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Sample Presentation Paper on BEA Associates HBR

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Sample Presentation Paper on BEA Associates HBR


An attractive combination of derivatives and other cash securities are important in achieving a client’s objectives in management of equity funds. The combination also helps a firm to diversify away risks of investment, which guards the organization against potential risks of loss. This paper seeks to analyze the investment alternatives available to BEA Associates. The paper will focus on various approaches to achieve the diversification of investments by firms, such as enhanced equity index fund, futures, and forward contracts. The paper will use graphs and tables to analyze the potential options available to the firm, and the return associated with the approach. It will evaluate the attractiveness of the index-linked note relative to other index lined notes, swaps, and future contracts. Therefore, the paper will offer the recommendations and course of action available to the firm to pursue its investment opportunities.

Tabular Exhibit: Asset Class Correlations: The diversification benefits disappeared when they were needed the most





High Yield Bonds

Managed futures

Real Estate













High yield bonds






Managed futures


0 (-0.19)




Real Estate









How BEA’s Enhanced Equity Index Fund Approach Works

BEA’s enhanced equity index fund approach works on an index basis having a well-defined benchmark that is sensitive to the security prices with the objective of outperforming the index set as the benchmark. The purchaser of the stocks receives income of the investment in form of dividend and other capital gains on the stocks. The purchaser retains the risks of losses of the value of the stock purchased and foregoes any interest on the cash used in acquisition of stock (Shah & Fernandes, 2000). The enhanced equity funds involves small loses of stock loan fees compared to the futures and other trading approaches, which offers the holder  a greater diversification of risks and guaranteed higher incomes.

Graphical Representation of the indexation of the Enhanced Equity Index Fund relative to the benchmark Index



The Attractiveness of the Strategy Involving S&P 500 Futures and its Performance Relative to the S&P 500

The attractiveness of the strategy involving S & P 500 futures to BEA Corporation is based on the prices of its underlying securities that determine their values. S & P futures are relatively attractive since they have lower transaction costs compared to other stocks, and have lower administrative and custodial costs. S & P futures have a relatively lower interest rate compared to the interest of other securities (Gastineau, 2002). The interests of S & P futures is slightly above the Treasury risk free rates, and thus have lower risks of losses of principal amounts .The securities are attractive to investment firms, such as BEA since the futures strategy outperforms the index fund strategy on any cash returns earned on investment.

Graphical Representation of the Performances of the S&P Futures Relative to the S&P 500 Indexes at Different Pricing Categories

S & P futures will perform better for BEA Corporation relative to the S & P 500 in several ways. Firstly, the futures contracts can be rolled over to several investment periods before their maturity dates. The rolling over of the investment horizon will enable BEA Corporation to earn a profit whenever the futures contract is correctly priced. The ability of the S & P futures security holders to earn excess cash returns enables the investor to recoup the investment funds within a limited time. This usually occurs when the futures strategy outperforms the index fund strategy. However, the holder of the S & P futures securities risks the potential loss of loan fees unlike the S & P 500 securities. The BEA Corporation may trade S&P futures securities at a loss in the far contact whenever the investment is rolled over to several investment horizons.

Attractiveness of the Strategy Involving the S &P 500 Swap and its Performance Relative to the S&P 500

The attractiveness of the strategy involving the S & P swaps is based on the prices of other over the counter derivatives, and the bilateral negotiations with the third parties. These parties include dealers and the clients and other third parties. The S & P swaps are attractive to BEA Corporation for several reasons. Relatively, S & P 500 swaps are less standardized, which offers higher flexibilities of trading. The S & P swap allows a greater degree of customization of services, which enables the client to tailor the investment needs of the customer to his/her unique investment preferences. This strategy does not require the presence of a clearing house to monitor the performance of the contract, and the creation of collateral to enforce the contract. Consequently, costs of transaction are reduced, and this enables the securities to be traded faster.  Therefore, the participation of parties in the swaps markets only requires close attention of the management of the risks associated with the counterparties.

