Name

Course

Instructor

Date

Portfolio project

Data

Bloomberg and Morningstar were used in the search for risky assets and T-bill for this portfolio.

The risky assets used are

Mutual funds: BRPIX, IBOBX, VTMSX, ATHAX, WASAX, PRMTX and DCMVX

Exchange Traded Funds (ETF): VGT, VDC, SPY, IYR, RFV, AGG

To gain basic knowledge on ETF and mutual funds, I logged on to the New York Stock Exchange website. This website provides invaluable information on assets and securities. I conducted the research using morning star. The equity style box was used in the process of sorting by total return and the standard deviation. The nine-square grid in morning star provides investment characteristics of ETF and mutual funds. This information is available in the form of visual representation. Securities are categorized into small, large and medium in accordance with market capitalization. They are also classified into factors such as growth, blend and value. In this stock portfolio, the securities are selected from different square grid. This would be important in the process of determination of the risk-return structure of the stock portfolio. High values in standard deviation and returns are characteristic of large securities that have immense growth structure. The securities in this portfolio signify different growth levels. Other criteria that were integrated include expenses and net assets.

2. Create the optimal Risky portfolio.

The percentages to be allocated to each risky asset are AGG 14.41%, PRMTX 28.59%, VDC 54.08% and WASAX 2.91%.

These percentages are based on the optimal risky portfolio that is created by Ibbotson software.

This table represents statistics from the EnCorr Optimizer.

This Table tells the percentage of investment how I should allocate in each risky assets.

Portfolio Statistics Position 50AGG Equity

14.41

ATHAX Equity

0

BRPIX Equity

0

DMCVX Equity

0

IBOBX Equity

0

IYR Equity

0

PRMTX Equity

28.59

RFV Equity

0

SPY Equity

0

VDC Equity

54.08

VGT Equity

0

VTMSX Equity

0

WASAX Equity

2.91

Expected Return

11.13

Standard Deviation

13.58

Return Percentiles: Position 50

Nov-13

Nov-15

Nov-17

Nov-22

Nov-32

95th Percentile

34.76

23.83

20.64

17.52

15.36

Expected Value

11.13

10.58

10.47

10.39

10.35

5th Percentile

-9.71

-1.73

0.86

3.54

5.48

Position 50

Efficient frontier

Correlation matrix

N PeriodsAGG EquityATHAX EquityBRPIX EquityDMCVX EquityIBOBX EquityIYR EquityPRMTX EquityRFV EquitySPY EquityVDC EquityVGT EquityVTMSX EquityWASAX EquityAGG Equity

81

1

-0.0597

-0.1185

0.0504

0.5957

0.2311

0.0903

0.1112

0.0886

0.1662

-0.0135

0.0397

0.0702

ATHAX Equity

81

-0.0597

1

-0.8641

0.9083

0.2639

0.6842

0.9248

0.7987

0.8933

0.6842

0.908

0.8825

0.7932

BRPIX Equity

81

-0.1185

-0.8641

1

-0.9267

-0.4006

-0.8047

-0.9133

-0.8824

-0.9891

-0.8555

-0.9013

-0.917

-0.6516

DMCVX Equity

81

0.0504

0.9083

-0.9267

1

0.3591

0.7882

0.9078

0.8972

0.9373

0.7342

0.8952

0.9358

0.704

IBOBX Equity

81

0.5957

0.2639

-0.4006

0.3591

1

0.4707

0.4171

0.4174

0.4089

0.4048

0.3227

0.3007

0.2556

IYR Equity

81

0.2311

0.6842

-0.8047

0.7882

0.4707

1

0.7704

0.8856

0.8171

0.7387

0.7148

0.862

0.4527

PRMTX Equity

81

0.0903

0.9248

-0.9133

0.9078

0.4171

0.7704

1

0.8353

0.9287

0.7581

0.9366

0.884

0.7208

RFV Equity

78

0.1112

0.7987

-0.8824

0.8972

0.4174

0.8856

0.8353

1

0.8944

0.7574

0.8015

0.9337

0.5375

SPY Equity

81

0.0886

0.8933

-0.9891

0.9373

0.4089

0.8171

0.9287

0.8944

1

0.8565

0.9113

0.9256

0.6816

VDC Equity

81

0.1662

0.6842

-0.8555

0.7342

0.4048

0.7387

0.7581

0.7574

0.8565

1

0.7138

0.7726

0.4732

VGT Equity

81

-0.0135

0.908

-0.9013

0.8952

0.3227

0.7148

0.9366

0.8015

0.9113

0.7138

1

0.8779

0.6652

VTMSX Equity

81

0.0397

0.8825

-0.917

0.9358

0.3007

0.862

0.884

0.9337

0.9256

0.7726

0.8779

1

0.6349

WASAX Equity

81

0.0702

0.7932

-0.6516

0.704

0.2556

0.4527

0.7208

0.5375

0.6816

0.4732

0.6652

0.6349

1

AGG has a negative correlation with other securities. Therefore, there is reduced risky portfolio.

3. Capital allocation

Given that A= 4, = 0.014(1.66% annual rate return in 2009 divided by 12 months)

Therefore

In the process of determining the percentage of investment risky assets should be put

Y* = (0.0138-0.0014)/ (4*0.03752) = 2.20

The risky assets are 220%

1-Y = -1.2 (-120% in T-bill. This is the borrowing at T-bill rate)

4. Summary statistics

Total number of periods =81

This analysis is based on 81 periods

Arithmetic mean in percentage= 6.49

The average return is 6.49%

Geometric mean =5.63

The average return is 5.63%

Normally this mean is lower than the arithmetic mean.

Standard deviation= 13.57

In comparison with the expected return, the dispersion is minimal.

Sharpe ratio= 0.1074

Positive Sharpe ratio value shows that risk adjusted performance has been taken into consideration in the portfolio.

M-squared percentage = 8.24

This value is compared to the market return. If the market value is lower than the market the portfolio is underperformed.

Beta = 0.7193

Beta values are determined whether they are more or less than one. If the value is below one, as 0.7193, the portfolio has less volatility than the market.

Treynor ratio (%) = 0.55

The aggregate return on the portfolio was done using the Geometric mean. Therefore, 0.55 can relatively be earned in excess of the value that could be earned on a low risk or risk-less investment per unit of market risk.

Jensen’s alpha = 0.17

If the value is positive, the portfolio has beaten the market. However, if it is negative, the performance of the portfolio is below the market. Therefore this portfolio beat the market.

Information ratio = 0.1769

Higher values of information ratio provides for increased return of the portfolio. 0.1769 is low as managers generally achieve rations close to one-half.

Histogram