PART ONE:
Come up with a goal, determine constraints, and formulate a reasonable Investment Policy Statement.
PART TWO:
Select nine no-load mutual funds, with a variety of objectives. Do not use money market or tax-exempt funds. A mutual fund can specify whatever objective its management wishes, and the fund can use its own terminology. You will encounter many objectives; common ones include: “balanced”, “growth and income”, “international”. Just make sure that you select at least four or five different objectives. Also ensure that each fund you select has ten years of annual performance data.
A) Prepare a single table showing the following for each of your five funds as well as an equally weighted portfolio of your mutual funds:
1) Fund name, while the ticker would seem to suffice, the name.
2) Annual total return statistics for the past ten years. Mutual funds must distribute a portion of their income and capital gains each year, so it is inaccurate to only look at changes in NAV.
3) Arithmetic average of annual total returns.
4) Geometric average of annual total returns.
5) Standard deviation of annual total returns.
6) The current value (as of January 1, 2013) of $10,000 invested 10 years ago, assuming all distributions were reinvested.
B) Read the prospectus on each of your funds. Prepare a table showing the five largest holdings of each of your funds. You may have to specifically ask for this information, because some mutual funds do not automatically provide it. Show the stock ticker symbols, the industry and home country of each firm in the top five holdings, as well as the portfolio weight of each “name”.
C) Prepare a correlation matrix of the mutual funds. You of course should consider correlations when selecting your funds.
PART THREE:
Using the ten-year performance statistics of your mutual funds and the equally-weighted portfolio of mutual funds, determine and show graphically the efficient frontier. This is merely a standard deviation/expected return plot showing each fund (labeled with its ticker symbol) and one for the equally-weighted portfolio of funds. Show the efficient frontier. Determine your optimal portfolio allocation across your funds. Show this selection on the graph.
PART FOUR:
Prepare a table showing the portfolio composition for your optimal portfolio of mutual funds. Show the stock ticker symbols, the total portfolio weight, the industry and home country of each firm for at least the top five holdings of your “fund of funds”.
PART FIVE:
Print up your results from parts one through five. PLEASE NOTE: Presentation is half the battle on anything from choosing a mate to cooking dinner and this is no exception. PLEASE RUN THE SPELLCHECKER. (Excel has one.) Please pay attention to formatting.