Help with an interview! Assignment given!

Prior to my interview, the potential employer would like me to complete an assignment for them (submitted to them before the interview).

The assignment:

Here’s a mutual fund (XXXXX) - analyze it and write a recommendation for whether you would suggest this for our clients (provide supporting data for your arguments).

I have an outline of how I want to approach this, but I was wondering how you guys with more experience would approach this. I’m not looking for answers here, just the general approach you’d take - I have limited experience with mutual funds.

EDIT: Job is for analyst development program. Start off as analyst for mutual funds (pitching recommendations for overall analyst group who then select best recommendations for client services folks (advisors)), then work into equity/FI.

What is the job? Also, why don’t you post your approach here, and then people can comment on whether it makes sense.

I’d first label it in a class (LCB, SMG, etc).

Next, find some comparables. You’ll see some suggestions even with a yahoo finance search. See how the fund differs from competitors.

Important - an investor only has control of two things here, risk and fees. Return is random and not a guarantee based on historical performance.

Risks - Look at beta, standard deviation, tracking error, and the r squared. These are risk factors based on the asset class the fund represents. If you want to get fancy, calculate the Sortino, and Trenor ratio to get a sense of downside risk elements. Depending on the fund, this could also include lock ups/liquidity.

Fees - See what fees the fund has, load, no load, 12b-1, gross/net expense ratio, etc. Compare this to the others you found in your first yahoo search.

Lastly, get a sense of the team running the fund and fund family. What is there pedigree? What is the turnover? Do they have a CFA or MBA? Has there been any negative press about the fund or fund family (Headline Risk)?

Write a recomendation of xxxxx fund as a suitable or inferior fund compared to it’s peers on the basis of risk/fees/personnel.

-edit, I really fcking suck at spelling, IE needs a built in spellcheck.

What kind of job? You’ll look at this differently if you’re managing money as a fudiciary or if you’re pitching funds on unsuspecting mom/pop.

Just go to morningstar (if you don’t have an account go to the public library) and do your research there.

whats the fund?

Thanks man! We’re on the same page for most of it - I like the finding comparables and almost doing a relative analysis on that. Hadn’t thought of that! What’s SMG and LCB though? surprise

Meant to do Small Cap Growth (SCG) and Large Cap Blend (LCB).

Make us proud little cubby.

Haha, will try my best!

My current approach is as such:

  • Understand in detail the investment philosophy of the firm I am interviewing for. This ultimately will help me decide whether or not the fund is appropriate for one of the firm’s clients.
  • Look into the historical data about the fund, management, performance, risk, etc - compare this to that of other comparable funds (how to find a good and simple way to copare MTfunds I’m not sure yet).
  • Look at the fee structure of the fund. Even if it is a highly performing fund with not much risk and great management, it’s not worth exorbitant fees. I’ll admit, I’m a little nervous about analyzing fee structures (not much experience), but will do my best!

Playing off your approach, I think it’s appropriate to suggest that the only way I would recommend this mutual fund is if I didn’t see any better alternative in its peer group. Or is that too narrow of an approach? What do you think, is that appropriate given they want to know if I’d recommend it to one of their clients? Or am I taking it a step further that I didn’t need to.