2
5
GreenDelta
AMCL
Islamic
AIMS1st
8
6
MARKET
0.000346
0.000346
0.014591
0.009173
Grameen1
0.016786
0.018245
1stBSRS
0.020219
0.028271
5
2
3
1
MARKET
0.019254
0.027876
Here,weconcludethat1stBSRSmutualfundhasthe
highestRAPamongallwhichisreflectedinhigherRAP
thanmarketinbothClosePriceandNAVterms.
INTERPRETATION:
From the table we can see that in case of monthly data consideration, the Mmeasure of
only two mutual funds i.e. 4th ICB and 1st BSRS is higher than that of market when we consider
monthly close price and when we consider monthly NAV then the Mmeasure of all the mutual
fundsexcept1stBSRSmutualfundislowerthanthatofmarket.Thatis1stBSRSistheonlymutual
fundwhichhastherisklevelalmostequaltomarketrisk.Thatis1stBSRShasariskratio(M/P)
nearbyequalto1whichmeansthatthemutualfundisfullydiversified.Sothereturnfrom1stBSRS
mutualfundwillbealmostequaltomarketreturn.Ontheotherhandtheriskratiosofothermutual
fundsareeitherhigherorlowerthan1whichindicatesanimperfectdiversificationofthemutual
fund. That is why some of mutual price will provide higher return than market and other lower
returnthanmarket.
Againincaseofweeklydataconsideration,TheMmeasureofallthemutualfundsislower
than that of market when we consider monthly close price. The Mmeasures of all the mutual
funds, except Trust Bank 1st and DBH 1st mutual fund, are lower than that of market when we
consider monthly NAV. Here weekly NAV indicates that that Trust Bank 1st and DBH 1st mutual
fundshavearisklevellowerthanthemarketrisk.
IfwerankthemutualfundaccordingtheirMmeasurebasedonthemonthlydataanalysis,
then1stBSRSwillbeplacedinthe1strankintermsofbothClosePrice(CP)and4thICBplacedinthe
1strankintermsofNAV.Ontheotherhand,ICBAMCL1stwillbeplacedinthe8thrankintermsof
ClosePrice(CP)and6thICBmutualfundwillbeplacedinthe8thrankintermsofNAV.Again,when
werankthemutualfundaccordingtheirMmeasurebasedontheweeklydataanalysis,thenEBL
1stwillbeplacedinthe1strankintermsofClosePrice(CP)andTrustBank1stmutualfundwillbe
placedinthe1strankintermsofNAV.Ontheotherhand,GreenDeltawillbeplacedinthe4thrank
intermsofbothClosePrice(CP)andNAV.
HerewecanseethattheranksformutualfundsaresameinbothcaseofSmeasureandM
measure.
47
OCTOBER31,2011
5.1.5MARKETRISKADJUSTEDPERFORMANCE(MRAP)MEASURE:SCHOLTZANDWILKENS(2005)
MRAPmeasuresreturnsrelativetomarketriskinsteadoftotalrisk.Hereitisassumedthat
mutualfundmanagersinvestinvariousassetclassesandthatiswhytheunsystematicriskshould
bezero.Asaresult,theMRAPissuitableforinvestorswhoinvestinmanydifferentassets.
The bottom of the MRAP is adjusting the mutual fund systematic risk by levering de
leveringitinordertoachieveabetaequaltoone.Whenmutualfundsystematicriskishigherthan
one,thenfundmanagersshouldsalesomefractionofriskysecuritiesandinvesttheproceedsinthe
riskfreeassets.Againwhensystematicriskislowerthanone,thenfundmanagersshouldborrow
fund at risk free rate to buy some fraction of risky securities. Here at first have calculated the
fractionofsaleorloan,dibyusingfollowingformula:
di=((1/i)1)
ThenIcalculatethemarketriskadjustedperformanceoffundi(MRAPi)byusingweighted
averagethereturnofmutualfundandriskfreeassetsasfollows.Andtheresultsareasfollows.
MRAPi=(1+di)*i(di*rf
Mutual
Fund
MeanReturn,i
Adjusted
Beta,i
Fractionof
SaleorLoan,
di=((1/i)1)
MRAP=(((1+di)
*i)(di*rf)))
Overor
underMkt
Rank
Price
NAV
Price
NAV
Price
NAV
Price
NAV
Price
NAV
Price
NAV
4thICB
0.02729
0.00185
0.74911
0.90313
0.33492
0.10726
3.435%
0.154%
Over
Below
6thICB
0.02630
0.00269
0.86032
0.89913
0.16236
0.11218
2.957%
0.353%
Over
Below
12
8thICB
0.02637
0.00166
0.83569
0.88851
0.19661
0.12548
3.034%
0.246%
Over
Below
11
AMCL1st
0.01862
0.01536
0.88054
0.83777
0.13566
0.19365
2.031%
1.741%
Over
Below
AMCLIslamic
0.02228
0.00349
0.89560
0.81896
0.11657
0.22107
2.415%
0.321%
Over
Below
AIMS1st
0.02722
0.01127
0.90879
0.99287
0.10037
0.00719
2.933%
1.132%
Over
Below
Grameen1
0.02999
0.01391
0.96828
0.84139
0.03276
0.18851
3.077%
1.564%
Over
Below
1stBSRS
0.04409
0.02434
0.91093
0.88769
0.09778
0.12652
4.779%
2.682%
Over
Below
Mkt(Monthly)
1.925%
2.788%
EBL1st
0.00149
0.00018
0.85900
0.81625
0.16415
0.22511
0.19%
0.001%
Below
Below
Trust1st
0.00193
0.00245
0.88528
0.82410
0.12959
0.21344
0.23%
0.274%
Below
Over
10
DBH
0.00275
0.00101
0.87760
0.86447
0.13947
0.15678
0.33%
0.101%
Below
Over
11
GreenDelta
0.00988
0.00154
0.89873
0.86577
0.11268
0.15504
1.11%
0.194%
Below
Below
12
10
Mkt(Weekly)
0.035%
0.035%
RF(Monthly)
0.00619
0.00476
RF(Weekly)
0.00118
0.00105
INTERPRETATION:
Market Risk Adjusted Performance of 4th ICB, 6th ICB, 8th ICB, ICB AMCl 1st , ICB AMCl
Islamic, AIMS 1st , Grameen one and 1st BSRS is higher than the market mean return which
indicatestheoverperformanceofthesemutualfundsintermsoftheircloseprice.IntermsofNAV,
TrustBank1standDBH1stmutualfundareonlytheoverperformingfundsinthemarket.
Hereallthedivaluesarepositivewhichindicatesthatallthefundmanagersshouldborrow
fund at risk free rate to buy some fraction of risky securities to earn market return. So the fund
managerofunderperformingmutualfundcansellsomeriskyassetsandinvesttheproceedsinrisk
free assets. On the other hand, over performing manager should do nothing as they earn higher
returnthanthatofmarket.
48
OCTOBER31,2011
5.1.6JENSENALPHA(1968)
TocalculateJensenalphabyusingclosingpriceofmutualfunds,Ihaveusedthefollowing
regressionequationinexcelprogramandfoundthefollowingresult:
RPtRFt=P+P(RMtRFt)+Pt
MutualFund
(p/p)
Pvalue Significant?
(p/p)
Rank
4thICB
0.017854
0.107178
0.166580
0.173399
Not
0.749111
0.023833
6thICB
0.011974
0.154329
0.077590
0.504983
Not
0.860318
0.013919
8thICB
0.013068
0.156516
0.083492
0.481014
Not
0.835691
0.015637
AMCL1st
AMCLIslamic
0.003598
0.006605
0.133654
0.160859
0.026922
0.041063
0.809260
0.719243
Not
Not
0.880544
0.895600
0.004086
0.007375
8
7
AIMS1st
0.009921
0.215974
0.045938
0.693572
Not
0.908786
0.010917
Grameenone
0.011245
0.193779
0.058032
0.604841
Not
0.968275
0.011614
5
1
1stBSRS
0.027312
0.233071
0.117185
0.323566
Not
0.910927
0.029983
EBL1st
0.002167
0.068554
0.031609
0.777245
Not
0.858998
0.002523
TrustBank1st
0.002537
0.062755
0.040428
0.696192
Not
0.885278
0.002866
10
DBH
0.003376
0.062149
0.054321
0.604402
Not
0.877603
0.003847
11
GreenDelta
0.007766
0.069444
0.111830
0.307596
Not
0.898728
0.008641
12
INTERPRETATION:
Asweknowthatthestatisticalsignificanceofalphacanbeevaluatedbycalculatingthet
