Mr. Pittinos Case Analysis

Mr. Pittinos should select the Vanguard 500 Index, Wells Fargo Advantage Diversified Equity Fund, and Dreyfus Diversified Large Cap Fund to include in his fund offerings due to his clients’ risk tolerance, the approach that Pittinos Financial Advisers takes, and our analysis of the five funds.

Pittinos Financial Advisers focuses its efforts on taking care of its clients who are a mix of upper and middle class. They are mostly small business owners interested in security both in the short term and the long term. Pittinos advisers aim to fill their need for security through financial planning, insurance, income tax planning, and investing for the future. Furthermore, Pittinos develops these plans for its clients with simple to understand, quality products that do their job when they are needed the most.

The issue with investing in these products is very apparent to Pittinos advisers and its clients. If money is allocated into investment vehicles and insurance premiums, the funds available month to month are limited, and make it difficult for its clients to provide for themselves in the short term. Though, if money is not saved or allocated, the lack of retirement funds and/or unexpected events could put them in poverty. Pittinos advisers stresses this tradeoff to its clients to help them understand both sides of the coin before they make any rash decisions that jeopardize the short or long term. Pittinos wants to find a healthy balance of both based on each individual and their needs.

Mr. Pittinos, views market efficiency as a lens to look through to the market as a whole. Market efficiency in the real world is based off of how much information is available to everyone at any given point in time. This efficiency is continually on the spectrum of weak efficiency (where there is insider information not available to the public) to complete efficiency (where the public knows everything, and there is no more information that could beat the market). If the market were always completely efficient, no one would try and beat it or trade, which causes volume, so the market would be relatively static. Mr. Pittinos realizes that markets will never be completely efficient which means that the market is a benchmark that can be beaten by being more efficient than the market. In our opinion, this mindset of beating the market and knowing more than what the market shows as a reasonable basin of knowledge, from which earnings can be reached, is a nearly impossible feat. Even the best fund managers with many workers keeping their ear to the ground on every stock that is available on the open market can only beat the market half the time, and the other half, the fund underperforms. This equates to an average near the markets total gain over the same period.

Mr. Pittinos finds interest in beating the market, but more importantly, keeping his hand on the markets pulse. He looks to take care of his clients by giving them a suitable investment strategy that offers the right amount of risk and return. If a market is more efficient, yielding a higher return can be challenging, which is why investing in market based funds is beneficial. If a market is less efficient, yielding a higher return is a little more feasible, but still requires a certain amount of risk. These less efficient markets usually come during times that the market is down, and many do not want to buy in for fear that the market will keep going down.

The Vanguard 500 index, Wells Fargo Advantage Diversified Equity, and Dreyfus Diversified Large Cap are funds that our team believes will suit Pittinos Financial Advisers. Below we break down our analysis.

Vanguard 500 Index:

This was our first pick because it tracks the S&P 500, making it an easy to understand package for Pittinos’ clients. The index has high-quality stocks in the portfolio, satisfying Pittinos’ clients need for high quality investments. The index also offers a very competitive expense ratio of 0.17% (shown in Exhibit 3) which gives Pittinos’ clients a higher return on investment than if they were being charged over 1% for investing in a mutual fund that also relatively tracks the market. In our analysis (shown predominantly in Exhibit 6), the index, compared to the other four candidates, does an excellent job of holding its own among the risk adjusted returns.

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