Short Term Asset Management - Free Essay Example

Short term Asset Management Table of Contents Introduction: The subject of Asset Management: Summery: Conclusion: References Introduction: Building of portfolio depends on the investment decision. The success of the portfolio depends on the wise investment decision. The investment decision shall consider all the factors like macroeconomics, microeconomic factors and time before building up the portfolio. Perfect blend of the high risk security and low risk securities gives the opportunity to maximize profit out of investment. There is plenty of options available to the investor to build strong portfolio with the mix of securities and debt instruments. The world has changed so much in last 100 years. The necessity of development has brought drastic changes within the society and in the socio-economic structure. During royal era and the emphasis was on the accumulation of wealth and here the developed financial market emphasises on distribution and allocation of wealth. Developed countries wanted to spread development across the board and cutting across the social classes. The people of these developed countries gave mu ch importance in mutual development of the society. The private sector for open market economies plays predominant role in development of the society, infrastructure and per capita income. The people of these countries do have wealth to spend on food, education and healthcare. The subject of Asset Management: The management of investment has major relation in terms of the asset management. The funds which are actively managed are those funds which are managed by the fund managers. The fund managers take active decisions on like choosing the company where the fund will be invested have access to the research on different companies and are in connection with those companies constantly. The fund managers actively analyse the prospect of the company before taking any investment decision. The main intention of the fund managers is to provide the best possible returns in comparison to the stock market. The fund managers take the ultimate call to put money. If these fund managers feel that specific sector in performing well or have the opportunity to grow the fund managers actively pursues and chases that company. The simple difference is that the passive management tracks and charges very less compared to active management. The funds are essentially run by the computer. The passive investo r seeks very little information in comparison to active investors. The passive investors invest based on the historical data available. The active managers underperform in comparison to passive management due to higher cost. The government now days have become very proactive to push business and industry. The business and industry now-a-days cannot run in isolation and they are not insulated from the factors influencing global and domestic issues. These factors discussed above have to be taken into consideration to set up a business in any country. These factors affect those companies which have global presence. Pure and proper understanding of these macroeconomic factors is important to understand globalization. The globalization is the effect of integration of economies. It cannot be denied that the globalization has helped many poor countries to sell its products to the industrialized nations. The globalization has helped many countries to empower its residents. The globalizat ion is the need of this hour. The growth is known as the increase in the GDP or gross domestic product of any country. The GDP is the sum total of the goods and services produced in one financial year. The positive growth is the indicator of the good financial system. The factors like global economy, crude prices and Forex variation do impact in the growth in the country. The GDP growth is not only create opportunity in the economy it creates employment. The sluggish growth is one of the main reasons for mass unemployment. The Growth of the economy can be measured by Real GDP growth and by growth in purchasing power parity method. The study suggests that 65% of the active management underperform than passive management. The examination by DFA found that active fund managers, between 2004 and 2009 did not perform very well. On average 5.7% of the actively managed fund disappeared. Only, 1.4 % of the fund had outperformed their benchmark every year. Of the five years ending on Septemb er, 2010 only 4.1% of the large cap funds, 3.8% of the mid cap funds and 4.6 % of the small cap fund performed in the top ranking fund. The average income of the retail investor during the above period was lesser than the institutional investors. The active management is better than passive management if the performance is judged by the return the investors have earned (Erickson, 2014). The downturn due to global economic crisis, created enough problem for financial intuitions worldwide. The world economic crisis in 2008 affected every corner of the world. Declining oil price and withdrawing of the funds created a vacuum in the financial market all around the world. The main risk factor in the asset management is related to macroeconomic development and the change in the global economic scenario. The competitive environment and the investment direction is the main area for the asset management companies. The global economic down turn has showed indicated the fact that the global asset management companies managed their asset most inefficient ways. The challenges now a days asset management companies are facing is related to confidence building. The confidence of the asset management companies are shaken after the global economic down turn. The period before the crisis the asset management was totally different from all points (Pinedo, 2013). The undue reliance on the short term incentives led to the cause of financial crisis in 2008. The short term incentives are the main reason for faulty practice of the AMC. The asset management