FUND MANAGEMENT SIMULATION PROJECT

Following the instructions for Report 01, you will now have a solid background and foundation needed to proceed for both passive and active funds that you have setup. The 11 items that you have filled in will guide you to perform the next steps, the securities selection which is the integral part of this Report 02. You may start investing by choosing the stocks and/or bonds and include them in your Yahoo finance portfolios. Note that the stocks and/or bonds for your passive fund and active fund may be the same, may be slightly different, or may be completely different based on the specific objectives of each of the funds.

It is important for the student to understand that it is not mandatory for you to invest all the funds in stocks and/or bonds. Obviously, the objective of a passive fund is to mirror the movement of a stock market index, thus you should be investing a significant portion of the passive fund in stocks that will mirror the performance of the index. However, for the active fund, if you think the stock market is not promising presently and likely to go down, you can save a large portion of the funds in money market instruments and wait until the stock market is likely to rise. Remember that for active fund, the objective is to outperform a stock market index, thus if you think the market is going down, you should not invest heavily in the market.

For passive fund, you should only invest in stocks that are component stocks of the index you have chose as a benchmark. I suggest a maximum of 10 stocks and for a start you can invest about the same amount of money for each of the stocks. There should not be any investment in bonds or fixed income instruments as these investments will derail the performance of your fund from the performance of the benchmark index. You should also keep at least 5% or $250,000 of your fund as cash for redemption purposes.

For active fund, you have more freedom to choose the stocks and/or fixed income instruments. Similarly, I also suggest you invest to a maximum of 10 stocks and a maximum of 2 bonds. For both passive and active funds, you are free to invest anywhere in the world as long as you are able to get the quoted price from Yahoo Finance. If you invest outside on New Zealand, you need to change the amount of money that you want to invest in the foreign stocks to the domicile currency of the stock. For example, if you wish to buy 10,000 shares of Microsoft Corporation chares in the U.S., the closing price on August 08, 2015 is US$46.74. 

You are free to change any of the 11 items for each of the funds which you have submitted for Report 01. While choosing the stocks and/or bonds for your portfolios, please answer the questions below and submit your report using My Web submission.

For the passive fund, you are required to answer the followings:-

1. How many different stocks will you have at the setting up of the fund and why?

2. What is the main criterion that you will use in selecting the stocks and why?

3. Based on the main criterion in (2) above, what are the stocks that you include in your portfolio, how many shares of each stock that you purchase, and at what price?

4. What are the selections of fixed income instruments that you will invest in the fund, if any

5. How much is the cash portion of the fund, why, and where will you invest the cash portion?

For the active fund, you are required to answer the followings:-

1. How many different stocks will you have at the setting up of the fund and why? What is the main criterion that you will use in selecting the stocks and why?

2. Based on the main criterion in (2) above, what are the stocks that you include in your portfolio, how many shares of each stock that you purchase, and at what price?

3. What are the selections of fixed income instruments that you will invest in the fund, if any

4. How much is the cash portion of the fund, why, and where will you invest the cash portion?.