FIN4710: Portfolio Management – Report Writing - Accounting and Finance Assignment Help

Assignment Task

TASK :1

Part A – Asset Allocation

• Based on the information provided below, what proportion of money will you allocate to each of the following asset classes:

1. Listed stocks of firms (Equity)
2. Cash or Cash Equivalents (Cash)
3. Bonds or other fixed income securities (Bonds)
4. Any other asset classes other than the three above

• Justify your allocation strategy by critically building upon the concepts studied within this module

How to write this part? – Allocate weights

• For example: 10?sh, 10% Bonds, 10% Gold and 70% Equity – Justify WHY you have allocated in this manner
• This analysis is the main thing which will get you marks
• Link your analysis to the information provided in the Question – See next slide for the question information

Information Given

• You are a UK based Hedge Fund who has been asked to manage £1 million on behalf of a group of investors. All investors in the group are in their 30’s with steady incomes and long-term goals; they do not need any regular income from their investments. For the purposes of this report, please ignore tax implications and transaction costs. Also ignore Legal Issues

Part B – Equity Allocation

• No matter what proportion of money you allocate to Equity in Part A, your portfolio MUST include a minimum of 4 firms’ stocks – At least 2 new stocks
• From your own work only!

– More stocks do not mean more marks

– Marks will depend on the quality of your analysis!

– Therefore, keep an eye on Quality vs Quantity

• Justify why you have included these firms’ stocks in your portfolio – Your report MUST include a brief individual analysis of each firm in your portfolio PLUS how all the firms’ stocks fit together as a portfolio of investments.

– Firstly, this analysis can be thought of as a summary of the kind of analysis you did in your FIN4710 coursework

– Secondly, how have you spread your equity investments across industries/countries i.e. explain your diversification strategy

– These analyses are the main thing that will get you marks

Suggestions on how to write the report

– Write about each firm and why you selected it to be included in your portfolio

– Justify why this firm is a good investment!

• Next, write about how these firms “FIT” together as a portfolio of Investments

– Justify how these firms put together make for a “Good” portfolio

• Is there an investment strategy that you have used?

– For example: Momentum, Value Investing, Contrarian, etc.

• Maybe you have used a combination of strategies

– For example: 1 Value stock, 1 Momentum stock and 1 Growth stock

• Evaluate performance of the Equity component of your portfolio from Part B using 3 years of historical data. More specifically, calculate the following performance measures for your portfolio and use them to compare its performance with the FTSE100 index.
• Jensen’s Alpha
• Sharpe Ratio
• Treynor Ratio
• Markowitz Mean-Variance Portfolio Theory

TASK :2

Portfolio Insurance

• You are a UK based Hedge Fund, and a new investor offers you $1 million of her money to manage. However, she insists that you must invest all her money, the entire sum of $1 million into the Google stock.
• She is worried about losing money and hence wishes to protect her investment. How can you insure her investment against losses? – The approach uses Put options
• Calculate the cost of insurance using real time option prices for Google Shares which can be obtained from Nasdaq or Yahoo Finance websites – Both as an absolute value in US Dollars ($) and as a percentage of the original investment.
• Critically evaluate the strength and weaknesses of this portfolio insurance technique.
• Google Option Prices

How to write the Report

• How many options to buy/sell? – Depends on how many shares of Google you bought
• Evaluate the insurance strategy – How does it work – Explain using Table & Diagram – Calculate cost of insurance (in $ and as a %)

• Discuss the strengths and weaknesses of the strategy – Link your discussion to Google stock– Is it a good idea to get the insurance?

• Justify WHY

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