Portfolio
Assignment Portfolio Theory and Management
Individual Assignment
Introduction
This report exams the performance of fund 49 from different perspectives. Then, I composed a portfolio for client Jim using fund 49 and other four asset classes. The report contains five parts, first part identifies the style of fund 49 and pick out its corresponding benchmark. Second part conducts performance evaluation by different ratios. Third part compares fund 49 and fund 50 from different aspects. Forth part exams whether Jim’s objectives under some assumptions can be achieved or not and also provides possible alternative scenarios to him.
1. If we want to know the fund style, we should use different style benchmarks to exam what my fund style is. Usually, according to factor model, we should run regression between Rf and six benchmarks together and exam the relationship between my fund and six benchmarks. Then we constrain α=0, Ʃβi=1 and 0<βi<1. So picking out the largest and most significant β is the way to define the fund style.
Rf=α+βL-B*FL-B+βL-G*FL-G+βL-V*FL-V+ΒM/S-B*FM/S-B+ΒM/S-G*FM/S-G+ ΒM/S-V*FM/S-V+ Ɛ
Unlike U.S financial market which contains substantial difference between value and growth, in Australian, the different styles have high correlation with each other.
So we can just use Jensen measure involves running regressions between six different Australian Equity Benchmarks less risk free rate (cash) and my fund 49 less risk free rate respectively.
Rp -Rf= α+ β *( RBM - Rf) + Ɛ
Here we assume cash return is the risk free rate because cash has the relatively low variance or volatility. The results show Australia Mid/Small Blend provides the largest R square (0.97088). That means fund 49 has the highest match level with the Australia Mid/Small Blend compared with other five benchmarks. So Australia Mid/Small Blend can be determined as the Benchmark of fund 49. (Appendix A)
2. Some data such alpha, beta, tracking error can be known from the regression
Individual Assignment
Introduction
This report exams the performance of fund 49 from different perspectives. Then, I composed a portfolio for client Jim using fund 49 and other four asset classes. The report contains five parts, first part identifies the style of fund 49 and pick out its corresponding benchmark. Second part conducts performance evaluation by different ratios. Third part compares fund 49 and fund 50 from different aspects. Forth part exams whether Jim’s objectives under some assumptions can be achieved or not and also provides possible alternative scenarios to him.
1. If we want to know the fund style, we should use different style benchmarks to exam what my fund style is. Usually, according to factor model, we should run regression between Rf and six benchmarks together and exam the relationship between my fund and six benchmarks. Then we constrain α=0, Ʃβi=1 and 0<βi<1. So picking out the largest and most significant β is the way to define the fund style.
Rf=α+βL-B*FL-B+βL-G*FL-G+βL-V*FL-V+ΒM/S-B*FM/S-B+ΒM/S-G*FM/S-G+ ΒM/S-V*FM/S-V+ Ɛ
Unlike U.S financial market which contains substantial difference between value and growth, in Australian, the different styles have high correlation with each other.
So we can just use Jensen measure involves running regressions between six different Australian Equity Benchmarks less risk free rate (cash) and my fund 49 less risk free rate respectively.
Rp -Rf= α+ β *( RBM - Rf) + Ɛ
Here we assume cash return is the risk free rate because cash has the relatively low variance or volatility. The results show Australia Mid/Small Blend provides the largest R square (0.97088). That means fund 49 has the highest match level with the Australia Mid/Small Blend compared with other five benchmarks. So Australia Mid/Small Blend can be determined as the Benchmark of fund 49. (Appendix A)
2. Some data such alpha, beta, tracking error can be known from the regression