Construct an effective portfolio

Discuss portfolio of equity securities

Demonstrate the essential knowledge and interpersonal skills to work effectively in a team

Demonstrate proficiency in writing

Your team manages a family office for a Singaporean client who has S$1 million in investible wealth. After reviewing the client’s investment policy statement, your team gathers that he would like a diversified portfolio that is long-only in Singapore equities. In addition, that portfolio should yield an average real return of 6% per year and will only accept a 5% probability of losses that are more than $100,000 in any given year. The long-term annual inflation rate in Singapore is 2.5%.

If needed, you may submit your supplementary computations in an Excel file, using a separate tab for each question. Price data can be extracted from Yahoo! Finance and industry classifications (Global Industry Classification Standard) can be obtained from Thomson Reuters Eikon.

Question 1

Prepare a portfolio that historically meets all of the specified investment objectives. As part of this process, you should extract price data for each security in your proposed portfolio to compute monthly returns from January 2012 through December 2016. Use this historical data to justify your proposed portfolio.

Question 2

The client suggests using the SPDR Straits Times Index ETF as a benchmark portfolio. Evaluate whether this would be an appropriate benchmark portfolio. As part of this process, you should extract price data for the ETF to compute returns from January 2012 through December 2016.

Question 3

Evaluate the need to rebalance your portfolio. Make and justify three (3) changes to the industry weights for your portfolio constructed in Question 1. Communicate these changes to your instructor by the end of Week 3.

Question 4

Evaluate the need to rebalance your portfolio. Make and justify three (3) changes to the weights on stocks for your portfolio constructed in Question 1. Communicate these changes to your instructor by the end of Week 3.

Question 5

For the portfolio that incorporates the changes you made in Questions 3 and 4, compute the annualised return for the period starting from the beginning of Week 4 to the end of Week 5. Using the portfolio constructed in Question 1 as the benchmark, conduct a micro-attribution analysis to assess how your portfolio has performed relative to the benchmark.