statisticoftheregression,whichisequaltotheestimatedvalueofthealphadividedbyitsstandard
deviation that is (p/p). This value is provided with the results of the regression. If the alpha
values are assumed to be normally distributed, a tstatistic greater than two indicates that the
probabilityofhavingobtainedtheresultthroughluck,andnotthroughskill,isstrictlylessthan5%.
Herenoneofthe(p/p)valuesaregreaterthantwo,sowecansaidthattheprobabilityofhaving
obtainedtheresultthroughluck,andnotthroughskill,iscertainlyhigherthan5%.
AgainwecantestthesignificancelevelbycheckingthePvalues.IfPvaluearegreaterthan
0.05, then we can say p the is not statistically significant at 5% significance level (or at 95%
confidencelevel).HereallthePvaluesaresmallerthan0.05,sowecansaythatallofthep values
areinsignificant.
Heresomeofthepvaluesarepositive(incasemonthlycloseprice)andsomearenegative
(in case weekly close price), but all of these values are insignificant which indicate that manager
overperformance(incasemonthlycloseprice)andunderperformance(incaseweeklycloseprice)
arenotduehisorhermanagerialorforecastingskill,butforluck.
The Jensen alpha can be used to rank mutual funds within peer groups. To compare
portfolioswithdifferentlevelsofrisk,wecancalculatetheBlackTreynorratiodefinedby(p/p)
thatisoverorunderperformanceperunitofbeta.Thehigher thevalueofthisratiois,thebetter
themutualis.
Intheabovetablewecanseethatthevalueof(p/p)ishighest(0.029983)forthe1stBSRS
mutualfundandlowest(0.008641)forGreenDeltamutualfund.Sowerank1stBSRSasnumber
oneandGreenDeltaasnumbernine.
49
OCTOBER31,2011
ByusingtheNAVdata,wegetthefollowingresultfromtheregression:
p
0.003863
0.008386
0.007304
p
0.105277
0.111958
0.112773
(p/p)
Pvalue
Significant?
(p/p)
Rank
4thICB
6thICB
8thICB
0.036697
0.074903
0.064764
0.813255
0.663371
0.720822
Not
Not
Not
0.903132
0.899134
0.888508
0.004278
0.009327
0.008220
8
10
9
AMCL1st
AMCLIslamic
0.001134
0.011657
0.089694
0.129800
0.012642
0.089811
0.938253
0.660760
Not
Not
0.837769
0.818957
0.001354
0.014235
6
11
AIMS1st
Grameenone
0.016269
0.002786
0.180106
0.082868
0.090330
0.033622
0.591633
0.816722
Not
Not
0.992866
0.841387
0.016386
0.003311
12
7
1stBSRS
EBL1st
0.004315
0.000558
0.101656
0.028210
0.042442
0.019766
0.816722
0.786538
Not
Not
0.887691
0.816250
0.004860
0.000683
1
5
Trust1st
0.001725
0.025634
0.067274
0.117184
Not
0.824105
0.002093
DBH
0.000379
0.032607
0.011618
0.795104
Not
0.864468
0.000438
GreenDelta
0.000358
0.036349
0.009855
0.757658
Not
0.865768
0.000414
MutualFund
INTERPRETATION:
Herenoneofthe(p/p)valuesaregreaterthantwo,sowecansaidthattheprobabilityof
havingobtainedtheresultnotthroughskill,butthroughluck,iscertainlylowerthan95%.Again
hereallthePvaluesaresmallerthan0.05,sowecansaythatallofthepvaluesareinsignificant.
Here some of the p values are positive and some are negative, but all of these values are
insignificantwhichindicatethatmanageroverperformanceandunderperformancearenotduehis
orhermanagerialorforecastingskillbutbyluck.
mutualfundandlowest(0.016386)forAIMS1stmutualfund.Sowerank1stBSRSasnumberone
andAIMS1stasnumbernine.
The above two tables the estimation results for Jensens alpha. The general conclusion in
Tables is that none of the sample mutual funds have been able to outperform their passive
benchmarks.TheJensenmeasureisinhalfofthecasesnegativeandnotstatisticallysignificant.No
fundshaveasignificantlypositiveJensenmeasure.Therefore, inferencecanbedrawn fromthese
preliminaryresultsthatmutualfundsofBangladeshhavebeenhavenotbeenabletooutperform
thebenchmark,leavingthefundmemberswithnetreturnsthatarenotsignificantlydifferentfrom
thepassivebenchmarkreturns,whichcontradictsthefindingsofHassanandAkhter(2011).They
remarkedpositivealphaforallofthefundstaken,someofthemweresignificant,instudyperiodon
thesamemarket.
50
OCTOBER31,2011
5.1.5HIGHERMOMENTMEASUREOFHWANGANDSATCHELL(1998)
If mutual funds returns are not normally distributed, higher moments such as skewness
andkurtosisneedtobeconsideredtoadjustforthenonnormalityandtoaccountforthefailureof
variance to measure risk accurately. A highermoment CAPM is proven more suitable than the
traditional CAPM and so a performance measure based on higher moments may also be more
accurate.Ihavecalculatedthehighermomentmeasurebyusingthefollowingquadraticequation:
We can define a performance measure (Jensen Alpha) of a portfolio under the three
momentCAPMas:
HerearetheresultandacomparisonbetweenlinearequationJensenAlphaandquadratic
equationJensenAlpha(Usingthecloseprice).
MutualFund
(p/p)
Significance
(p/p)
Rank
HMJA
Rank
JA
4thICB
0.019796
0.107178
0.184701
Not
0.749111
0.026426
6thICB
8thICB
AMCL1st
AMCLIslamic
AIMS1st
0.027606
0.027124
0.015939
0.020504
0.025568
0.154329
0.156516
0.133654
0.160859
0.215974
0.178876
0.173296
0.119257
0.127467
0.118386
Not
Not
Not
Not
Not
0.860318
0.835691
0.880544
0.895600
0.908786
0.032088
0.032457
0.018101
0.022894
0.028135
3
2
8
7
5
4
3
8
7
6
Grameenone
0.030097
0.193779
0.155317
Not
0.968275
0.031083
1stBSRS
EBL1st
TrustBank1st
DBH
GreenDelta
0.055203
0.000245
0.001243
0.002247
0.006625
0.233071
0.068554
0.062755
0.062149
0.069444
0.236850
0.003580
0.019802
0.036150
0.095403
Not
Not
Not
Not
Not
0.910927
0.858998
0.885278
0.877603
0.898728
0.060601
0.000286
0.001404
0.002560
0.007372
1
9
10
11
12
1
9
10
11
12
INTERPRETATION:
Here the statistical significance of alpha is evaluated by calculating the tstatistic of the
regression,whichisequaltotheestimatedvalueofthealphadividedbyitsstandarddeviationthat
is(p/p).Atstatisticgreaterthantwoindicatesthattheprobabilityofhavingobtainedtheresult
through luck, and not through skill, is strictly less than 5%. Here none of the (p/p) values are
greater than two, so we can said that the probability of having obtained the result through luck,
andnotthroughskill,iscertainlyhigherthan5%.
Heresomeofthepvaluesarepositive(incasemonthlycloseprice)andsomearenegative
(in case weekly close price), but all of these values are insignificant which indicate that manager
overperformance(incasemonthlycloseprice)andunderperformance(incaseweeklycloseprice)
arenotduehisorhermanagerialorforecastingskillbutbyluck.
Tocompareportfolioswithdifferentlevelsofrisk,wecancalculatetheBlackTreynorratio
definedby(p/p)thatisoverorunderperformanceperunitofbeta.Thehigherthevalueofthis
ratiois,thebetterthemutualis.
