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 financial 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 different trading strategies.

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 - Westfield 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.

Part I - Company level and market level analysis
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.

Part II - Portfolio analysis

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 efficient frontier using the continuously compounded return data from 13 April 2012 to 13 April 2017 for different 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 identified 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 efficient 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 different perfor- mance measures ( such as return, risk, portfolio beta, Sharpe ratio and Treynor ratio).

c) Generate the global minimum variance portfolio that sits at the point of the efficient frontier and comment on the performance of this portfolio.

2 Learning Outcome Details
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 reflect on portfolio management).

ULO2: Students will need to reflect 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.

Graduate Learning Outcome (GLO) assessed
GLO1: The assignment is for investment-specific 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 find, 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.

Attachment:- Appendix and data.rar