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FINC3017 Investments and Portfolio Management

Report 2: Active Portfolio Construction and Analysis

投资学网课代上 You have recently been promoted to co-lead the investment research team on the back of your earlier portfolio recommendation work with the ···

Your career as a portfolio manager is taking off! 投资学网课代上

You have recently been promoted to co-lead the investment research team on the back of your earlier portfolio recommendation work with the set of 20 US stocks.

Your first major project in this new role involves recommending an investment strategy that follows the Treynor-Black optimization model. You need to prepare a report for the Investment Committee that summarizes the portfolio strategy as well as aspects of portfolio risk management and the choice between passive and active investment strategies. The Investment Committee is familiar with the Markowitz process but has limited knowledge of the Treynor-Black model.

You will be working with the same 20 US stocks as in your earlier report. Your intern has compiled data for you to use in preparing this report contained in the accompanying spreadsheet ‘Report 2 – Data.xlsx’. The ‘Forecasts’ tab contains the 2022 forecasts for these stocks based on monthly excess returns you are to use as input data to the Treynor-Black portfolio optimization model and no further adjustments are required.

Several members of the Investment Committee have flagged specific issues they want you to respond to in your report. Their issues are summarized in Table 1.

Table 1: Investment Committee issues 投资学网课代上

Report structure  投资学网课代上

The Investment Committee has strict policies on report structure, outlined below. Your task is to identify the Optimal Risky Portfolio (ORP) using the Treynor-Black optimization model and prepare a report that addresses each of the 10 items below. Where applicable, charts and tables are highly recommended.

1. Executive Make reference to the portfolio recommendation and key issues. (1 mark; word limit: 100)
2. Briefdiscussion of the Treynor-Black model process and assumptions, including a comparison to the Markowitz full-covariance portfolio optimisation model.

(3 marks; word limit: 200)

3. Determineand comment on the Treynor-Black ORP recommendation, clearly identifying:
   1. Theoptimal weight of each individual security in the active portfolio
   2. Theoptimal weight of the active portfolio
   3. Theoptimal weight of the market portfolio
   4. TheORP expected risk premium
   5. TheORP beta
   6. TheORP variance
   7. TheORP information ratio
   8. TheORP Sharpe ratio

(4 marks; word limit: 200, excluding numerical tables and figures) 投资学网课代上

4. Compareand discuss the Sharpe ratio of the ORP with the Sharpe ratios of the active portfolio and the market portfolio.

(2 marks; word limit: 150)

5. Providea response to Committee Member A’s  Your response should include discussion on how changes in these inputs would affect the weight of the active portfolio in the ORP.

(3 marks; word limit: 200)

6. Provide a response to Committee Member B’s question. In your answer, you should consider the underlying assumptions of the SIM, particularly regarding residual correlation, and attempt to supportyour argument with the information and data  You should also clearly identify what additional data and steps you would take to provide further quantitative evidence to strengthen your answer.

(4 marks; word limit: 250) 投资学网课代上

7. Providea response to Committee Member C’s  You should explain your choice of VaR methodology noting any assumptions.

(3 marks; word limit: 150, excluding numerical tables and figures)

8. Providea response to Committee Member D’s  You should clearly outline and justify a fee recommendation.

(3 marks; word limit: 150, excluding numerical tables and figures)

投资学网课代上

9. Providea response to Committee Member E’s  As CIO, Dr Gatakis is very interested in the strength of your argument but her time is limited so you also need to be clear and concise. You should be looking to impress her to validate your promotion as she has become an important career

mentor and advocate for you. As such, she is also interested in where you see your future career plans in the investment management industry context.

(5 marks; word limit: 350)

10. Concludewith a summary of the key recommendations and responses of your  (1 mark; word limit: 150)

The 10 items above account for 29/30 marks. The remaining mark is allocated to the quality of your report’s presentation. Alongside your report, you must submit an Excel spreadsheet (or applicable code) with your workings and follow all further requirements outlined below.

Further requirements  投资学网课代上

Assume that the Single Index Model (SIM) appropriately describes security returns when constructing your ORP using the Treynor-Black optimization model. It is recommended you review the prescribed textbook chapter reading and Module 4 tutorial to assist you with following the Treynor-Black optimization procedure.

Address the requirements of each question clearly. In preparing your report, it is recommended you consider how charts, tables, subheadings and dot points can be used enhance the way you present your findings. The data provided in this report is adapted from real stock market data and has been customised for the purposes of this assignment.

You should only use the data provided to you in completing this report (you are not required to gather any additional data). Assume that your portfolio has no investment constraints regarding leverage or short-selling. Further, unless otherwise specified ignore any potential transaction costs, fees and taxes in determining your portfolio allocations.

AND 投资学网课代上

Marks will be awarded for correct quantitative analysis, the clarity of your discussion, the structure of your report and how you present your findings. Please use graphs and/or tables to support your discussion but do not include the raw data in your written report.

Please use minimum 11pt font with 2cm margins and include all references, if required, in a bibliography. Faculty and/or university referencing requirements must be followed and academic honesty policies apply. Reference list does not count towards word limit.

Written reports must be submitted via the Canvas link labelled ‘Report 2’ as a word of pdf document. You also need to submit your workings. Workings will not be directly graded. Submit your workings as an Excel spreadsheet via the ‘Report 2 – Supporting workings’ link in Canvas (or code if using an alternative to Excel).

Please ensure you have submitted both your report and supporting working and that you document your submission (confirmation email/screenshot) to avoid late submission penalty issues.

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