mutualfundandlowest(0.007372)forGreenDeltamutualfund.Sowerank1stBSRSasnumber
oneandGreenDeltaasnumbernine.Herewecanseealittlebitchangeinranksintermsoflinear
equation Jensen Alpha and quadratic equation Jensen Alpha. Here we can conclude that after
adjustment for skewness and kurtosis, 1st BSRS remain in the 1st rank which indicates that the
returnfor1stBSRSisnormallydistributed.Thatisthepricesarenormallydistributed.
51
OCTOBER31,2011
HerearetheresultandacomparisonbetweenlinearequationJensenAlphaandquadratic
equationJensenAlpha(UsingtheNAV).
Mutual
Fund
(p/p)
Significance
(p/p)
Rank
HMJA
Rank
JA
4thICB
0.023251
0.105277
0.220858
Not
0.903132
0.025745
6thICB
0.030136
0.111958
0.269173
Not
0.899134
0.033517
11
10
8thICB
0.028692
0.112773
0.254421
Not
0.888508
0.032292
10
AMCL1st
0.006212
0.089694
0.069256
Not
0.837769
0.007415
AMCLIslamic
0.016901
0.129800
0.130205
Not
0.818957
0.020637
11
AIMS1st
0.039521
0.180106
0.219429
Not
0.992866
0.039804
12
12
Grameen1
0.003845
0.082868
0.046400
Not
0.841387
0.004570
1stBSRS
0.014867
0.101656
0.146248
Not
0.887691
0.016748
EBL1st
0.000730
0.028210
0.025872
Not
0.816250
0.000894
Trust1st
0.001366
0.025634
0.053284
Not
0.824105
0.001657
DBH
0.000264
0.032607
0.008094
Not
0.864468
0.000305
GreenDelta
0.000458
0.036349
0.012612
Not
0.865768
0.000530
INTERPRETATION:
Herenoneofthe(p/p)valuesaregreaterthantwo,sowecansaidthattheprobabilityof
havingobtainedtheresultnotthroughskill,butthroughluck,iscertainlylowerthan95%.
Here some of the p values are positive and some are negative, but all of these values are
insignificantwhichindicatethatmanageroverperformanceandunderperformancearenotduehis
orhermanagerialorforecastingskillbutbyluck.
Intheabovetablewecanseethatthereisnochangeinranks intermsoflinearequation
Jensen Alpha and quadratic equation Jensen Alpha (Using NAV). The value of (p/p) is highest
(0.016748) for the 1st BSRS mutual fund and lowest (0.039804) for AIMS 1st mutual fund. So we
rank1stBSRSasnumberoneandAIMS1stasnumbernine.
52
OCTOBER31,2011
5.1.7INFORMATIONRATIO
Information ratio (IR) is a ratio of portfolio returnsabove thereturnsof a benchmark
(usuallyanindex)tothevolatilityofthosereturns.Theinformationratio(IR)measuresaportfolio
manager'sabilitytogenerateexcessreturnsrelativetoabenchmark,butalsoattemptstoidentify
theconsistencyoftheinvestor.Thisratiowillidentifyifamanagerhasbeatenthebenchmarkbya
lot in a few months or a little every month.Thehigher the IR the more consistent a manager is
andconsistencyisanidealtrait.IhavecalculatedInformationRatioinfollowingway:
ThenIhavefoundthefollowingresult:
MutualFund
IR
(ClosePrice)
Rank
IR
(NAV)
Rank
4thICB
0.065079
0.057879
6thICB
0.047578
0.077206
7
12
8thICB
0.046143
0.425680
AMCL1st
0.005137
0.141748
AMCLIslamic
0.020168
0.180269
11
AIMS1st
0.039179
0.123844
Grameenone
0.061327
0.176030
10
1stBSRS
0.111456
0.047353
EBL1st
0.028562
0.004961
TrustBank1st
0.041993
10
0.072666
DBH
0.056564
11
0.027618
GreenDelta
0.193435
12
0.051086
INTERPRETATION:
AccordingtoGrinoldandKahn,theinformationratioisanalogoustoanormalbellshaped
curvewithanIR=0asthemeanofthedistribution.Aninformationratiogreaterthanzeroshows
that a manager has performed in the top 50% of the population while a manager with an
informationratiolessthanzeroisperforminginthebottomhalfoftheactiveportfoliomanagers.A
managerwhoisperforminginthetopquartilehasagood"informationratioof0.5.AnIR=1.0isan
exceptionalnumberanditshouldbethegoalofmanagementtoreachthislevel.
Fromtheabovetable,wecansaythatICBAMCLIslamic,AIMS1st,Grameenone,4thICB,6th
ICB and 1st BSRS mutual fund are performing in the top 50% of the active portfolio
ICB,
managerswhileothersareperformingintheinthebottomhalfwhenweconsiderthecloseprice.
8th
Againmanagerof1stBSRScanachievehigherreturnsmoreefficientlythanonewithalow
ratiosuchasAIMS1standGrameen oneetc.bytakingonadditionalrisk.Additional riskcouldbe
achievedthroughleveraging.
Ontheotherhand,TrustBank1st,DBHandGreenDeltamutualfundareperforminginthe
top 50% of the active portfolio managers while others are performing in the in the bottom half
whenweconsidertheNAV.
53
OCTOBER31,2011
5.1.8EFFICIENCYRATIO
Tocalculatetheefficiencyratio,firstIhavecalculatedtheReturnperunitofriskbyusing
thefollowingformula:
=(Meanreturn/StandardDeviation)
ThenImarkedoutthemutualfundswhichareperformingoverorunderthemarket.HereI
havecomparethereturnperunitofriskofaspecificmutualfundwiththatofmarket.Ifthereturn
perunitofriskofaspecificmutualfundishigherthanthat ofmarket,thenImarkedthatmutual
fundasoverperformingotherwisemarkedasunderperforming.AtlastIhaverankthemaccording
theirvalueofreturnperunitofrisk.Thehigherthereturnperunitofriskis,thehighertherankis
given.Theresultsaregivenbelow:
MutualFund
MeanReturn
Standard
Deviation
Returnperunit
ofrisk
Overor
underMkt
Rank
Price
NAV
Price
NAV
Price
NAV
Price
NAV
Price
NAV
4thICB
0.02729
0.00185
0.10718
0.10528
25.46%
1.76%
Over
Below
6thICB
0.02630
0.00269
0.15433
0.11196
17.04%
2.40%
Below
Below
11
8thICB
0.02637
0.00166
0.15652
0.11277
16.85%
1.47%
Below
Below
10
AMCL1st
0.01862
0.01536
0.13365
0.08969
13.93%
17.13%
Below
Below
AMCLIslamic
0.02228
0.00349
0.16086
0.12980
13.85%
2.69%
Below
Below
AIMS1st
0.02722
0.01127
0.21597
0.18011
12.60%
6.26%
Below
Below
Grameen1
0.02999
0.01391
0.19378
0.08287
15.48%
16.79%
Below
Below
Below
Over
1stBSRS
0.04409
0.02434
0.23307
0.10166
18.91%
23.94%
Market(Monthly)
0.01925
0.02788
0.08629
0.12206
22.31%
22.84%
EBL1st
0.00149
0.00018
0.06855
0.02821
2.18%
0.64%
Below
Below
Trust1st
0.00193
0.00245
0.06276
0.02563
3.08%
9.54%
Below
Over
10
DBH
0.00275
0.00101
0.06215
0.03261
4.42%
3.11%
Below
Over
11
GreenDelta
0.00988
0.00154
0.06944
0.03635
14.23%
4.24%
Below
Below
12
12
Market(Weekly)
0.00035
0.00035
0.05171
0.05171
0.67%
0.67%
INTERPRETATION:
In the above table, we can see that when we consider the close price then only 4th ICB
mutualfundisoverperformedthemarketand1stBSRSisperformingneartothemarket.Sothese
twomutualfundsisrankedasoneandtworespectivelywhichindicatethatthesetwomutualfunds
are efficient enough to handle the risk profitably. Except these two, all other mutual funds are
performingbelowthemarket.Ontheotherhand,whenweconsidertheNAVthen1stBSRS,Trust
1standDBH1stmutualfundisoverperformedthemarketwhichindicatestheirefficiency.Andall
othermutualfundsareperformingbelowthemarket.
54
OCTOBER31,2011
