Martingale Assets Management
What do you think of Martingale as a firm? Does it have an edge in investing?
After reviewing the tables, data, and charts and the results of the investment strategies referred to as the MV, Martingale LP is successful and one of the assets investment firms. The system used in the organization is the 130/30 funds approach (Viceira and Tung, 2008). It entails a combination of 130% long and 30% short portfolios used in the investment (Viceira and Tung, 2008). Also, the company tends to take risks that have been effective for them in locating a way to explore the management of their assets. It is effective for the organization since it is beyond the ordinary ones used in other companies, such as the long-only funds. Therefore, Martingale has the courage and creativity needed while trying new strategies for each single asset management in the vast and changing world. The approach grants them an edge in investing since they will gain the needed competitive advantage over other competitors. The classical designs that companies are using to manage their assets have become obsolete to some extent. Since the approach used in managing the investment in Martingale is unique, they have an edge in the acquisition. They are likely to attract more investors than other organizations that are in the same line of business. A key focus is on how best they can integrate their operations with the expectations, demand, taste, and preferences of consumers interested in their services. In the process, they can take a safe risk that will not scare away investors and lead to the achievement of the anticipated outcomes.
Which issues should investors consider when deciding whether to invest in a 130/30 fund? Is Martingale well suited to manage 130/30 funds successfully?
130/30 is known to be a short extension approach. Therefore, it is a type of investment where their returns are associated with a minimum level of risk. The process indicates that it is possible for the stock shorting to be exercised up to the 30% level presented in the portfolio (Viceira and Tung, 2008). The basic knowledge applied in the portfolio is the returns on investment that needs to be considered in any project where an asset has been made. There are several instances where an investment looks out the criteria that are being used in the organization. One of the critical issues that the investors will have to consider when deciding whether or not to invest in the 130/30 funds is the potential and the number of years in which the outcomes are expected (Viceira and Tung, 2008). Market sustainability, nature of business, laws and regulations in the economy, and the financial position of the company form the other set of vital considerations in the investment decision-making process. In market stability, the investor will have to consider the environment in which they will be operating (Kumar, 2015e). The focus should be both on the internal and external environmental factors, showing the risk associated with the investment option. The nature of the business will revolve around the average returns for the company and compare the outcomes with another organization in the same industry. The strategy will make it possible to make a decision that is informed on whether proceeding with the 130/30 funds will be a good option. The laws and regulations will dictate how operations are being carried out. A key consideration for the investor will be where there is stability in the economy in which the organization is operating. More focus will be on the tax obligation and the political influence of the government. The company’s financial statements will provide the investor with a picture of the trend in performance in the previous years. It will be easy to realize if the investment is worth it based on the outcomes f previous actions where the primary consideration will be on the returns that have been generated.
In your view, are 130/30 funds just a trend in investing? Or are they likely to replace traditional long-only investment mandates?
First, when it comes to comparing long-only funds and the 130/30 funds, it is easy to depict that the former has much higher returns when compared to the latter. The outcomes are likely to be experienced in situations where there is an increase in stock prices. However, 130/30 funds will play a much different role and contribution. It will allow those who are managing the assets to be able to sell the stocks which are falling so that in the end, especially in the long run, they will be able to achieve outcomes that are much higher compared to their initial outlay or investment (Viceira and Tung, 2008). More so, companies are in a much better position to expand and extend their extended functions by taking advantage of returns that have been obtained from the short part. It is a strategy that makes 130/30 find a new approach in investment and not just. Since the outcomes are much higher, then it is expected that they will replace the traditional long-only investment mandated that tends to yield positive gains only when there is a rise in the cost of stock (Kumar, 2015e). The approach applied in the 130/30 funds is different because it does not rely on an increasing or decreasing stock. Instead, it is easy to replace the declining return in the long run. In the process, there is an increase in the guarantee that the investment outcomes are likely to be positive, and there is a decrease in the risk to be encountered. Another gain of the 130/30 funds making them effective in replacing the long-only investment is the ability to consider the benchmarks. The strategy is effective since it enables the investors to have a much bigger picture of the market they have decided to venture into (Viceira and Tung, 2008). Other than the gains, it will also be challenging to use the approach due to several reasons. One is because 130/30 funds have a much higher transactional cost when compared to the traditional mechanisms. Additionally, the number of transactions is much higher than in the long-only portfolios.
Is it a good idea to invest in low-volatility strategies? If so, is a 130/30 structure a good way of doing it?
The low volatility strategies give rise to much higher returns mainly because the level of risk associated with the approach is high. The Russell 1000 index can be the most effective and efficient benchmark to use in the setting of the low volatile risk where the returns will signal a good investment. More so, some of the strategies with low volatility do not account for a wide range of transaction costs making a good idea for investment. There are fewer management fees and expenses that are incorporated (Kumar, 2015e). Additionally, the design equally includes a performance based on the returns that have already been computed in the portfolio. There is the inclusion of the capital gains on the capital that had been invested and the dividend income, which is based on the holding investment made by an individual towards the low-volatile approach.
Martingale Assets Management has a standard fee, which is 0.7% of the amount of the first fund investment summing up to approximately $25 million (Viceira and Tung, 2008). Also, there is a 0.3% charge on the remaining amount of funds (Viceira and Tung, 2008). Therefore, the investment outcome indicates that the investors can consider contributing to the low volatility strategy because the returns are much higher, and the approach represents it. The higher the risk an individual is willing to take, the higher the level of anticipated outcomes. So, the design might appear to be a risk, but it will be worth it once the maturity period has been attained.
For which investors are low-volatility strategies appropriate?
The low-volatility strategies will be effective for investors that are risk-taker. That is because they will be willing to take the risk for much-anticipated outcomes, which is also never an assurance since losses can equally be experienced. There are three types of risks associated with the portfolio (Viceira and Tung, 2008). They include business risk, volatility risk, and inflation risk. Business risk is the exposure of a company to the various factors that pose risks, such as competition and direction to customers’ preferences. Volatility risk is associated with the changes that can take place in a portfolio while carrying out an investment. Inflation risk is a result of a decline in purchasing power. The majority of the bond’s payments are usually in the category of inflationary risk. That is because the costs of bonds are made based on interest rates that are fixed. One of the areas that investors would rebalance in the portfolio is the amount invested in the stock. The amount of risk to be encountered might be high, but the anticipated yields will also be increased.
References
Kumar, A. (2015e). Lecture notes 5 [PowerPoint slides].
Viceira, L. M., & Tung, H. H. (2008). Martingale Asset Management LP in 2008, 130/30 funds, and a low-volatility strategy (HBS Case No. 9-207-047). Retrieved from Harvard Business publishing https://cb.hbsp.harvard.edu/cbmp/access/37227892
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