Financial Analysis

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Financial Analysis


In the past time, investors were more towards buying the exposure to a major market such as FTSE 100 index or S&P - American. Investors had two choice at which they could make decisions; as an individual stocks, investors can buy actual companies that indicates in the index or investors may buy actively managed fund (AMF) that invests in the companies and these companies indicates in the index as well (Charupat 2011). There were many investors who adapted this traditional approach and style of this type of investment but after certain time period, a hugely popular alternative and a much cheaper (in the United States of America) emerged. It consists of investment in a fund and this investment “tracks” a major index such S&P 500 or FTSE 100. It is easy to understand regarding the actual tracking of an index and it involves the management of fund that is used to buy many essential and valuable stocks in the index.

The resulting fund and its actual structures will be varied with the big choice between unlisted and unit trust based on traditional approach or a LSML-ETF- London Stock Market Listed - Exchange Traded Fund. These types of fund and other products are having different exotic acronyms but all these funds are used for simply “index tracking” of one shape or another.

Whatever fund that are chose by an investor indicates simply the process of “buying the market” through an index. It shows that there are three big differences when it is compared to a traditional approach of “active” fund managers (i.e. trust investment). The most important is for investor is to decide the dispense with fund manager's services who will be able to manage investor's fund actively based on the managers' perspectives regarding the risks associated with investment and its rewards of a company in that index (i.e. S&P 500 or FTSE 100). It allows the investor in an ITF - index tracking fund to a certain risk (Peterson 2013) . This type of risk associated with the index which they are tracking may be useless or absolutely junk i.e. the market has chased up with the value reasonable prices and these stocks are overpriced. But in the situation of services with dispensing related to the active fund manager, the investor of Exchange Traded Funds (ETF) avoids to take a big risk. This type of risk indicates that the AFM - active fund manager has taken wrong decisions regarding the companies what he or she has picked.

Over the last 50 years, academics have studied related to the fund manager returns that show that most of the time managers are found to be non-interested for outperforming the benchmark index (i.e. FTSE 100 and S&P 500). An investor can analyze with the ITF - index tracking fund that can access the wider market and has many choices to select the appropriate investment that is not much riskier and that will be beneficial for the AFM - Active Fund Manager (Kosev & ...
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