5.1.9COEFFICIENTOFDETERMINATION(R2)
I have calculated the correlation coefficient between the market returns and portfolio
returns by using a formula in Excel which is CORREL (Array of market return, array of Portfolio
Return).ThenIhavesquaredittogetCoefficientofDetermination(R 2).Ihavefound:
MutualFund
R2
Rank
R2
Rank
4thICB
0.040044
12
0.606009
6thICB
0.122290
0.517616
8thICB
0.090775
11
0.463939
10
AMCL1st
0.191564
0.478675
AMCLIslamic
0.152636
0.180184
12
AIMS1st
0.117511
0.445909
11
Grameenone
0.184465
0.585232
1stBSRS
0.090985
10
0.627410
EBL1st
0.208118
0.659947
TrustBank1st
0.320431
0.885987
DBH
0.303796
0.873393
GreenDelta
0.455881
0.953972
INTERPRETATION:
A Coefficientofdeterminationiscomputedasavaluebetween0 (0percent)and1(100
percent).Thehigherthevalueis,thebetterthefit.TheRSquarevalueisnearto1,itcanbesaid
that the portfolio is well diversified. Diversification means to reduce the amount of unsystematic
risk of a portfolio. R2 measures the level of diversification. R2 of the fund is expected to remain
within 0 to .99 while the benchmark index R2 is 1. Mutual funds selected for this study range R2
valuewithin0.040044to0.455881(incaseofcloseprice)andwithin0.180184to0.953972over
thestudyperiod.Theoveralllevelofdiversificationisnothigh,whichinturnexertshighlevelof
unsystematicriskforthefunds.
Intheabovetable,wecanseethatwhenconsideringclosingpricethenGreenDeltahasthe
highest R2 value, but this value is not too high to say that Green Delta mutual fund is well
diversified.WhenweconsiderclosepricedataandcalculateR2thennoneofthemutualfundiswell
diversified. Again if we take NAV data then we can see the real picture of the diversification of
mutualfunds.NowGreenDelta,TrustBank1standDBHmutualfundhavehighestthreevaluefor
R2.AccordingNAVdata,themostdiversifiedmutualfundisGreendeltamutualfund.
55
OCTOBER31,2011
5.2MARKETTIMINGSKILL
Inthissection,Iwillcheckwhetherthefundmanagersoftheselectedmutualfundhavethe
propertimingknowledgetoincreasethefundreturnand/ordecreasethefundtotalrisk.Thefund
managershavingsuperiortimingskillwillreacttothemarket changeatsoonesttimetoincrease
returnand/ordecreaserisk.Managerscandothisbyincreasingthefundbetawhenthemarketis
rising and reducing the beta when the market is falling. Here I used two models to evaluate the
managerstimingskill.OneisTreynor&MazuyModelandanotherisHenriksson&Mertonmodel.
NowIamevaluatingthetimingskillundertwomodels.
5.2.1TREYNORANDMAZUYMODEL
Treynor and Mazuy add a quadratic term to the regression equation to test for market
timingability.InthestandardCAPMregressionequation,aportfoliosreturnisalinearfunctionof
the return on the market portfolio. However, they argued that if the investment manager can
forecastmarketreturns,hewouldholdagreaterportionofthemarketportfoliowhenthereturnon
the market is high, and a smaller proportion when the market return is low. Thus, the portfolio
returnwillbeanonlinearfunctionofthemarketreturn.
A positive and statistical significant value of P would imply positive market timing skill
becausethelasttermwillmakethecharacteristiclinesteeperas(RMtRFt)islarger.
To get the coefficient of timing skill, I first calculate excess market return, squared excess
market return and excess portfolio return. Then I regress the excess portfolio return on excess
market return, squared excess market return by using the Excel program and find the following
results:
ClosePrice
Mutual
Fund
Coefficient
ofTiming
Skill
Pvalue
4thICB
0.241766
0.732331
6thICB
1.931315
0.043942
Significant
At5%
Level
NAV
TimingSkill
Coefficient
ofTiming
Skill
Pvalue
Significant
At5%
Level
Timing
Skill
No
Neutral
0.876297
0.217838
No
Neutral
Yes
Unsuccessful
1.196133
0.148532
No
Neutral
8thICB
1.736854
0.080391
No
Neutral
1.058833
0.233727
No
Neutral
AMCL1st
1.520307
0.056794
No
Neutral
0.297574
0.560954
No
Neutral
AMCLIslamic
1.713486
0.082187
No
Neutral
0.299576
0.747223
No
Neutral
AIMS1st
1.960331
0.148163
No
Neutral
1.328728
0.200106
No
Neutral
Grameen1
2.332713
0.044467
Yes
Unsuccessful
0.050847
0.904076
No
Neutral
1stBSRS
3.452789
0.018453
Yes
Unsuccessful
0.601122
0.212869
No
Neutral
EBL1st
0.727587
0.520714
No
Neutral
0.058876
0.846951
No
Neutral
Trust1st
0.490998
0.609533
No
Neutral
0.064650
0.690865
No
Neutral
DBH
0.429340
0.656027
No
Neutral
0.007950
0.970659
No
Neutral
GreenDelta
0.076565
0.937784
No
Neutral
0.018700
0.902946
No
Neutral
INTERPRETATION:
Under Closing Price of Mutual Funds, The Pvalues of coefficient of market timing skill of
mutualfundsmanagersof6thICB,GrameenOneand1stBSRSislessthan0.05,Sowecansaythat
theCoefficientofmarkettimingskillofmutualfundsmanagers,P,isstatisticallysignificantatat
95%confidencelevel.HeretheCoefficientofmarkettimingskillarenegativeandsignificant,sowe
canconcludethatthefundmanagerincreasedhisorherportfoliosbetawhenthemarkethadfallen
56
OCTOBER31,2011
anddecreasedhisportfoliosbetawhenthemarkethadrisen.Thatis,themanagerhaspracticeda
unsuccessfulmarkettimingstrategy.
Again The Pvalues of coefficient of market timing skill of mutual funds managers of all
otherfundarelargerthan0.05,SowecansaythattheCoefficientofmarkettimingskillofmutual
fundsmanagers,P ,isnotstatisticallysignificantat95%confidencelevel.HeretheCoefficientof
markettimingskillisnegativebutinsignificant,sowecanconcludethatthefundmanagerdidnot
increase or decrease his or her portfolios beta according the market conditions. That is, the
managerhaspracticedaneutralmarkettimingstrategy.
Now under NAV of Mutual Funds, The Pvalues of coefficient of market timing skill of
mutual funds managers of all funds are larger than 0.05, So we can say that the Coefficient of
markettimingskillofmutualfundsmanagers,P,isnotstatisticallysignificantat95%confidence
level.HeretheCoefficientofmarkettimingskillisnegativebutinsignificant,sowecanconclude
thatthefundmanagerdidnotincreaseordecreasehisorherportfoliosbetaaccordingthemarket
conditions.Thatis,themanagerhaspracticedaneutralmarkettimingstrategy.
57
OCTOBER31,2011
5.2.2THEHENRIKSSONMERTONMODEL
Againtimingskillimpliesthathowwellafundmangermatcheshisorherdecisionwiththe
movementofthemarket.Iftimingskillifperfect,portfolioreturnwouldbeequaltomarketreturn.
TimingskillunderHenriksson&Mertonmodelisexaminedbyamultipleregression.Theequation
is:
RMFtRFt= +(RMtRFt)+Max[(RMt RFt);0]+t
The , and coefficientsintheequationareestimatedthroughregression. The coefficient

