Beta Management Company Case Studies Example

Type of paper: Case Study

Topic: Company, Finance, Portfolio, Investment, Management, Community, Risk, California

Pages: 3

Words: 825

Published: 2020/11/08

Summary of Facts

Sarah Wolfe is the Chief Executive Officer (CEO) of a small investment management company that has around $ 25 million invested in their operational assets. It was founded in the year 1988 by Ms. Wolfe. She was a graduate from the Boston University and has sufficient information and experience related to return and risk analysis. She did a lot of reading to increase their financial knowledge with a strong focus on the risk management stance.


After a critical analysis and observation of the article related to the “Beta Management Company”, there are three important points or problems which come over the screen exclusively. 1)  Should Beta management company increase their equity exposure to 80% or not? 2) The company is not maintaining any type of portfolio to decrease the level of volatility and risk level from their investment. 3) How Beta Management decreases the risk levels of their client’s invested money? The clients of Beta Management Company claimed the same from the management of the company as revealed in the case study. Apart from this, the major problem that associated specifically with the analysis is to advise Ms. Wolfe regarding which stock they have to select.


All of these three problems can be extremely problematic for the company, as an investment company should not rely on a single investment vehicle. Mutual Funds is the most secure type of investment found in the financial market which usually backed by the Government. The funds are risk free, but the associated returns with these securities are very low. The clients of the company are continuously underpinning them to invest in some other securities as well instead of relying on the mutual funds in order to increase the level of investment and return opportunities for them accordingly in the market. Beta Management Company is operating with a mindset of passive investment in which they are not in the mood to take high level of risk for the return of the investment.
The second problem that needed to be analyzed here and found from the case study of Beta Management Company is the inefficiency of the company in terms of maintaining the investment portfolio of the company. In the aforementioned section, it is clearly analyzed that the correlation factor associated with Vanguard Index and both of these securities is 0.66, which is not only in the positive node, but also very high showing that the level of relationship among all of these securities are extremely high and effective. it is also showing that if the investment would have been made in all of these three securities collectivity, then it will not diversify the riskiness of the company because of having positive correlation.
Both of the problems mentioned above are related to investment portfolio management and the company can easily jump out from both of these problems by making effective portfolios accordingly. Vanguard Index should be included in the portfolio, as it has the ability to minimize the level of riskiness of the investment with a positive attitude. Making the portfolio will satisfy the appetite of their clients as well, which are very much concerned with taking the positions in other securities as well other than Vanguard Index.
Pros: It will fulfill the appetite of the Clients completely, and attracts more and more clients towards the company in greed of high returns

Cons: The level of risk will increase with such Active Investment

In the first problem, it is like to advise the company should it take 80% proportion in the Vanguard Index or not. The mean return from 1989 to 1990 in the vanguard Securities is 1.16%, while it is negative in both California REIT and Brown Group. The average returns in these scenarios are -2.14% and -0.67% respectively. The standard deviation in this particular scenario for Vanguard Securities is 4.59%, while it is 9.26% and 8.16% for California REIT and Brown Group respectively, showing that both of these securities are riskier to invest as compared to the Vanguard Index. There two scenarios, which have been taken into account, 80% proportion in Vanguard or 90%, and the analysis is like this
For answering the second stock selection question, it is important to consider the concerns and the facts of their clients; Mr. Wolfe is expecting to increase the portfolio of the company by investing in large securities. For this vary purpose, Mr. Wolfe have selected two different companies for their investment concerns which are California REIT and Brown Group to compare it with its Vanguard Index 500 trust. The weighted average portolfio return is as follows
The weighted average cost of capital while investing 80% and 90% in the vanguard and rest equally in California REIT and Brown Group is 0.64% and 0.90%. By considering the fact of high level of negative return in California REIT, the company should make the portfolio with Brown Company with 90% share in Vanguard Index. The weighted average portfolio return will be like this
Return on 0.979% can be analyzed through this portfolio measurement.
The third problem is to decrease the level of riskiness through making of portfolio which can be analyzed through the standard deviation. The Standard Deviation of all of these securities is as follows
The portfolio that has been selected for this part is of Vanguard Index and the Brown Group, with 90% share in Vanguard. The average Riskiness of this portfolio will be
The average risk of the portfolio is not on a lower side by invested in this provision, however the return is high and this risk can be negligible


It will not be effective for Beta Management Company to include all of these companies in a single portfolio, as it will not give positive effectiveness to the company on the basis of the result computed in the aforementioned sections. However, the company has the choice to make portfolio with Vanguard Index and California REIT or Vanguard Index and Brown Group. After analyzing the level of Standard Deviation of California REIT and Brown Group, it is recommended to Beta Management Company to make portfolio with Brown Group, but high amount of investment should be allocated still in the Vanguard Index. Ms. Wolfe has to invest in this portfolio for the betterment of the company. Out of the two stocks (California REIT and Brown Group), Ms. Wolfe is recommended to select Brown Group’s because of its lower amount of Standard deviation than California REIT.

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WePapers. (2020, November, 08) Beta Management Company Case Studies Example. Retrieved January 30, 2023, from
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WePapers. 2020. "Beta Management Company Case Studies Example." Free Essay Examples - Retrieved January 30, 2023. (
"Beta Management Company Case Studies Example," Free Essay Examples -, 08-Nov-2020. [Online]. Available: [Accessed: 30-Jan-2023].
Beta Management Company Case Studies Example. Free Essay Examples - Published Nov 08, 2020. Accessed January 30, 2023.

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