Question: Your employer, Stock Fund Managers, has given you a $100 million portfolio to manage. Your mandate is to invest the portfolio in stocks and cash (i.e., cash equivalents).
1. Your performance is to be evaluated against a benchmark that consists of a 60% investment in the S&P500 index and 40% in cash. Calculate weekly returns on the benchmark portfolio with these 60-40 weightings.
2. Your portfolio must contain 5 stocks, and cash if you wish to take a position in cash. The stocks must be bought and sold in round lots of 100 shares. No mutual funds or ETF's.
3. You can choose any level of investment in cash, and it can be a long or a short position (borrowing). Assume that the rate of return on cash is 0.01% per week. Thus, if you invest in cash you will earn 0.01% per week on the cash investment; if you borrow money (short position in cash) you will pay 0.01% in interest per week on the amount borrowed.
4. In the second week of class submit your initial portfolio holdings as of the close on Friday of the first week of class, along with a one-page description of the strategy you wish to follow. This will be your Week-0 portfolio. For selecting a strategy, you can use ideas from Malkiel's book, Chapter 16 of Reilly and Brown, or any other source. In the initial portfolio holdings report include at least the stock symbol, stock name, number of shares, price per share, dollar investment in each stock and the percent weight of each stock in your portfolio using the preceding Friday's closing prices, and also include the dollar investment in cash and its percent weight. Use an Excel spreadsheet for this initial portfolio holdings report.