allows us to evaluate the managers capacity to anticipate market evolution. If is positive and
significantlydifferentfromzero,themanagerhasagoodtimingcapacity.
Tocalculate coefficient oftimingskill,Ifirstcalculateexcess marketreturn,MAX(excess

marketreturn,0)commandtogetthemaximumvalueamongexcessmarketreturnandzeroand
excess portfolio return. Then I regress the excess portfolio return on excess market return,
maximum value among excess market return and zero by using the Excel program and find the
followingresults:
ClosePrice
Mutual
Fund
NAV
Coefficient
ofTiming
Skill
Pvalue
Significant
At5%Level
Timingskill
Coefficient
ofTiming
Skill
Pvalue
Significant
At5%Level
Timing
skill
4thICB
0.586441
0.162664
No
Neutral
0.236514
0.614582
No
Neutral
6thICB
1.332642
0.019526
Yes
Unsuccessful
0.472696
0.387935
No
Neutral
8thICB
1.395628
0.017750
Yes
Unsuccessful
0.338867
0.562737
No
Neutral
AMCL1st
0.895607
0.060894
No
Neutral
0.091363
0.788549
No
Neutral
AMCLIslamic
0.914307
0.122107
No
Neutral
0.087579
0.887151
No
Neutral
AIMS1st
1.263967
0.118754
No
Neutral
0.567651
0.415822
No
Neutral
Grameen1
1.077245
0.123352
No
Neutral
0.053589
0.848079
No
Neutral
1stBSRS
2.461574
0.004600
Yes
Unsuccessful
0.408562
0.201242
No
Neutral
EBL1st
0.138703
0.736663
No
Neutral
0.042274
0.703215
No
Neutral
Trust1st
0.174859
0.616960
No
Neutral
0.010238
0.861735
No
Neutral
DBH
0.022753
0.948285
No
Neutral
0.011755
0.881191
No
Neutral
GreenDelta
0.046774
0.900021
No
Neutral
0.014740
0.796199
No
Neutral
INTERPRETATION:
UnderClosingPriceof MutualFunds,ThePvaluesofcoefficientof markettimingskillof
mutualfundsmanagersof6thICB,8thICBand1stBSRSislessthan0.05,SowecansaythattheCo
efficientof markettimingskillofmutualfunds managers, ,isstatisticallysignificantatat95%
confidencelevel.HeretheCoefficientofmarkettimingskillarenegativeandsignificant,sowecan
conclude that the fund manager increased his or her portfolios beta when the market had fallen
anddecreasedhisportfoliosbetawhenthemarkethadrisen.Thatis,themanagerhaspracticeda
unsuccessfulmarkettimingstrategy.
Again The Pvalues of coefficient of market timing skill of mutual funds managers of all
otherfundarelargerthan0.05,SowecansaythattheCoefficientofmarkettimingskillofmutual
fundsmanagers, ,isnotstatisticallysignificantat95%confidencelevel.HeretheCoefficientof
markettimingskillisnegativebutinsignificant,sowecanconcludethatthefundmanagerdidnot
58
OCTOBER31,2011
increase or decrease his or her portfolios beta according the market conditions. That is, the
managerhaspracticedaneutralmarkettimingstrategy.
Now under NAV of Mutual Funds, The Pvalues of coefficient of market timing skill of
mutual funds managers of all funds are larger than 0.05, So we can say that the Coefficient of
markettimingskillofmutualfundsmanagers, ,isnotstatisticallysignificantat95%confidence
level.HeretheCoefficientofmarkettimingskillisnegativebutinsignificant,sowecanconclude
thatthefundmanagerdidnotincreaseordecreasehisorherportfoliosbetaaccordingthemarket
conditions.Thatis,themanagerhaspracticedaneutralmarkettimingstrategy.
59
OCTOBER31,2011
5.3FAMADECOMPOSITIONOFMUTUALFUNDACTUALEXCESSRETURN:
Famasbreakdownofthecomponentsofinvestmentperformancehasalsobeenshownin
the report. In order to illustrate Famas technique of portfolio evaluation the portfolio return,
portfoliostandarddeviationandportfolioBetahasbeenused.
Atfirst,theoverallperformanceoftheportfoliowhichisitsactualreturninexcessofthe
riskfreeratehasbeencalculated.ThenReturnforRiskiscalculatedbyactualexcessmutualfund
returntimesitssystematicriski.e.Beta.Andthedifference betweentheoverallperformanceand
return for risk is the Gross selectivity. After that the ratio of total risk has been calculated by
dividingthemutualfundstandarddeviationwiththestandarddeviationofthemarketreturn.The
impactofimperfectdiversificationmeasureindicatestheaddedreturnrequiredtojustifyanyloss
ofdiversificationintheportfolio.Itisthedifferencebetweentheexcessreturntimestotalriskratio
andtheexcessreturntimesmutualfundBeta.Atlast,Netsuperiorreturnduetoselectivityisthe
differencebetweenGrossselectivityandtheimpactofimperfectdiversificationmeasure.
Here I give the summery results of Fama Decomposition for all the mutual funds on the
basisofClosingPrice.
Mutual
Fund
ClosePrice
Port.Excess
Return
Port.
ReturnFor
Risk
RiskRatio
Gross
Selectivity
ReturnFor
Imperfect
Diversification
Netsuperior
returndue
toselectivity
4thICB
0.021096
0.009786
1.242128
0.011309
0.006441
0.004868
6thICB
0.020113
0.011239
1.788591
0.008874
0.012127
0.003253
8thICB
0.020183
0.010918
1.813935
0.009266
0.012780
0.003514
AMCL1st
0.012431
0.011504
1.548969
0.000927
0.008732
0.007805
AMCLIslamic
0.016088
0.011700
1.864269
0.004387
0.012655
0.008267
AIMS1st
0.021028
0.011872
2.503018
0.009155
0.020827
0.011672
Grameen1
0.023798
0.012650
2.245791
0.011148
0.016690
0.005541
1stBSRS
0.037895
0.011900
2.701160
0.025995
0.023388
0.002607
EBL1st
0.002670
0.000715
1.325729
0.001955
0.000389
0.001566
Trust1st
0.003109
0.000737
1.213598
0.002372
0.000273
0.002098
DBH
0.003928
0.000731
1.201878
0.003197
0.000270
0.002927
GreenDelta
0.011058
0.000748
1.342944
0.010310
0.000370
0.009940
INTERPRETATION:
FromFamasdecompositionmeasurethisisevidentthatallofthefundsexcept4thICBand
1st BSRS Mutual fund suffer from negative net superior return due to selectivity. That is fund
managerscannotaddextrabenefitthroughtheirprofessionalexpertisetotheinvestorsintermsof
selectivity.
Asweseeonly4thICBand1stBSRSMutualfundshavethepositivenetsuperiorreturndue
toselectivity,wecansaythatbothfundmanagerscanaddextrabenefitthroughtheirprofessional
expertise to the investors in terms of selectivity. But if we look into the risk ratio of both funds
carefullythenwecanseethat1stBSRSmutualfundriskratio(2.701160)istwotimeslargerthan
the risk ratio of 4th ICB mutual fund (1.242128) where 1st BSRS mutual fund earns net superior
return due to selectivity (0.002607) lower than that of 4th ICB mutual fund(0.0048680. It tells us
that4thICBmutualfundmanagercanaddextrabenefittoitsinvestorsatalowerriskthanthe1st
BSRSmutualfundmanager.
60
OCTOBER31,2011
It is possible to get a clear picture of Famas decomposition of 4th and 6th ICB from the following
graph:
Now I present the Fama decomposition summery results for all the mutual funds on the
basisofNAV.
Mutual
Fund
NAV
Port.
Excess
Return
Port.
Return
ForRisk
Risk
Ratio
Gross
Selectivity
ReturnFor
Imperfect
Diversification
Netsuperior
returndueto
selectivity
4thICB
0.002907
0.020878
0.862476
0.023785
0.000940
0.022845
6thICB
0.007449
0.020785
0.917213
0.028234
0.000418
0.028652
8thICB
0.006415
0.020540
0.923893
0.026955
0.000818
0.027773
AMCL1st
0.010602
0.019367
0.734815
0.008764
0.002380
0.006384
AMCLIslamic
0.001267
0.018932
1.063383
0.020199
0.005650
0.025849
AIMS1st
0.006512
0.022952
1.475515
0.016440
0.011157
