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03Jan2006
ADVANCE INVEST Gains 32.6% in 2005
ADVANCE INVEST Mutual Fund finished yet another successful year with a 32.61% return. The fund's NAV rose from BGN 1.38 to BGN 1.83 in the course of 2005. The corresponding change in the composite index SOFIX – taken as a benchmark for the Fund – is 32.02% (from 625.31 to 825.53 points). SOFIX, as well as ADVANCE INVEST, performed superiorly in the beginning of 2005. Following that the index lost almost a quarter of its value, while the fund’s share prices remained relatively stable due to a rebalancing of the portfolio conducted in early 2005. The second half of 2005 brought considerably lower yields for the Fund in comparison with the same period of 2004, the main reasons being the weaker performance of the blue chips in the portfolio along with the Fund’s policy shift towards a more balanced portfolio to lower the risk of potential losses.
At the end of 2005 the net asset value of ADVANCE INVEST amounts to approximately BGN 19 730 000. This constitutes a share of almost 23% for ADVANCE INVEST in the Bulgarian Mutual Funds market. Some major events for the Fund in 2005 were the entry into the Romanian stock market (with current weight of 5% in the portfolio), the establishment of real estate investment trust ADVANCE TERRAFUND, the Fund’s listing in the global financial information system Bloomberg, the enlargement of the Fund’s shareholder’s base with hundreds of individual investors, as well as with big institutional investors like pension funds and insurance companies.
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The “beta” coefficient – measuring the volatility of the portfolio with respect to the composite market index – for ADVANCE INVEST in 2005 is equal to 0.19 (on a weekly basis). This number means that the systematic risk, undertaken by the Fund throughout the year, is considerably lower than the risk of the market as a whole. In other words, if the market had fallen by 1%, the Fund would have fallen by only 0.19%, and vice-versa. Another metric for risk is the standard deviation (deviation around the mean of the Fund’s returns), which for ADVANCE INVEST stands at 1.34% on a weekly basis, or 9.67% annually. This number means that in 2005 the weekly returns of the Fund have been fluctuating between -0.80% and +1.88%, with an average weekly return of 0.54%.
ADVANCE INVEST is an open-end Mutual Fund. Investing one's savings in a Mutual Fund is one of the easiest ways to get exposure to a portfolio of securities (stocks, bonds, etc.) without getting involved in the selection and diversification process. The focus of ADVANCE INVEST is a long-term investment in stocks of leading Bulgarian and Eastern European companies with a high growth potential. Through the office-network of Karoll Capital Management in Sofia, Plovdiv, Varna, Burgas, Stara Zagora, Russe, and Vratza, the Fund continuously issues and buys back its shares. The latter are also subject to secondary trading on the floor of the Bulgarian Stock Exchange.
It is important to note some risk-related indicators for the activity of ADVANCE INVEST in 2005. These are the “beta” coefficient, the “alpha” coefficient, and the Sharpe ratio.
When evaluating the success of a fund’s performance, one must take into account not only the return but also the level of risk. In this regard, well-established metrics accounting for both of these important parameters are the “alpha” coefficient and the Sharpe ratio. For ADVANCE INVEST in 2005 the “alpha” coefficient (estimated at weekly frequency of the returns) is 21.7%, the latter meaning that due to its active portfolio management the Fund has outperformed the benchmark (at the corresponding level of risk) by 21.7%.
The Sharpe ratio, developed by Nobel Prize winner William F. Sharpe, on the other hand, is a means to measure the historical portfolio return per unit of risk. It is a convenient tool for comparison among funds belonging to the same category. In other words, the higher the value of the ratio, the better has the fund performed in comparison to its rivals and relative to the level of risk undertaken during the period in consideration. The Sharpe ratio in 2005 for ADVANCE INVEST is 2.8. In general, values of this ratio over 2 indicate a very good “risk-return” performance of given fund (portfolio), while values over 3 – an outstanding performance.
