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Zeus Case Study
Zeus Case Study
Zeus Case Study
This report is aim to analyse the benefits of risk-adjusted performance measurements to Zeus
Asset Management. Zeus Asset Management is a fund management firm founded in 1968 in
Atlanta by Tir Jerry Schneider. It serves both institutional and individual investors and with
more than $1.7 million assets under management. The director of research, John Abbot, is
considering adopting risk-adjusted approach in performance assessment.
Zeuss competitiveness analysis
Zeuss main competitors are the mutual funds in particular market. Compared with those
competitors, Zeus has strong competitive advantages.
Firstly, different from many managed funds of actively trading, Zeuss investment
philosophy is based on the belief that superior investment results should be achieved over
many years by a conservative, risk-adverse, quality-oriented approach to investment
management. This can be seen by its strategic asset allocation which focuses on medium to
long term capital growth.
Secondly, Zeus is well known for its commitment to relationship-oriented services. The team
devotes a lot in managing the client relationship. Thirdly, unlike most of its competitors, Zeus
has a more skilled and experienced portfolio management group. More than 75% of its
investment professionals were CFAs and received MBA from top business schools. The
average age of the fund managers is 44 compared that with Fidelity of 26.
Moreover, Zeus has a large client base including mutual funds, trust funds, foundations and
endowment, insurance companies, corporations and individual investors. Zeus pays special
attention to their tax issues through carefully selecting the investment products best suit the
clients tax status.
In addition, Zeus has its unique approach in portfolio management. For example, in terms of
the mutual fund, instead of each portfolio manager specializing in the municipal-bond market,
one portfolio manager has the sole responsibility for that market. In that way, the municipal
bonds can be managed more efficiently and meanwhile, Zeus can have cost advantage by
trading at a large volume. Moreover, investment professionals make due diligence trips to
company plants and headquarters in order to find out the real good stocks.
Main products of Zeus
Mutual fund
Zeuss mutual funds are designed to meet the need of individuals who do not meet the
requirements of individually managed portfolio or who have special requirements on
investments. Mutual funds can bring the benefits of economies of scale, low transaction cost
and some tax benefit.
Equity fund
The equity mutual fund was a medium to large capital-growth fund that mimicked the
institutional growth-stock portfolio, which reflects the firms investment philosophy.
However, the fund didn't perform well because of a weak cash policy until the new director
developed a new investment process. The return during 06/01/1995 to 12/31/1997 is higher
than the Lipper Growth Index but still lower than the S&P Index.
Bond fund
A little different from other funds, the bond fund is an actively managed fund which aim to
maximize total return in a way that is consistent with the preservation of capital. The
portfolio managers actively manage the market timing, duration and yield curve of the bonds
and also use powerful computer models to identify arbitrage opportunities and synthetic
bonds to create higher yield.
Balanced fund
The balanced fund sought long-term growth of capital and income through a diversified
portfolio allocated among high-quality equities and fixed-income securities. The balanced
fund benefited from the changes in investment process for the equity and bond portfolios.
International equity fund
The international equity fund is an important component in Zeuss investment portfolio. It
invests in stocks outside the U.S, which has different risks and low correlation of the current
portfolio. Therefore, it increased the diversification and total return of the portfolio.
Current performance measurements and their shortcomings
Currently, Zeus uses the absolute and relative measures in perform measurements. Absolute
measures usually includes the holding period return (HPR) and the present value of future
return. Absolute measurements are easy to calculate and reflect the earning ability of a
portfolio. However, they do not capture the risks associated with the investment portfolios.
Investors may be misled if only looking at those measurements since one high-return
portfolio may have high risks and do not match with their risk tolerance.
The simplest and most popular way to adjust returns for risk is to compare the portfolios
return with the returns on a comparison universe, which is often called relative measurements.
It is calculated by comparing the HPR to that of a benchmark, which can be either an index or
a similar company figure. It is simple to use but choosing the appropriate benchmark is also
crucial as different benchmark will lead to totally different results and hence affect the
investment decisions.
Risk-adjusted return measurements
Risk-adjusted return measurements are usually considered superior than absolute
measurements since they take the risks into consideration. Specific methods of adjusting the
returns for risks include the Sharpe Ratio, Treynor Ratio, Jensens Alpha, beta, and
information ratio.
Sharpe Ratio measures the portfolio risk premium for each unit of total risk. It is calculated
using the formula: