Mr. Pittinos Case Analysis

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Wells Fargo Advantage Diversified Equity:

This fund was chosen on the basis that it has competitive returns for having a higher expense ratio. It is more risky than the S&P though the difference is marginal, and due to the slightly higher risk, it could yield accelerated returns. The turnover ratio (shown in Exhibit 3) is a little higher than the Vanguard index fund, which could be a reason for the added risk that comes with the Wells Fargo mutual fund, but in our teams opinion, it justifies the higher expense ratio and the added returns. Also, the subtle changes in its diversification (shown in Exhibit 5) compared to the S&P 500 keep this funds risk relatively low. The CAPM (shown in Exhibit 6) shows a 1.08% increase from the Net Total Return in the 1-Year evaluation which we believe to be a decent reward for the risk that is taken in buying this fund. In the 3-Year evaluation, the CAPM shows a 0.9% decrease. Though, this is based on previous returns, which have not been the best, and can increase in the future.

Dreyfus Diversified Large Cap:

This fund was our third pick because it is a new fund that does not have a long track record, which may be a hard sell to Pittinos’ clients if they are unsure about taking on this added risk. Dreyfus is the most risky out of these three picks, but based on its 1-Year evaluation, it has done the best. This could be due to the funds diversification (shown in Exhibit 5) and their 98% turnover ratio (shown in Exhibit 3). Our team sees this as the highest risk level Pittinos’ clients will take on, for the benefit of larger returns. The Alpha for Dreyfus (shown in Exhibit 6) proves that the diversification that this fund has, caused the added returns above the S&P 500. Dreyfus Large Cap had higher returns than the Wells Fargo fund, and a tighter standard deviation which gave this fund the best Sharpe Ratio (shown in Exhibit 6). Its expense ratio is 0.2% higher than the Wells Fargo fund, though it had a 0.7% higher Net Total Return which makes up for the added expense during that year. Another point to include in defense of this fund, the Information ratio is 3.27, 1.27 higher than the S&P 500, which shows that over the same time frame, Dreyfus Large Cap was more consistent in getting returns than the market.

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