This note provides a brief overview of the relationship between the macro behaviour of the economy and the resulting impact on investment returns. It is designed to be used within a course on investments or portfolio management. The note starts by establishing a framework for estimating the long-run expected returns of the two major categories of financial assets - equities and (long-term) bonds - on the basis of the fundamental valuation theorem, .....more

An experienced individual investor is considering using a stock selection strategy called the "Dow Dividend Approach" which involves choosing an equally-weighted portfolio of high dividend-paying companies included in the Dow Jones Industrial Average). The various alternative versions of this strategy are reviewed, with comparative performance data and institutional information. A Canadian version of the strategy is also considered.

A couple debate whether some of their investment money should be directed at ethical (or socially responsible) mutual funds. An historical review of the development of such funds is provided. The case also describes and compares the investment performance of a number of specific Canadian and U.S. ethical mutual funds.

The case illustrates the issues involved in selecting a mutual fund when a married couple is trying to determine in which mutual fund(s) to invest. The couple is attempting to predict future returns on mutual funds based on factors such as past performance, management expense ratios, etc. Considerable data are provided about a wide selection of Canadian equity mutual funds.

An independent insurance broker is considering investing in high yield bonds to improve his portfolio's performance. He does not think that the returns he has received on his current equity and fixed income investments will continue into the future. He considers using historical data to construct efficient frontiers which suggest that high yield bonds improve the risk/return trade-off. A key issue is to what extent this historical improvement .....more