0.027597
Grameen1
0.009156
0.019450
0.678892
0.010295
0.003756
0.006538
1stBSRS
0.019581
0.020521
0.832818
0.000940
0.001268
0.000329
EBL1st
0.000870
0.000576
0.545542
0.000294
0.000191
0.000485
Trust1st
0.001395
0.000582
0.495733
0.001976
0.000232
0.001745
DBH
0.000037
0.000610
0.630564
0.000573
0.000165
0.000408
GreenDelta
0.002593
0.000611
0.702938
0.001982
0.000115
0.002097
INTERPRETATION:
Hereisevidentthatallofthefunds4thICBtrustBank1standDBH1stMutualfundgivethe
positive net superior return due to selectivity. That is only these fund managers can add extra
benefitthroughtheirprofessionalexpertisetotheinvestorsintermsofselectivity.
Hereifwelookintotheriskratiooftheabovementionedthreefundscarefullythenwecan
seethat1stBSRSmutualfundriskratioislargerthantheriskratioofothertwofunds.But1stBSRS
mutual fund earns net superior return due to selectivity lower than that of other mutual fund. It
tells us that 1st BSRS mutual fund manager can add extra benefit to its investors at a higher risk
thantheothertwo.Incomparisonamongtheabovementionedthreemutualfunds,TrustBank1st
61
OCTOBER31,2011
mutualfundmanageristhemostefficientonetoselectthesecuritieswhichprovidehigherreturn
atalowerreturn.
NowwecanseetherealpictureoftheFamadecompositionofactualexcessreturnofAIMS
1stand1stBSRSmutualfundinthefollowinggraph.
Rf
Selectivity,
2.14%
0.52%
0.51%
Returnfor
Risk,0.03%
0.02
p
2.62 ,RiskRatio
(Rp)/(Rm)
Rf
Selectivity,3.68%
OverallPerformance,
3.69%
4.20%
ActualReturn,4.20%
0.54%
0.51%
Selectivity,2.14%
ActualReturn,2.68%
OverallPerformance,
2.17%
2.68%
NetSelectivity,
2.40%
Returnforlossof
diversification,4.69%
5.21%
1stBSRSM.F.
Monthly
Return
5.08%
Returnforlossof
diversification,4.54%
AIMS 1st M.F.
Monthly
Return
NetSelectivity,
1.01%
Selectivity,
3.68%
Returnfor
Risk,0.01%
2.69 ,RiskRatio
0.004
(Rp)/(Rm)
p
Hereallthedecompositiongraphsarenotshown.Onlyabovefourgraphsareprovidedto
giveagraphicalviewofdecomposition.
62
OCTOBER31,2011
CORRELATION,COMPARISON
&
JUSTIFICATION
63
OCTOBER31,2011
6.1COMPARISONBETWEENMUTUALFUNDRETURNANDMARKETRETURN
HereItrytoshowwhethermutualfundsareoutperforminginthemarketornotintermof
theirmeanreturns.Thefollowingtableshowthereturnearnedbythemutualfundsasagainstthe
return of stock market index. Here as a market return benchmark I have used the DGEN or DSE
generalindexandmutualfundreturnsarecalculatedonthebasisoftwoparametersi.e.basedon
mutualfundclosepriceandbasedonNAV.
MutualFund
MeanReturn
OverorunderMkt
Rank
Price
NAV
Price
NAV
Price
NAV
4thICB
2.729%
0.185%
Over
Below
6thICB
2.630%
0.269%
Over
Below
8thICB
2.637%
0.166%
Over
Below
AMCL1st
1.862%
1.536%
Below
Below
AMCLIslamic
2.228%
0.349%
Over
Below
AIMS1st
2.722%
1.127%
Over
Below
Grameen1
2.999%
1.391%
Over
Below
1stBSRS
4.409%
2.434%
Over
Below
1.925%
2.788%
EBL1st
Market(Monthly)
0.149%
0.018%
Below
Below
3
1
Trust1st
0.193%
0.245%
Below
Over
DBH
0.275%
0.101%
Below
Over
GreenDelta
0.988%
0.154%
Below
Below
0.035%
0.035%
Market(Weekly)
Intheabovetableitisobservedthatwhenweconsiderreturnbasedonclosepricethen1st
BSRSisthehighestreturngeneratingmutualfund.ThenexthighestreturnisfoundGrameenone
followed by 4th ICB. The top three returns is ranging from 4.409% to 2.729%. There are four
negativereturngeneratingmutualfundsandamongallmutualfundsfiveareperformingunderthe
market.
ConsideringreturnonthebasisonNAV,therearetwomutualfundswhichperformedover
themarket.TrustBank1standDBH1stmutualfundaretheoverperforming.Amongall,again1st
BSRSisthehighestreturngeneratingmutualfund.Onlythreegeneratenegativereturn.
HereitisevidentthatNAVdoesnotanystrongimpactonthepriceofmutualfundwhichis
alsovalidatingbythecorrelationanalysis.
64
OCTOBER31,2011
6.2CORRELATIONBETWEENCLOSEPRICE&NAV,CLOSEPRICE&DGEN
Correlationreferstothewaythevaluesoftwosetsofnumbersvarytogether.Forexample,
if the numbers are stock prices, and the price of one stock goes up at the same time the price of
anotherstockgoesup,thetwostockpricesarepositivelycorrelated.Ifthepriceofonestockdrops
when the price of the other goes up, the two stock prices are negatively correlated. If there is no
consistentpatterninthevariationofthetwostockprices,theyareuncorrelated.
Thestrengthofthecorrelationbetweentwovariablessuchastwostockpricesismeasured
bythecorrelationcoefficient.Iftwostockpriceshaveperfectpositivecorrelation,theircorrelation
coefficient will have the value of +1. If they have perfect negative correlation, their correlation
coefficientis1.Otherwise,theircorrelationcoefficientwillhaveavaluebetween1and+1.Ifthe
twostockpricesdonotvarytogetherinaconsistentmanner,theircorrelationcoefficientwillhave
avalueclosetozero.
While the coefficient of covariance has no upper and lower limits, the coefficient of
correlation can vary from positive one (indicating a perfect positive relationship), through zero
(indicating the absence of a relationship), to negative one (indicating a perfect negative
relationship).Asaruleofthumb,correlationcoefficientsbetween.00and.30areconsideredweak,
thosebetween.30and.70aremoderateandcoefficientsbetween.70and1.00areconsideredhigh.
However,thisruleshouldbealwaysqualifiedbythecircumstances.
I have calculated the correlation between Close Price & NAV to see whether NAV has an
impactonthesharepriceornot.ThatiswhetheranincreaseinNAVvalueleadstoanincreaseor
decrease in share price. In the same I have also calculated the correlation between Close Price &
DGENtoseetheimpactonthemutualfundcloseprice.Heretheresultsarepresented.
MutualFund
Correlationbetween
CP&NAV
Coefficient
Periods
4thICB
0.420112
19month
6thICB
0.687322
19month
Interpret
ation
Correlationbetween
CP&DGEN
Coefficient
Periods
Moderate
0.442427
19month
Moderate
0.824094
19month
Interpre
tation
Correlationbetween
CP&DGEN
Interpre
tation
Coefficien
t
Periods
Moderate
0.874655
69month
Strong
Strong
0.585737
69month
Moderate
8thICB
0.824094
19month
Strong
0.808141
19month
Strong
0.664280
69month
Moderate
AMCL1st
AMCL
Islamic
AIMS1st
0.369901
23month
Moderate
0.305165
23month
Moderate
0.767195
69month
Strong
0.204265
23month
Weak
0.045839
23month
Weak
0.584083
69month
Moderate
0.154042
23month
Weak
0.429520
23month
Moderate
0.410451
69month
Moderate
Grameen1
0.070232
23month
Weak
0.058591
23month
Weak
0.526813
69month
Moderate
1stBSRS
0.480493
23month
Moderate
0.362887
23month
Moderate
0.782854
69month
Strong
EBL1st
0.573556
66week
Moderate
0.384142
66week
Moderate
0.384142
66week
Moderate
Trust1st
0.475749
66week
Moderate
0.714008
66week
Strong
0.714008
66week
Strong
DBH
0.310792
66week
Moderate
0.394640
66week
Moderate
0.394640
66week
Moderate
GreenDelta
0.778815
66week
Strong
0.801844
66week
Strong
0.801844
66week
Strong
INTERPRETATION:
Hereitisevidentthatonlythepriceofthe8thICBandGreenDeltamutualfundarestrongly
correlated with their NAV. But the price of Trust Bank 1st mutual fund along with previously
