4 Must-Have Funds With High Treynor Ratio For Solid Returns

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Per the Institute for Supply Management’s (ISM) latest report, U.S. manufacturing activity hit its highest levels in more than 37 years in March. The metric came in at 64.7% in March, compared to 60.8% in the previous month. That was its highest level since December 1983.

Of the 18 manufacturing industries that were surveyed, 17 reported growth. Furthermore, the new orders index increased 3.2 percentage points to 68% in March. Meanwhile, the production index increased 4.9 percentage points to hit 68.1%. Notably, the employment index increased 5.2 percentage points to hit 59.6%.

Meanwhile, per the latest report from the Institute of Supply Management (ISM), its service index came in at 63.7% in March, surpassing the previous month’s reading of 55.3%. This also marked its highest level on record since 1997. Experts opined that easing restrictions and a rise in vaccinations have been pivotal in boosting the large service side of the U.S. economy.

Under such circumstances, risk-loving investors should consider parking their money in mutual funds with high Treynor ratios. Notably, the Treynor ratio equates excess returns over the risk-free rate to the additional risk taken by an investor.

What Does Treynor Ratio Mean for Mutual Funds?

Treynor ratio, also sometimes referred to as the reward-volatility ratio, essentially measures how successful an investment is in terms of returns, taking into consideration the inherent level of risk involved. This ratio was developed by Jack L. Treynor. Mathematically, the Treynor ratio is calculated as follows:

Treynor Ratio = (Rp – Rf)/βp

Where,

  • Rp = Expected Portfolio Return
  • Rf – Risk Free Rate
  • Beta(p) = Portfolio Beta

The Treynor ratio assumes that since risk is an unavoidable element of any investment, it has to be fined. Moreover, the higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates greater returns generated from high risks.

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