Relative to the S & P 500, the swaps strategy performs better on short-term volatile securities since they offer higher trading autonomy and attractiveness. The S & P swaps are generally traded faster, which will enable BEA Corporation to contract within short periods while limiting the transaction costs. However, S & P swaps face the risks of payment defaults due to the absence of an enforcement agency, such as a clearing house. These securities will therefore require BEA Corporation to deposit higher margins to compensate for this additional risk. The S & P swaps require traders with high negotiation skills in reaching a trading agreement as well as the possession of vital market information. This market information includes prevailing market prices of the securities and the volatilities of the security prices.

Attractiveness of the Index-Linked Note and Its Performance Relative to the S&P 500

The index –linked note attractiveness is related to the final redemption value floated on the return of the security index. These security indexes include the currency returns on hedged foreign stock and the returns of the S&P 500. The index-linked notes have a tax treatment as debt securities and are thus tax exempt. Consequently, such securities are usually issued to meet the demands of tax exempt investors. The availability of this tax exemption to index-linked notes makes them attractive investment opportunities for BEA Corporation since they earn higher returns, which boosts the over-counter derivative markets and guarantees higher returns to investors.




Graphical Representation of the Performance of the Index-Linked Notes over their Maturity Dates

In relation to the S & P 500 securities, the index-linked notes will offer better performances to BEA Corporation. This is especially when management and issuance of tax returns increases the costs of business. The absence of tax on returns of indexed notes also enables the investor to gain higher untaxed gains. However, the indexed notes are traded in the over-the counter markets, which eliminate competitive pricing of securities. Thus, efficient valuation of securities is limited to the knowledge and experience of the contracting parties (Fabozzi, (2008). In addition, the returns on indexed notes are generally lower compared to the S & P 500 due to the lower risks in the indexed securities.

How BEA Corporation Should Think About Counter-Party Risk in Its Use of Index-Linked Notes, Swaps, and Future Contracts

In designing the optimal combination of investment strategies, BEA Corporation should consider the risks associated with each of the strategy adopted relative to the S & P Strategy. The risks and return trade-off of the index-linked notes, swaps, and futures contracts should be analyzed to identify both the diversifiable and the non-diversifiable risks of each investment potential (Schoenfeld, 2011). For example, the counter party risks of default associated with the case the non-regulated trading strategies, such as the swaps should be considered. These include the default risks of the counter party as well as the volatility of security prices. The firm should use a combination of each of the strategies relative to the risk and return tradeoffs, and investment horizon to diversify away the counterparty risks.


I would recommend that the company use both a passive and an active investment strategy. The firm holds a variety of investment funds, such as corporate, public, endowment, and pension funds, which require a unique management strategy. For example, an active fund management may be useful for corporate securities, which may not be effective for pension funds. Thus, a combination of investment strategies will enable the firm to manage its securities efficiently and diversify away the unsystematic risk. The most attractive way to invest the assets in the index fund is to analyze the changes in the returns of the S&P 500 stock index, and select those securities with the potential to outperform the stock index in the long run.


In summary, the paper has evaluated the attractiveness of investment strategies of BEA Corporation relative to the S & P 500 stock index. The paper has discussed the attractiveness of each investment option to BEA Corporation in relation to their unique characteristics, merits, and demerits. These investment options include the swaps, indexed notes, and futures. The characteristics of each option in relation to their investments horizon have been analyzed on a risk- return tradeoff framework. Bea Corporation should consider the counterparty risks associated with each investment option in designing its optional investment strategy and security combination. The company should use a combination of investment strategies to diversify away the systematic risk.


















Fabozzi, J. (2008). Handbook of finance, financial markets and instruments. New York: John Wiley & Sons Publishers.

Gastineau, J. (2002). The exchange-traded funds manual. New York: John Wiley & Sons Publishers.

Schoenfeld, A. (2011). Active index investing: maximizing portfolio performance and minimizing risk through global index strategies. New York: John Wiley & Sons Publishers.

Shah, A., & Fernandes, J. (2000). The relevance of index funds for pension investment in equities. New York: World Bank Publications.

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