Mr. and Mrs. Vincent have $50,000 of non-superannuation

Mr. and Mrs. Vincent have $50,000 of non-superannuation savings invested in a managed fund operated by Morrison Investments. The fund has equal exposure to each of the following asset classes: Australian Equity, Australian Bonds, Cash, International Equity, International Equity (Hedged), International Bonds (Hedged) and A-Reits. You are tasked with checking the performance of the fund.

(a) Start your analysis by completing the table below. Specifically, using the information provided in Exhibit A, estimate the arithmetic mean of annual returns estimated using the 10- years and 20-years to the end of 2020, as well as the whole period 1987-2020 inclusive. Then estimate the standard deviation (sample) of annual returns using the whole period to the end of 2020. Round your answers to one decimal place. (The mean 10-year annual return and the standard deviation of annul returns for the whole period calculated for the Australian equity asset class have been completed for you as a guide.

(b) Now compare your returns calculations to Exhibit B which is a graph taken from Morrison Investments’ annual report for this managed fund. Note that your average and the average reported in the annual report use the same set of annual returns. Explain why they are different (your calculated mean should be higher).

(c) Compare the estimates in Exhibit B for Australian listed property and Residential Investment Property. Explain why they are so different. Also explain why the Residential Investment Property return is possibly not that informative from an investment perspective.