Finance-You recently graduated from university, and your job search led you to Chris Yachts.

| January 31, 2017

You recently graduated from university, and your job search led you to Chris Yachts. Since you thought the company’s business was headed skyward, you accepted their job offer. As you are finishing your employment paperwork, Vivian, who works in the Finance Department, stops by to inform you about the company’s new superannuation plan.

The Chris Yachts superannuation fund has several options for investments, most of which are managed funds. As you know, a managed fund is usually made up of a portfolio of assets. When you purchase shares in a managed fund, you are actually purchasing partial ownership of the fund’s assets, similar to purchasing shares in a company. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee paid to the fund manager, which makes all of the investment decisions for the fund. Chris Yachts uses Gold Financial Services to manage its superannuation plan.

Vivian then explains that the retirement investment options offered for employees are as follows:

1. Gold All Ordinaries Index Fund. This fund tracks the All Ordinaries Index. Shares in the fund are weighted exactly the same as they are in the All Ords. This means that the fund’s return is approximately the return of the All Ordinaries Index, minus expenses. With an index fund, the manager is not required to research shares and make investment decisions, so fund expenses are usually low. The Gold All Ordinaries Index Fund charges expenses of 0.20% of assets per year.

2. Gold Property Trust Fund. This fund invests primarily in property trust shares. As such, the returns of the fund are slightly less volatile than the All Ordinaries Index. The fund can also invest 10% of its assets in companies based outside Australia and New Zealand. This fund charges 1.70% of assets in expenses per year.

3. Gold Bond Fund. This fund invests in long-term corporate bonds issued by companies domiciled in Australia and New Zealand. The fund is restricted to investments in bonds with an investment grade credit rating. This fund charges 1.40% in expenses.

4. Gold Money Market Fund. This fund invests in high-quality debt instruments, which include bank bills and government bonds. As such, the return on money market funds is only slightly higher than the return on government bonds. Because of the credit quality and nature of the investments, there is only a very slight risk of negative return. The fund charges 0.60% in expenses.


1.Assume you decide you should invest at least part of your money in an All Ordinaries Index fund of companies based in Australia. What are the advantages and disadvantages of choosing the All Ordinaries Index fund compared with the Bond Fund?

2.The returns of the Gold Property Fund are less volatile than those of the All Ordinaries Index fund, but more volatile than the rest of the managed funds offered in the superannuation fund. Why would you ever want to invest in the Property Fund? When you examine the expenses of the funds, you will notice that this fund also has the highest expenses. Will this affect your decision to invest in this fund?

3.A measure of risk-adjusted performance that is often used in practice is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation. The standard deviations and returns for the funds over the past 10 years are listed below. Assuming a risk-free rate of 4%, calculate the Sharpe ratio for each of these. In broad terms, what do you suppose the Sharpe ratio is intended to measure? Based on the Sharpe ratio, comment on each fund (refer to the “Assignment” folder on the Moodle site for the following information for this assignment).

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