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Case 3 Report Instructions
CASE 3: Larry Puglia and the T. Rowe Price Blue Chip Growth Fund
Set in 2016, the case recounts the remarkable performance record of the T. Rowe Price Blue Chip Growth Fund (Blue Chip Growth Fund), a mutual fund managed by Larry Puglia at T. Rowe Price, Inc. The case describes the investment style of Puglia, whose record with the fund over its 23-year history had on average beaten the Standard & Poor’s 500 Index. The tasks for the student are to assess the performance of the fund, consider the sources of that success, and decide on the sustainability of Puglia’s performance. Consistent with the introductory nature of this case, the analysis requires no numerical calculations.
This case provides a nontechnical introduction to the U.S. equity markets and sets the foundation for some basic concepts in finance. The following are the specific teaching objectives:
· Motivate a discussion of the concept of capital-market efficiency
· Impart some recent capital-market history—in particular, regarding the market crash of 1987, the Internet bubble of the late 1990s and early years of the 2000s, and the credit crisis/recession of 2007–09
· Convey a perspective on the role of large institutions in setting the price of securities
· Introduce the basic concept of value additivity. As illustrated by the net asset valuation of mutual funds, the value of a firm will be equal to the sum of the value of its parts
Case Report Instructions
This is a “Use a set of provided questions to prepare a formal case report” assignment. For this case study, you must write a professional report as per the guidelines in “Learning with Cases and Writing Case Reports.” You should create an action-oriented advisory report that presents concisely your analysis and recommendations. The questions below should help you analyze the case and identify the specific issue(s) raised. These are not questions that you should directly answer in your report; instead these questions are designed to help you frame your report with specific focus on the last question: “Would you recommend investing in Puglia’s Blue Chip Growth Fund?”
1. How well has the Blue Chip Growth Fund performed in recent years? In making that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you?
2. What might explain the fund’s performance? To what extent do you believe an investment strategy, such as Puglia’s, explains performance?
3. How easy will it be to sustain Puglia’s historical performance record into the future? What factors support your conclusion?
4. Consider the mutual-fund industry. What roles do portfolio managers play? What are the differences between fundamental and technical securities analysis? How well do mutual funds generally perform relative to the overall market?
5. What is capital-market efficiency? What are its implications for investment performance in general? What are the implications for fund managers, if the market exhibits characteristics of strong, semistrong, or weak efficiency?
6. Suppose that you are an advisor to wealthy individuals in the area of equity investments. In 2016, would you recommend investing in Puglia’s Blue Chip Growth Fund? What beliefs about the equity markets does your answer reflect?
NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:
This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.
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