companies are not immune to the macroeconomic factors and the regulatory changes. There are also some of the issues related to the complexity of the product offered by the asset management companies and the lack of transparency is also the cause of concern. The regulatory risk is also one of the important part in asset management. The short term asset management is facing the regulatory risk from US and EU as these two has s tate are in the environment of regulatory flux. There are several constraints faced by the global asset managers. The constraints are foreign exchange risk, regulatory risk and other risk. The foreign exchange contains are the biggest challenge for the global fund managers. The banks and financial institutions participate in the forex market. The market deal sand trades with the currencies of different countries. Apart from banks and financial institutions there are other corporate houses who have forex exposure also participates in forex market (David Mayes, 2007). International companies, whose revenues are exposed to volatility of foreign exchange movement, do take position in Forex market to hedge its positions. The forex market is the most liquid market in the world and average trading volume exceeds $1.9 trillion every day. There is no market place for forex trading but the trading is done over the counter. The forex market remains open for 24 hours a day for five days in a week. The major financial centres for forex trading are London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, Sydney. The regulatory constraints include the blocking of dividend due to change in the government tax policies. There are other constraints in terms of transferring of funds to the parent company from subsidiary company or vice versa. The management fees, consultancy fees, tax and other fees payment for the parent and the subsidiary is the main area of concern for the fund managers (Kim Kim, 2009). Summery: The performance of the asset managers were notable in the sense that the fund managers managed to give much better return in comparison to the retail investors who managed their investment in passive mode. The passive investors do not invest in index fund rather they hold investment in the stock till they require money. The asset managers take active decisions on like choosing the company where the fund will be invested have access to the research on different companies and are in connection with those companies constantly. The fund managers actively analyse the prospect of the company before taking any investment decision. The main intention of the fund managers is to provide the best possible returns in comparison to the stock market. The fund managers take the ultimate call to put money. If these fund managers feel that specific sector in performing well or have the opportunity to grow the fund managers actively pursues and chases that company (Greg B. Davies, 2012).. Conclusion: These factors discussed above have to be taken into consideration to set up a business in any country. These factors affect those companies which have global presence. Pure and proper understanding of these macroeconomic factors is important to understand globalization. The globalization is the effect of integration of economies. It cannot be denied that the globalization has helped many poor countries to sell its products to the industrialized nations. The globalization has helped many countries to empower its residents. The globalization is the need of this hour. The growth is known as the increase in the GDP or gross domestic product of any country. The GDP is the sum total of the goods and services produced in one financial year. The positive growth is the indicator of the good financial system. The factors like global economy, crude prices and Forex variation do impact in the growth in the country. The GDP growth is not only create opportunity in the economy it creates empl oyment. The sluggish growth is one of the main reasons for mass unemployment. The Growth of the economy can be measured by Real GDP growth and by growth in purchasing power parity method. References David Mayes, J. T. (2007). Open Market Operations and Financial Markets; https://books.google.co.in/books?id=eax8AgAAQBAJpg=PA282dq=open+market+operations+and+financial+marketshl=ensa=Xei=PtkgVZfHOoyauQTv4oDYBQved=0CCYQ6AEwAA#v=onepageq=open market operations and fin. Abingdon: Routledge. Erickson, M. P. (2014). Asset Rotation: The Demise of Modern Portfolio Theory and the Birth of an Investment Renaissance; https://books.google.co.in/books?id=5FfOAwAAQBAJprintsec=frontcoverdq=investment+and+portfolio+theoryhl=ensa=Xei=qnqPVcX9FMT-8QX7sJC4BAved=0CDgQ6AEwBA#. In M. P. Erickson, Asset Rotation: The Demise of Modern Portfolio Theory and the Birth of an Investment Renaissance (pp. 10-15). Hoboken: John Wiley Sons. Greg B. Davies, A. d. (2012). Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory: https://books.google.co.in/books?id=vj6TC-wsY_sCprintsec=frontcoverdq=investment+and+portfolio+theoryhl=ensa=X An Efficient Alternative to Modern Portfo lio Theory;. In A. d. Greg B. Davies, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory: An Efficient Alternative to Modern Portfolio Theory; (pp. 3-8). New York: McGraw Hill Professional. Kim, S., Kim, S. (2009). Global Corporate Finance: Text and Cases; https://books.google.co.in/books?id=ooabd-PVKacCpg=PA370dq=short+term+asset+managementhl=ensa=Xei=eC6QVaPpKtOC8gWnmYZwved=0CD0Q6AEwBTgK#v=onepageq=short term asset managementf=false. In S. K. Suk Kim, Global Corporate Finance: Text and Cases (pp. 370-375). Hoboken: John Wiley Sons. Pinedo, M. (2013). Global Asset Management: Strategies, Risks, Processes, and Technologies; https://books.google.co.in/books?id=EebQAQAAQBAJpg=PA606dq=short+term+asset+managementhl=ensa=Xei=FB-QVeviK8Hi8AXtiKyACAved=0CEUQ6AEwBA#v=onepageq=short term asset manag. In M. Pinedo, Global Asset Management: Strategies, Risks, Processes, and Technologies; (pp. 601-608). New York: Palgrave Macmilla.