Department of Finance MAF 707 - Investments & Portfolio Management Assessment 2 (30 marks), T1, 2017 Due date: 15 May, 2017 11.59pm 1 Assessment Details The purpose of this assignment is to build your practical understanding of portfolio op- timization and performance evaluation. Part I of this assessment requires you to develop skills to read nancial pages (such as the Bloomberg description page found in Appen- dices I & II) and other pubplicly available information relating to individual companies as well as the overall market condition to aid decision making. Part II of this assignment requires you to apply portfolio optimization techniques to build portfolios involving a va- riety of strategies and conduct evaluation of portfolio outcomes with respect to dierent trading strategies. 1 JF Asset Management operates with a pool of funds amounting to AUD 500 Million to be invested across 10 Australian stocks listed below: 1) AGL AT Equity - Agl Energy Ltd. 2) BHP AT Equity - BHP Billiton Ltd. 3) CBA AT Equity - Commonwealth Bank of Australia 4) CSL AT Equity - CSL Ltd. 5) FMG AT Equity - Fortescue Metals Group Ltd. 6) TCL AT Equity - Transurban Group 7) TLS AT Equity - Telstra Corp Ltd 8) WFD AT Equity - Westeld Corp 9) WOW AT Equity - Woolworths Ltd 10) WPL AT Equity - Woodside Petroleum Ltd. Assume that you have been appointed recently as a Research Analyst at JF Asset Managment Ltd and the management has requested you to prepare a report by answering questions in Part I and Part II. 1.1 Part I - Company level and market level analysis (50 marks) Using the 10 stocks above (see Appendix II for descriptive details from Bloomberg for these stocks), you are required to write a summary for each company along with the market index (Appendix I) in this part of the exercise. In your summary you will also cover issues such as correlation between assets including their relationship with the mar- ket index, summary statistics on returns (using the data provided in Excel spreadsheet) in addition to the information reported on the description provided in Appendices I & II. You are advised to source additional information from databases such as DatAnalyt- ics Premim from the library web page to structure your summary. The purpose of this summary is to inform the management as part of aiding decision making with respect to portfolio management activities of JF Asset Management Ltd covering detailed informa- tion relating to the above companies as well as the overall market for portfolio decisions. [1500 words = 50 marks ] 2 1.2 Part II - Portfolio analysis (50 marks) Part II of the Assessment requires you to conduct estimation and evaluation of various portfolios using continuously compounded return various trading strategies. a) Using these 10 stocks, you are required to form an equally weighted portfolio and com- ment on the performance using traditional performance measure such as Sharpe and Treynor ratios. Equally weighted portfolio requires equal distribution of the available fund (AUD 500 million) on 13 April 2012 and generate risk-return measures using this naive strategy. (250 words = 10 marks) b) Assuming no short-sale is permitted, you are required to construct an ecient frontier using the continuously compounded return data from 13 April 2012 to 13 April 2017 for dierent target return. You are required to use target returns of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%, 11%, 12%, 13%, 14%, 15%, 16%, 17%, 18%, 20% and 25% using the 10 stocks identied above. Please note that there may not be convergence at certain target returns and you are required to report evidence of convergence or convergence failure at these target returns in an appendix. If there is no convergence achieved at a given target return clearly identify the target returns that fail to achieve convergence in a table for those respective target returns. Provide details (weights, and annualized return and standard deviations) of the ecient portfolios forming the frontier for those target returns that achieve convergence and you are advised to present these estimation output in an appendix (please maintain neatness and readability of the estimation output with respect to individual target returns). Having completed these estimation procedures, you are required to comment on the performance of these portfolios using dierent perfor- mance measures ( such as return, risk, portfolio beta, Sharpe ratio and Treynor ratio). [750 words - 25 marks] c) Generate the global minimum variance portfolio that sits at the point of the ecient frontier and comment on the performance of this portfolio. (250 words = 15 marks) 3 2 Learning Outcome Details 2.1 Unit Learning Outcome (ULO) assessed ULO1: Students will need to apply trading rules to create and track equity portfolios as part of the portfolio analysis exercise in this assessment and in the process will re ect on portfolio management). ULO2: Students will need to re ect on understanding of portfolio optimisation and crit- ically evaluate various trading strategies with respect to their portfolio performance. ULO3: Students will need to write a report on portfolio analysis using the assets provided in the assessment task. 2.2 Graduate Learning Outcome (GLO) assessed GLO1: The assignment is for investment-specic knowledge and capabilities which is for appropriate to the level of study related to an investment or profession. GLO3: The assignment is for digital literacy which is for using technologies to nd, use and disseminate information. GLO4: The assignment is for critical thinking ability which is for evaluating informa- tion using critical and analytical thinking and judgment. GLO6: The assignment is for self-management ability which is for working and learning independently, and taking responsibility for personal actions. GLO8: The assignment is for global citizenship which means to engage ethically and productively in the managed fund context and with diverse communities and cultures in a global context. 3 Submission Details 3.1 Submission Please use the dropbox assigned for submitting Assessment 2 under the Assessment Re- sources on CloudDeakin to lodge your assignment on or before the due date. 4 3.2 Late Submission In accordance with University's policy, the following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to ve days, and work that is submitted more than ve days after the due date will not be marked. You will receive 0% for the task. 'Day' means working day for paper submissions and calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where it is unrea- sonable or impracticable to assess the task after the due date. Extensions can only be approved by the Unit Chair. Extensions can be granted for documented serious illness (not just on the day the assignment is due!) or for compas- sionate reasons under extenuating circumstances. The unit chair can ask to see how much work has been completed before granting an extension. Work or holiday reasons are NOT grounds for an extension { you are expected to manage these issues as part of your studies. You are strongly encouraged to start early and to continually backup your assignment as you progress. Computer crashes or corrupted les will NOT be accepted as valid reasons for an extension of any length. For further information about Special Consideration, visit http://www.deakin.edu.au/students/assessments/special-consideration 3.3 Assessment Feedback Students who submit their work by the due date will receive their marks and feedback within 10 business days of the due date. 3.4 Referencing  You must correctly use the Harvard style of referencing in this assessment. 3.5 Academic Integrity, Plagiarism and Collusion Plagiarism and collusion constitute extremely serious breaches of academic integrity. They are forms of cheating, and severe penalties are associated with them, including cancellation of marks for a specic assignment, for a specic unit or even exclusion from the course. If you are ever in doubt about how to properly use and cite a source of information, consult your lecturer or the Study Support website http://www.deakin.edu.au/students/study-support/referencing // Plagiarism occurs when a student passes o as the student's own work, or copies without acknowledgment as to its authorship, the work of any other person or resubmits their own work from a previous assessment task. Collusion occurs when a student obtains the agreement of another person for a fraudulent purpose, with the intent of obtaining an advantage in submitting an assignment or other 5 work. Work submitted may be reproduced and/or communicated by the university for the purpose of assuring academic integrity of submissions http://www.deakin.edu.au/students/study-support/referencing/academic-integrity 6 3.6 Appendix 1 Market Index (S&P ASX 200) Continued... 7 3.7 Appendix II Companies 1) AGL 2) BHP 8 3) CBA 4) CSL 9 5) Fortescue Metals 6) TCL 10 7) Telstra 8) Westeld Corporations 11 9) Woolworths 10) Woodside Petrolium 12