Modern Thinkers Group Comparing Two Mutual Funds:

Name Roll No Our honorable teacher assigned a job to my

competent group members to know basis of
Maria Nosheen 251 performance of mutual funds. What are the
Farwa Mehdi 264 risk quant’s which can influence the
performance of mutual funds? How do
Nawaz Younis 272 investors choose between funds? Assignment
task is also to compare two mutual funds and
Pervez Iqbal 276
select best one which is near to fulfill your
Naureen Fatima 297 need, give reason for your selection.

Need:

We are interested in further studies after

completion of BBA, so we would need money to
pay admission fee of MBA that’s why we are
interested to invest.

Steps involved to accomplish our need:

We have total 0.5 million (PKR) to invest. After

searching the mutual funds in Pakistan we
determine Asset Allocation Fund which is
appropriate to our need. After scanning many
companies we identify the MCB and Faysal
Banks which are offering such type of Mutual
Fund.

Funds to be compared:

MCB Dynamic Allocation Fund (Growth Units)

Faysal Asset Allocation Fund

Objective of Funds:

These two funds endeavors to provide investors

with an opportunity to earn long-term capital
appreciation/high absolute return by investing
in broad mix of asset classes encompassing
equity, fixed income and debt.
General Information (as on Nov. 30, 2010) Funds Facts (as on Nov. 30, 2010)

FUND FAYSAL MCB FUND FAYSAL ASSET MCB

NAME ASSET DYNAMIC NAME ALLOCATION DYNAMIC
ALLOCATION ALLOCATION FUND ALLOCATION
FUND FUND FUND
NAV per 63.53 75.2857
Fund Type Open Ended Open Ended Unit (PKR)
Category Asset Asset Net Asset 260.39 402
Allocation Allocation (PKR mn)
Scheme Scheme Alpha -0.025% -0.010%
Risk Profile Moderate To Moderate To Beta 0.9309 0.48
High High Sharpe 0.4973 -0.07
Launch Date 24th July, 17th March, Measure
2006 2008 Standard 0.611% 0.863%
Listing KSE LSE Deviation
Custodian CDC CDC VaR 1.005% 1.44%
Mgm Fee 3% p.a 1.5% p.a
Load 3.0% (Front 3.0% (Front
End) End) Funds Returns (p.a %) (as on Nov. 30, 2010)
Min PKR. 5000 PKR. 5000
Subscription
Benchmark KSE 100 N/A
Index / 6M FUND FAYSAL ASSET MCB DYNAMIC
KIBOR NAME ALLOCATION ALLOCATION
Dealing Monday- Monday- FUND FUND
Days Friday Friday Month- 3.94% 2.0%
Cut-Off 9am-5pm 9am-4:30pm on
Timing Month
AMC Rating AM2- AM2- FY to 8.33% 10.5%
(JCR,VIS) (PACRA) Date

Sector Allocation FAAF Sector Allocation MCB DAF

Govt. Sec Oil & Gas Electricity Govt. Sec Oil & Gas Electricity
Construction Chemicals Software Cash Banks Other Sectors
Others Personal Goods Others

2.4%
3.1% 2.6%
2.85% 4.42%
7.79% 16.9%
6.32%

5.83% 52.8%
54.7% 5.6%

4.9%
18.09%
8.5%
Analysis:
 FAAF is two years mature than MCB
DAF, as age of FAAF is more it is
deemed that efficiency more
therefore. Returns also supposed to
increase resulting in a positive
relationship.
 FAAF is listed in KSE and MCB DAF is
listed in LSE, KSE is high capitalized
market and more credible than LSE.
 Management fee for running the
business of FAAF is double than MCB
DAF that is cause of reducing profit,
as the load charged for transaction
of both funds is same.
 Dealing days for both funds are
Monday-Friday but the dealing time
for FAAF is half an hour more than
MCB DAF.
 Credit rating of MCB DAF is AM2-
(AM TWO MINUS) is by PACRA
which is more credible than JCR,VIS.
Funds Facts Analysis:
NAV & Net Assets: Here NAV/Unit of MCB
DAF is 18.5% more than FAAF but as we see
the net assets of MCB DAF these are 54.38%
more than FAAF. Here NAV/Unit shows
MCB DAF have more assets and less
liabilities than FAAF.
Risk Quant’s Analysis:
Alpha:
In this comparison alpha of both funds is (-
ve). This negative alpha
shows that the funds generate less returns
than the beta of both funds predicted. Here
the alpha(-0.01%) of MCB DAF indicate that
the fund has underperformed by 0.01% and
FAAF underperformed by 0.025%, which
shows portfolio manager of MCB DAF add
more value to his fund return than FAAF
because its alpha is more near to zero.
Beta: In this comparison beta of both funds
is less than 1 indicating that the funds are
less volatile than market. Beta of FAAF
shows if market bullish or bearish by 100%
FAAF will move 93.09% as well as MCB DAF
will move 48% accordingly. But in this
comparison FAAF is highly correlated with
market as compared to MCB DAF.
Sharpe Measure: In this comparison we
analyze that MCB DAF observed return is
less than risk free return that’s why the
Sharpe ratio is negative. As the FAAF Sharpe
ratio indicates 0.4973 risk premium of per
one percent (1%) of standard deviation.
Here the performance of FAAF is more
better than MCB DAF.
Standard Deviation: Here the return range
of FAAF and MCB DAF is (3.329%-4.551%) &
(1.14%-2.86%) showing MCB DAF is more
riskier.
Funds Performance Analysis:
FAAF month-month return is near to double
than MCB DAF but the annual return of
FAAF is less than MCB DAF near to 2%. The
return of MCB DAF since inception is
(-13.6%).
Conclusion & Decision:
After analyzing the detail information,
Funds risks and returns we think units of
Faysal Asset Allocation Fund offered by
Faysal Bank are best suitable to secure our
need. We decide to purchase the units of
FAAF under such grounds.
FAAF management is able to face the
critical situation because of their
experience, FAAF is listed in high capitalized
market so its liquidity is high.
Management gives more time to their
customer so that their customers retention,
satisfaction and loyalty is high.
The major reason for purchasing the units
of FAAF is its Sharpe Ratio showing that as
the fund bear 1% risk it gives 0.4973 return
for-as-much the MCB DAF gives loss as it
bear risk. The return range of FAAF is also
greater than MCB DAF and is less riskier
because it invest in more secured securities
like Govt. Sec and Oil & Gas. Cumulative
return since inception of MCB DAF is
negative, its being better but currently is
unable to fulfill our need.