mentionedtwomutualfundsisstronglycorrelatedwithDGENindexinpositivedirection.Thatis,
the prices of mutual funds are strongly correlated to DGEN index. It indicates that when market
goes up then the investor are willing to buy the stock of theses mutual funds at higher price
whethertheirNAVisincreasedornot.ThiscorrelationbetweenClosePrice&DGENisrecentyear
65
OCTOBER31,2011
observation.ToensurethevalidityofthiscorrelationbetweenClosePrice&DGEN,Ialsocalculate
correlation coefficient between Close Price & DGEN by using previous five years data. Now I get
strongercorrelationbetweenClosePrice&DGENwhereitisshowedthatthepricesoffiveofthe
twelve mutual funds are strongly correlated with DGEN in positive direction and prices of others
aremoderatelycorrelatedwithDGENinpositivedirection.
66
OCTOBER31,2011
6.3JUSTIFICATIONOFPRICE:OVERPRICEDORUNDERPRICED
Market value is the price at which an asset would trade in a competitive auction setting.
Marketvalueisoftenusedinterchangeablywithopenmarketvalue,fairvalueorfairmarketvalue,
although these terms have distinct definitions in different standards, and may differ in some
circumstances.
These two words are used to say that a price is too high or too low in regard to the
expectationsofanindividualoragrouporthepricewhichissupportedbythefundamentals.Itisa
matter or comparison to personal expectations or/and some comparison tool as a chart, table,
formulathatisagreeduponandsetforthasacommonviewpointbythosepeople.Overpricingand
underpricingstatementsarevalidifrelatedtotheusedcomparisonoriginbutirrationalwithout
such a basis. More often than not, these statements are purely emotional without any valid
reference.
HereIjustifythepricesofmutualfundswhetherthesespricesaresupportivebyisNAV.If
the price of a mutual fund is higher than the NAV per share, then we can say that that stock is
overpricedandviceversa.
Mutualfund
Face
Value
(Tk.)
Avg.CP
Avg.
NAVMV
Avg.
NAVCV
Avg.
(NAVMV
/NAVCV)
Avg.
(CP/NAVMV)
Avg.((CP
NAVMV)/
NAVNV)
No.of
period
averaging
Justify
4thICB
100
2163.18
2675.62
0.83
0.17
19months
Underprice
6thICB
100
683.92
826.29
0.83
0.17
19months
Underprice
8thICB
100
743.08
957.38
0.78
0.22
19months
Underprice
AMCL1st
100
629.33
620.66
374.68
1.67
1.04
0.04
23months
Overprice
AMCLIslamic
100
375.11
310.04
245.74
1.27
1.22
0.22
23months
Overprice
Overprice
AIMS1st
10
12.78
5.19
2.32
2.30
2.55
1.55
23months
Grameen1
100
91.85
54.23
26.20
2.08
1.72
0.72
23months
Overprice
1stBSRS
100
1487.54
1697.81
235.96
7.41
0.91
0.09
23months
Underprice
EBL1st
10
15.54
14.95
12.59
1.19
1.04
0.04
65weeks
Overprice
Trust1st
10
13.66
14.06
11.77
1.20
0.97
0.03
65weeks
Underprice
DBH
10
13.73
12.62
12.00
1.06
1.09
0.09
65weeks
Overprice
GreenDelta
10
9.65
10.12
10.43
0.97
0.95
0.05
48weeks
Underprice
INTERPRETATION:
HereIusedtheaveragevalueofcloseprice,NAVinmarketand costvalue,closepriceto
NAV,excessclosepriceoverNAV,andexcessclosepriceoverNAVinpercentage.Anegativevalue
of excess close price over NAV (%) or the value close price to NAV smaller than one implies that
accordingtoNAVthestockshouldbepricedhigherthanitscurrentpricethatisunderpricedstock.
Here it evident that 4th ICB, 5th ICB, 8th ICB, 1st BSRS, Trust 1st and green Delta mutual fund are
underpriceinthemarket.
AgainthevalueclosepricetoNAVlargerthanoneorapositivevalueofexcesscloseprice
overNAV(at%)impliesthatmutualfundareoverpriced.HereAMCL1st,AMCLIslamic,AIMS1st,
EBL1standDBH1stmutualfundareoverpriced.Soasaninvestor,oneshouldbuytheunderpriced
stockandselltheoverpricedstocks.
67
OCTOBER31,2011
CONCLUSION
68
OCTOBER31,2011
CONCLUSION
Mutual Fund is one of the oldest and most widely used investment vehicles in the world.
Conceptualizedalmost300yearsago,theMutualFundstructurehasnotonlysurvivedthetestof
timeandthemanyupsanddownsoftheworldfinancialmarkets,butithasflourished.Todaythe
globalMutualFundindustryisgigantic,comprisingofmorethan80,000individualfundswithover
US$26 trillion in assets under management. In terms of reach, over 300 million retail investors
acrossahundredcountriesinvestincapitalmarketsthroughMutualFunds.Whyhasthisindustry
beensosuccessful?Threemainreasons:
9 Through the pooling of assets, Mutual Funds offer small investors access to professional
managementataminimalcost
9 MutualFundshelpsmallinvestorsreducetheirinvestmentrisksthroughdiversification
9 Duetostrictregulatoryoversightandseparationoftheinvestment,custodialandoversight
functions,MutualFundsofferoneofthemosttransparentandsafeinvestmentvehicles
Nowadays commercial banks and non bank financial institutions are getting involved in
mutual fund issue firmly. There are 15 funds of different banks, financial institutions and the
insurance companies out of 36 funds traded in DSE. The objectives for this trend to get synergic
benefitfromcostsavingsfromdifferentprocessofmanagingfunds,tousetheirfunds(theportion
of sponsor) in the marketable securities to get the benefits of and to diversify its portfolio of
investment. The proceeds of these mutual funds are invested in both equity (stock market) and
fixed income securities (FIS). At least 70 percent of the realized income of the fund from its
investmentisdistributedasdividendintakaamountattheendofeachaccountingyear.AsperSEC
rules,thedividendmustbedeclaredwithin45dayswithinthedateofdeclaration.
Despitethefactthattheinstitutionalframeworkismodern,severalregulationswould
improvemarketoperationsandtransparency:
a)
Thereisaneedformoreextensivespecializationoftheexistingtypesofmutualfunds.
Especiallyequityfundsshouldbedividedintosmallcapitalizationandlarge
capitalizationfunds.
b) There is a need for the construction of better and more appropriate benchmark
indices for performanceevaluationpurposes.
c) Fund managers should take a special examination, and a data bank with their
qualitative characteristics must be made available. This bank could include features
like university degrees, professional experience etc. In the interest of the general
public,andpotentialaswellasexistingcustomers,thisinformationcannotbeprivate.
d) Significant improvements can be made in the field of transparency and uniformity in
accountingreports.Thereportingofexpenseratioisalsonecessary.
69
APPENDED
PARTS
70
OCTOBER31,2011
OCTOBER31,2011
GLOSSARY
DSETheDhakaStockExchange(DSE)isregisteredasaPublicLimitedCompanyanditsactivities
are regulated by its Articles of Association rules & regulations and byelaws along with the
Securities and Exchange Ordinance, 1969, Companies Act 1994 & Securities & Exchange
CommissionAct,1993.
Portfolio A grouping of financial assets such as stocks, bonds and cash equivalents, as well as
their mutual, exchangetraded and closedfund counterparts. Portfolios are held directly by
investorsand/ormanagedbyfinancialprofessionals.
InvestmentTheuseofmoneyforthepurposeofmakingmoremoney,togainincome,increase
capital,orboth.
