4 Funds With Good Sharpe Ratio To Counter A Volatile Market

Benchmarks incurred sharp losses to end a choppy August. To put things into perspective, the Dow, the S&P 500 and the Nasdaq lost 1.7%, 1.8%, and 2.6%, respectively. Further, the three major indexes posted their first monthly decline since May and the second for this year.

Intensifying trade conflict between the United States and China contributed immensely to losses. Further, China decided to impose import duties on U.S. agricultural products and its central bank fixed the mid-point of yuan to below the psychological level of 7 per U.S. dollar.

Further, the latest report regarding the state of America’s manufacturing sector doesn’t appear to be rosy either. The U.S. manufacturing sector appears to be heading towards a recession.

The Institute of Supply Management (ISM)’s manufacturing index hit more than a 3-year low in August. The ISM manufacturing index decreased to 49.1% in August from 51.2% a month earlier. The reading not only came in below the consensus estimate of 51.3%, but also fell to its lowest settlement since January 2016.

Any reading below the 50% level indicates a contraction in manufacturing activity. Further, the new orders index and the production index fell to 47.2% and 49.5%, respectively. Only nine of the 18 industries surveyed reported gains in the month.

Meanwhile, U.S. construction spending for July increased 0.1% but remained below the consensus estimate of 0.4%. Such dismal economic reports added to fears of an impending recession and led to broad-based losses for the markets.

Under such jittery conditions, mutual funds that are likely to offer steady returns along with lower level of risk are popular choices. But to identify funds that can offer such encouraging features, one should find out a way at measuring a fund’s risk-adjusted return. This is where the Sharpe ratio comes into play. Created by Nobel laureate William F. Sharpe, the Sharpe ratio is one of the popular ways of measuring funds’ performances on the basis of risk-adjusted return. A fund with a higher Sharpe ratio is believed to be more attractive than one with a lower ratio.

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