Patsy Cain works in the alternative investment division for a global investment bank. This morning she received a questionnaire from Michael Garland, a computer-industry executive looking for someone to handle a portion of his investment portfolio. Cain had sent him the questionnaire a week ago in an effort to determine whether he was a good candidate for money management.
When asked about his investment experience, Garland responded that he has been actively investing in a variety of asset classes for more than 30 years, with considerable success overall. Tax issues are a concern, as Garland receives a large amount of dividend income from the company he owns and he also operates several charitable foundations funded by both himself as well as outside donors.
Garland also wrote that he does not like gambling or tobacco companies and can afford to tie up his money for no more than five years because he intends to retire at that time. After Cain returns the questionnaire, Garland calls for an appointment. When he meets with Cain, he explains that another manager has done a fine job with his stocks and bonds, but he is not happy with the performance of his alternative investments and wants her to manage them. Cain still is not sure what kind of investments would be best for Garland, so she asks him to rank his investment goals in order of importance. They are: - Returns.
- Diversification.
- Ease of tracking.
Garland is very interested in commodities. He owns a chemical company that makes food additives and flavorings, and he uses a lot of corn and other grains in his products. Rather than buy grains at market prices, Garland would like to purchase quantities of grain for his own use, store it in his own warehouse, and sell any excess. Alternatively, he could use futures contracts to guarantee prices for purchases at a future date. Cain decides that Garland is a likely candidate for commodity investments. When she suggests futures to him, Garland explains that he got burned on a natural-gas investment once and is nervous about commodities because of their price volatility. Cain advises him to stick with oil futures rather than natural-gas futures, offering four reasons for the advice: - "Oil prices are similar worldwide, while natural-gas prices differ by region."
- "Seasonal trends in oil prices are well documented."
- "Forward prices for oil tend to be less volatile than prices for natural gas."
- "Oil is easier to transport than natural gas."
Garland is also interested in hedge funds, though he is concerned about their potential volatility. Cain makes a mental note to assemble a list of hedge funds with high Sharpe ratios. Hedge funds appeal to Garland mostly because of their willingness to take both long and short positions. He postulates that a hedge fund that takes only long positions might as well be a mutual fund.
Which of the following statements about oil and natural-gas futures is least accurate? | A) | "Oil prices are similar worldwide, while natural-gas prices differ by region." |
| | B) | "Forward prices for oil tend to be less volatile than prices for natural gas." |
| C) | "Seasonal trends in oil prices are well documented." |
| | D) | "Oil is easier to transport than natural gas." |
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Answer and Explanation
Oil prices do not follow seasonal trends, though natural-gas prices do. The other statements are true.
Based only on Garland's four stated investment goals, his best option is: A) | publicly traded real-estate infrastructure equity units. |
| | | C) | a stake in a start-up industrial company. |
| | D) | a market-neutral hedge fund. |
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Answer and Explanation
Real estate, private equity, and hedge funds can all boost returns, though commodities are more often used as a diversification tool. Real estate and hedge funds offer substantial diversification benefits, but private equity investments tend to move with the stock market. Hedge fund performance is difficult to track, but the changing value of a publicly traded real-estate fund is easy to track. While real estate investments are not the best return generators, they have performed well in recent years, and they are very good for diversification. As such, the real estate equity units represent the best option.
In selecting hedge funds for Garland, Cain should avoid: | | B) | merger-arbitrage funds. |
| | | D) | equity market neutral funds. |
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Answer and Explanation
Most emerging markets do not permit short positions, and Garland only wants hedge funds that take short positions. All of the other fund strategies generally involve long-short combinations. [此贴子已经被作者于2008-9-18 17:02:37编辑过] | 
发表于 2008-9-16 15:13
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