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Financial Services Education and Financial Services Training

Financial Services Education and Financial Services Training

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Published by: Henley-Putnam-University on Jul 28, 2010
Copyright:Attribution Non-commercial


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Financial Services Education and Financial Services Training
Attaining a
Financial Services Education
is a precursor to a successful financial services career.Getting such financial services training will include valuable analysis of current events orinstitutions in the industry, such as the Morningstar Rating system.The Morningstar (star) Rating system is comprised of two parts: longevity and risk-adjustedreturns. Funds with 10-year histories are weighted (based on risk-adjusted returns describedbelow): 50% for the entire 10-year period, 30% for the most recent 5-year period and 20% forthe most recent 3-year period. For funds with 5-year histories: 60% for the 5-year period and40% for the most recent 3-years. If a fund only has three years of returns, the entire 3-yearperiod is given a weighting of 100%. In the case of funds with 5- or 10-year track records, themost recent periods are counted 2-3 times. The other component (risk-adjusted returns) iscalculated by taking a funds Morningstar Risk measurement and subtracting it from the fundsMorningstar Return score.Some portfolio managers or academics have been critical of Morningstar performancemeasurements. Averse arguments state that Morningstar star ratings are of limited value whenselecting individual funds or constructing an entire portfolio.Another study concluded:
ust one months or one years returns can significantly change a funds rating
Funds with 10+ year track records do a better job of maintaining their star rating than afund that has only been around for three years
Ratings do a good job in predicting poor fund performance (but not in predictingexcellent performance)
Future performance ends up being about the same whether the fund has a currentrating of three, four or five stars (source: Zweig, 2000).A financial services education can also introduce you to valuable strategic investmentstrategies, and insightful case studies. Such case studies will provide examples to applyacademic knowledge to real-life market situations. The following case study details certainattributes of US Equity Funds and an analysis of market performance.Even though the U.S. stock market is mostly comprised of small cap stocks, most mutual fundsare large cap. Of the 2,600 domestic equity funds at the end of 2009, 51% were large cap, 26%mid cap and 23% small cap. For any given year, ~35% of domestic equity funds have a negativereturn; about half of all U.S. stocks experience a negative return. Most U.S. stock funds haveherd like performance. The table below shows the percentage of U.S. stocks and U.S. equityfunds whose returns have been negative (source: Financial Planning, April 2010).U.S. Stocks and U.S. Equity Funds With Negative Returns

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