Financial News & TipsALAN MOORE / L’Observateur / August 9, 2000Mutual funds have become the most popular way to invest in the stock and bond markets because they have simplified portfolio diversification and management. Funds now comprise a complex, specialized world of over8,000 choices and more are being introduced almost daily.
Published 12:00 am Wednesday, August 9, 2000
To help make sense of mutual fund selection, individual investors must be equipped to analyze the management, portfolios and performance of these funds. This is now possible through services previously available in a singlepackage only to large institutional investors. These services include assetallocation – dividing investments into various asset classes for the purpose of pursuing specific financial objectives – and detailed analysis of the funds themselves.
Legg Mason Wood Walker, Inc. offers Mutual Solutions to help investorsmatch funds to their individual objectives. The Mutual Solutions programsorts the thousands of no-load and load-waived mutual funds to identify the funds that are appropriate for implementing each investor’s customized asset allocation strategy.
In this program state-of-the-art research techniques are employed to select appropriate funds based on an individual’s investment objectives. MutualSolutions analyzes: Track Record. The minimum management tenure for each fund manager orteam of managers considered relevant by the Mutual Solutions research process is three years. A performance record of sufficient time enables usto study how a fund has performed in varying market conditions.
Style Attribution. This feature examines the historical performance of thefund and evaluates what factors determined the total return of the portfolio. Through style attribution, Mutual Solutions is able to identify whichasset classes the fund has performed most like as well as how consistent to that asset class or combination of asset classes the fund has remained over time.
Risk and Return Analysis. This measures a fund’s incremental returnrelative to the level of risk it appears to accept.
Mutual Solutions Ratio. This proprietary ratio developed by Legg Masonevaluates a fund manager’s ability to select individual securities within each asset class to determine the extent to which individual security selection contributes to the portfolio’s performance.
Qualitative Analysis. Also important to the fund selection process are fundmanagement’s security selection style, any limitations on securities that can be purchased, maximum percentages of securities in any one sector, and other parameters that may be described in the fund’s prospectus.
A program such as Mutual Solutions can be of value in this increasingly crowded and complex world of mutual funds.
ALAN S. MOORE, who writes this column every Wednesday for L’Observateur,is a financial advisor in the New Orleans office of Legg Mason Wood Walker, Inc., a securities brokerage and financial services firm and member of theNew York Stock Exchange, Inc.
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