MarketpriceThelastreportedpriceatwhichthestockorbondsold,orthecurrentquote.
PricetoearningsratioApopularwaytocomparestockssellingatvariouspricelevels.TheP/E
ratio is the price of a share of stock divided by earnings per share for a 12month period. For
example, a stock selling for $50 a share and earning $5 a share is said to be selling at a priceto
earningsratioof10.
PortfolioReturn:TheExpectedReturnonaPortfolioiscomputedastheweightedaverageofthe
expectedreturnsonthestockswhichcomprisetheportfolio.Theweightsreflecttheproportionof
theportfolioinvestedinthestocks.
Portfolioexcessreturn:Thedifferencebetweentheweightedaveragereturnontheportfolioand
the riskless rate of return, which is usually defined as the return on a Treasury bill is called
Portfolioexcessreturn.Itcanbetakentoseetheriskpremiumgainedfromaportfolio.
Portfolio Risk: Portfolio risk is measured by variance or standard deviation of a portfolio. The
variance/standarddeviationofaportfolioreflectsnotonlythevariance/standarddeviationofthe
stocks that make up the portfolio but also how the returns on the stocks which comprise the
portfoliovarytogether.Twomeasuresofhowthereturnsonapairofstocksvarytogetherarethe
covarianceandthecorrelationcoefficient.StandardDeviationisthesquarerootofvariance.
Theta (): Theta is calculated by dividing portfolio excess return by Standard deviation of that
portfolio. It shows us what percentage of return can be gained for taking each extra unit of risk.
When theta is maximized, then an investor can get highest return from a portfolio within his
desiredrisklevel.
Shortsale:Thesellingofasecuritythatthesellerdoesnotown,oranysalethatiscompletedby
thedeliveryofasecurityborrowedbytheselleriscalledshortsale.Shortsellersassumethatthey
willbeabletobuythestockataloweramountthanthepriceatwhichtheysoldshort.Shortsellers
makemoneyifthestockgoesdowninprice.Thisisanadvancedtradingstrategywithhighrisks
andpossibilityofhighgain.
If one does not allow shortsale then the summation of the weights of securities in the
portfoliobecomesequalto1,wherenoindividualsecurityweightisnotlessthan0orgreaterthan
1.ButIfoneallowsshortsalethenthesummationoftheweightsofsecuritiesintheportfolioalso
becomesequalto1,wheresomesecuritiesweightislessthan0,somearegreaterthan1.
71
OCTOBER31,2011
APPENDIX
RETURN, BETA ,STANDAARDDEVIATIONANDHIGHERMOMENTALPHAFORALLFUNDSONTHEBASISOFPRICEAND
NAV:
MutualFund
Return
Beta
SD(Risk)
HMAlpha
CP
NAV
CP
NAV
CP
NAV
CP
NAV
4thICB
Excellent
Poor
Low
Moderate
Low
Low
Insig;Pos
Insig;Neg
6thICB
Excellent
Poor
Low
Low
Moderate
Low
Insig;Pos
Insig;Neg
8thICB
Excellent
Poor
Low
Low
Moderate
Low
Insig;Pos
Insig;Neg
AMCL1st
Poor
Poor
Low
Low
Low
Low
Insig;Pos
Insig;Neg
AMCLIslamic
Excellent
Poor
Low
Low
Moderate
Low
Insig;Pos
Insig;Neg
AIMS1st
Excellent
Poor
Moderate
High
High
Moderate
Insig;Pos
Insig;Neg
Grameen1
Excellent
Poor
high
Low
Low
Low
Insig;Pos
Insig;Neg
1stBSRS
Excellent
Poor
Moderate
Low
High
Low
Insig;Pos
Insig;Pos
EBL1st
Poor
Poor
Low
Low
Low
Low
Insig;Neg
Insig;Neg
Trust1st
Poor
Excellent
Low
Low
Low
Low
Insig;Neg
Insig;Pos
DBH
Poor
Excellent
Low
Low
Low
Low
Insig;Neg
Insig;Pos
GreenDelta
Poor
Poor
Low
Low
Low
Low
Insig;Neg
Insig;Neg
M2,MRAPIRANDEFFICIENCYRATIOFORALLMUTUALFUNDSONTHEBASISOFPRICEANDNAV:
MutualFund
M2
MRAP
IR
EfficiencyRatio
CP
NAV
CP
NAV
CP
NAV
CP
NAV
4thICB
Over;pos
Under;pos
Over
Below
TopHalf
Bottom
Over
Below
6thICB
Under;pos
Under;neg
Over
Below
TopHalf
Bottom
Below
Below
8thICB
Under;pos
Under;neg
Over
Below
TopHalf
Bottom
Below
Below
AMCL1st
Under;pos
Under;pos
Over
Below
Bottom
Bottom
Below
Below
AMCLIslamic
Under;pos
Under;pos
Over
Below
TopHalf
Bottom
Below
Below
AIMS1st
Under;pos
Under;pos
Over
Below
TopHalf
Bottom
Below
Below
Grameen1
Under;pos
Under;pos
Over
Below
TopHalf
Bottom
Below
Below
1stBSRS
Over;pos
Over;pos
Over
Below
TopHalf
Bottom
Below
Over
EBL1st
Under;neg
Under;neg
Below
Below
Bottom
Bottom
Below
Below
Trust1st
Under;neg
Over;pos
Below
Over
Bottom
TopHalf
Below
Over
DBH
Under;neg
Over;pos
Below
Over
Bottom
TopHalf
Below
Over
GreenDelta
Under;neg
Under;neg
Below
Below
Bottom
TopHalf
Below
Below
72
REFERENCE
Persons
Dr.MahmoodOsmanImam
Professor,
DepartmentofFinance
UniversityofDhaka
Books
InvestmentanalysisPortfolioManagement
Reilly&Brown
Investments
Bodie,Kane,Marcus.
Websites
http://www.mof.gov.bd
http://www.dsebd.org/
http://www.businesslink.gov.uk/
http://www.businessdictionary.com/
http://www.investopedia.com/
73
OCTOBER31,2011
OCTOBER31,2011
BIBILIOGRAPHY
CristensenM.,2005,DanishMutualFundPerformance,Selectivity,MarketTimingandPersistence
workingpaper.
Duguleana,L.atal.,2009,EvaluatingtheSelectionandTimingAbilitiesofaMutualFund,Bulletin
oftheTransilvaniaUniversityofBrasov,Vol.2(51).
Hendricks,D.,Patel,J.andZeckhauser,R.1993HotHandsinMutualFunds:ShortRunPersistence
ofRelativePerformance,19741988,TheJournalofFinance,48,93130.
Hassan, H. and Akhter, T., 2011, Risk adjusted performance of mutual funds: Evidence from
Bangladesh,journalofFinanceandBanking,Volume9,Number1.
Ippolito, R. 1989 Efficiency with Costly Information: A Study of Mutual Fund Performance,
QuarterlyJournalofEconomics,104,123.
Judy, Q at al., 2011 Business Cycles and Mutual Fund Timing Performance: An Application of
RegimeSwitchingandGARCHModellingworkingpaper.
Lee, C. and S. Rahman, 1990, Market Timing, Selectivity, and Mutual Fund Performance: An
EmpiricalInvestigation,JournalofBusiness63,261278.
Sourd,L.,2007,PerformanceMeasurementforTraditionalInvestment:LiteratureSurvey,EDHEC
RiskandAssetmanagementresearchcenter.
Philippas,N.atal.,2000,PerformanceEvaluation:aReviewarticleandAnEmpiricalInvestigation
ofGreekMutualFundManagers,InternationalBusiness&EconomicsResearchJournalVolume1,
N6
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PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH

In concluding words lack of skilled investor, weak institutional frameworks, asymmetric

1.2.3 SELECTION OF INDEX:astherearethreeindexesinDSEi.e.DSI(DSEallshareindex),

1.2.6 MEASURES USED:Incompletingthestudyonmutualfunds,Ihaveusedthefollowing

Insomecasesthere are only18 monthsdataare usedtoanalyze theperformancedueto

Unsystematic Risk is the Company or industryspecific risk that is inherent in each

Coefficient of Determination (R2) explains the percentage of a portfolio's performance

FY8 FY9 FY10 FY11(P.)

3.6 3.9 3.7

46.8 45.4 41.5

growth level, investment climate in Bangladesh continues to stagger as reflected in the

Information ratio (IR) is a ratio of portfolio returnsabove thereturnsof a benchmark

The , and coefficientsintheequationareestimatedthroughregression. The coefficient

Tocalculate coefficient oftimingskill,Ifirstcalculateexcess marketreturn,MAX(excess

UnderClosingPriceof MutualFunds,ThePvaluesofcoefficientof markettimingskillof

AIMS 1st M.F.

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