| This quantitative study using a causal-comparative research design examined how mutual fund portfolios might provide shareholders with superior expected returns for an acceptable level of risk as compared to the expected returns of the Dow Jones Industrial Average (DJ). The modern portfolio theory (MPT) was selected as it links how markets, asset classes, and styles interrelate. Secondary data were reviewed from the timeframe of 2005 to 2010 to calculate the mean average return, Sharpe ratio, and average risk for the mutual fund portfolios and the DJ. The data were analyzed using one-sample t-tests to determine if significant differences existed between the mean average return, Sharpe ratio, and average risk for the mutual fund portfolios and the DJ. The results suggested that mutual fund portfolios outperform the DJ, and that shareholders and practitioners might improve their investment decisions and maximize the expected returns of their portfolios by using MPT strategies. Recommendations include using MPT investment strategies by practitioners and teaching these concepts at the undergraduate and graduate levels. The results from the study might contribute to positive social change by providing strategies to limit the level of risk in investments and justification for diversifying investments in individual retirement plans that can provide additional financial security during retirement. |
