CAPM Analysis

Many finance professionals utilize the Capital Asset Pricing Model (CAPM) to assess active fund managers’ performances. This model adjusts performance for the systemic risk borne by the fund and therefore is considered a good measure of value created by the fund manager. The application of this model requires a risk free rate, a fund benchmark, and the fund’s performance. This model provides the following statistics:

Alpha – A measure of the Fund’s outperformance of the market[1] adjusted for risk

Beta – A measure of the risk of the Fund in comparison to the market. The market always has a Beta of 1, Funds that have less risk than the market have a Beta of less than 1, and Funds that have more risk than the market have a Beta of greater than 1.

The weekly returns of Magnolia’s Alpha fund were used to calculate the CAPM statistics. Through May, 2015, the Fund had the following CAPM statistics:

Annualized Alpha of 9.28%[2]

Beta of 0.96

This implies that the Fund outperformed its benchmark by a risk adjusted 9.28% while assuming 96% of the risk of the market.

The above historical returns may not reflect the Fund’s future returns and there can be no guarantee that Investors in the Fund will not experience losses on their investments.

[1] For the partial month of November, 2013, the benchmark was the was an iShares ETF that tracked the NAREIT Industrial and Office REIT index (ticker FNIO) as NAREIT does not publish daily returns for the index. ETF quotes were pulled from Yahoo Finance and the NAREIT Industrial and Office REIT Index returns were pulled from NAREIT’s “Investment Performance by Property Sector and Subsector” report available at www.reit.com

[2] This calculation represents the return gross of fees. The risk free rate used was an annualized  0.06% as this reflects the average yield of the 6 month treasury bill since the fund’s inception as shown on www.treasury.gov