Posted: March 23rd, 2017
Analysis and Strategy – BFBL607, 2016-2017 – COURSEWORK
Investment Strategy for a small fund
You are the portfolio manager of a UK-based fund and have to build a small portfolio.
You need to construct a balanced portfolio of equities and bonds. Your portfolio must
include equities from 6 different companies and 6 different bonds (government or
corporate debt securities).
You are borrowing £12,000,000 for four weeks at the rate LIBOR + 2.25% (annual
Your objective as portfolio manager is to produce a fund that should deliver an
annualised return of 16%. No short-selling nor use of other funds is allowed.
The holding period is 4 weeks (beginning and end of investment to be decided by the
Trading is allowed during the holding period (taxes & transaction costs are zero).
A) By undertaking fundamental analysis of company shares select at least three
equity sectors that you expect to perform well in the coming 4 weeks. Within
each of the three sectors, on the basis of your analysis (qualitative as well as
quantitative such as company news, current and expected P/E ratios, EPS,
Dividends, return and sales forecasts, etc.) select 2 companies that you expect to
outperform the equity market. By undertaking fundamental analyses on
government and corporate bonds (government debt, expectations on credit
rating, changes in yield, duration, convexity) select 6 debt securities that you
expect to perform well in the coming month.
B) By using your own judgement and appropriate financial concepts determine the
best asset allocation (% of capital allocated to each asset within the portfolio)
C) Select a benchmark index against which to compare your results at the end of
the investment period
Monitor the performance of the portfolio on a weekly basis. In terms of fundamental
factors explain reasons for the changes you are observing.
BFBL607 Investment Analysis and Strategy, D. A. Coker, 2016-17
Critically evaluate the performance of your portfolios against the performance of the
selected benchmark by using one of the following: the Sharpe ratio, the Treynor ratio or
Conclude and explain the divergences you observe between your portfolio and the
benchmark in terms of passive or active management theories and concept
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