1. If you have to pick between the Russell Small Cap Equity Fund and the Russell
ID: 2720939 • Letter: 1
Question
1. If you have to pick between the Russell Small Cap Equity Fund and the Russell Core Equity Fund, which one would you pick? Tell why you would pick a particular fund. The characteristics of the funds are:
Small Cap Equity Fund
Core Equity Fund
3 year return
7.27 %
10.02 %
3 year standard deviation
16.47 %
13.97 %
Sharpe ratio
0.39
0.66
Beta
0.97
1.03
Small Cap Equity Fund
Core Equity Fund
3 year return
7.27 %
10.02 %
3 year standard deviation
16.47 %
13.97 %
Sharpe ratio
0.39
0.66
Beta
0.97
1.03
Explanation / Answer
Solution:
The Sharpe Ratio is a measure for calculating risk-adjusted return. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated.Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.
Hence in the given above question the investment that should be picked and invested would be the core equity fund becasue the sharpe ratio is more than the small cap equity fund . Higher the sharpe ratio more the return by the risk adjusted to the investment.
Thank you.
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