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USAA Equity Investments V.P. Wasif Latif on how to calculate if a mutual fund is worth the risk for an investor’s portfolio.
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-- investing -- mutual funds has become a risk peer play in the more volatile market so.
How do you figure out which ones are better bets for you.
So let's keep for the vice president of equity investments -- USAA he is with us from San Antonio and a Fox Business exclusive so.
At first and foremost I mean.
Indict you finding that mutual funds are riskier investments now a days that they were ten years ago.
-- not necessarily I wouldn't say that.
Mutual funds are risky investment I think the the lesson is that not all mutual -- they're the same man just looking at return com.
Mutual funds -- any investment for that matter.
Is not taking the whole picture -- -- so what investors really should be doing.
Is looking at what the risk was that was taken to achieve those returns and then trying to do an apples to apples comparison to see.
For every unit of risk that was taken in -- was who was there -- -- -- return so that we have a better comparison going forward.
OK let's say there are rationed at the moment there's OK that's -- called the Sharpe ratio and that is how you.
A value -- whether or not mutual funds.
Our risk is so how -- -- our viewers use that to -- how to they kind of used the Sharpe ratio through their own your well -- yes.
Certainly the industry calls -- that there's been a lot of academic research and if it was actually derived by.
Research from William -- hence the name the Sharpe ratio.
It really is a -- For every unit of risk in other words if you divide the returns.
In taking away the risk free return if you divide the return of -- mutual fund.
Or any investment for that matter a -- The volatility or how much it swings up and down.
You get a unit you get -- you get a number and then that -- makes it what easy comparison on an apples to apples basis that you can make and say.
Is this being returning the same kind of return to mean.
Vs another investment.
For the unanimous that was taken so investors.
You know they sure they should do comparison shopping.
-- no I think gasoline reading and you are -- your returning your didn't fund returns vs.
Treasury bills and to give people a sense of kind of whether or not they're mutual fund risky -- -- them there others to me to go through but you have to funds.
And I do you wanna get to these with you because.
-- supermarkets a little bit differently you've got the usaid global opportunities fund of this one limits.
While portfolio it has a sharp ratio it's very low but you're every year it's down about three and a quarter percent so.
Do you use the Sharpe ratio on your own -- Well it's a measure so it's not a tool it's a measure to see how the fund has done but yes.
In -- each operation of the fund is very strong which basically.
For investors answers this following question.
Did this investment outperformed the benchmark.
And if so did -- do it would less volatility.
Then the overall market and the benchmark any answer in this case isn't resounding yes.
It may have a negative -- -- over the last twelve months but it's actually a lot less than the market.
And since the inception of the fund.
It's actually outperformed the benchmark -- -- positive return with a lot less volatility.
As the Leach operation becomes a way of measuring that.
It's sort of like when investors are.
You know if you if you want to make that that would build something easy to understand.
You know when you go to the grocery store you're looking at different types above the water in the -- in the water I'll -- and you're trying to figure out well is you know the F six flick is six different sizes and for different types of brands what is the right amount -- what is the right price that -- paying right when you look at the sticker that says you know what is the amount -- you're paying per ounce.
Then that's the comparison that allows you to say okay all of these bottles of water.
Are a great way to compare each other of using the per ounce price so think of and that way where.
The shopping issue really becomes revenue unit -- that I'm taking what is the kind of return.
That that -- generating.
-- OK alright well what's -- let's keep very interesting a strategy with mutual funds which pretty much all of us voluntary go vice president equity investments -- US.
AA thank you.
