Posted: March 22nd, 2016

By using your own judgement and appropriate financial concepts determine the best asset allocation (% of capital allocated to each asset within the portfolio)

Investment Analysis and Strategy

Coursework: Investment Strategy for a small fund

The context

You are the portfolio manager of a UK-based fund and have to build a small portfolio. The fund should be a balanced portfolio of equities and bonds and should include equities from 6 companies and 6 bonds (government or corporate debt securities).
You are borrowing £12,000,000 for four weeks at the rate LIBOR + 2.25% (annual quote).
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 allowed.

The holding period is 4 weeks (beginning and end of investment to be decided by the fund manager).

Trading is allowed during the holding period (transaction costs are assumed to be zero).

Required:

Part 1
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 sector, 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
(50 MARKS)