Beta Management Company
Beta Management Company is a small investment management company. They had approximately 25 million dollars when they started in 1991. Their company goal is to enhance returns but reduce risks for clients via market timing. Initially Beta’s funds were invested into the Vanguard 500, a S&P 500 no-load, low-expense index funds (with the remainder in money market instruments). The founder and CEO, Sarah Wolfe, adjusted the level of market exposure from 50-99% of the fund. She tried to “time the market” and reduce exposure to the market by decreasing the percent of the investment that was allocated to the Vanguard 500 index. When the market was about to go on an upswing they would invest more heavily in the index funds. Beta’s performance was tied to Ms Wolfe’s ability to predict the market. By 1991, Ms Wolfe decided it was time to invest in individual stocks of smaller companies. Based on recommendations from stock market analysts they recommended that she take a look at California REIT and Brown Group. Also Ms Wolfe felt that the market would stay strong for the rest of the year and there was the market was ready to rebound. California REIT is real estate investments trust that made equity and mortgage investments in income-producing properties. The earthquake in California had damaged its investments at the end of 1989. The California REIT was a good value but was extremely volatile. The California REIT would have a positive correlation with the Vanguard 500 index. Brown Group was a large manufacturer and retailer of branded footwear and had recently been restructured. It had a negative correlation with the Vanguard 500 index. The performance of Brown group would do well in a down market.
Ms Wolfe’s main concern wa ...