FINC3017 Investments and Portfolio Management 代写
FINC3017 Investments and Portfolio Management
Summer School 2016
Assessment: Individual Report
Due date: 4pm, Monday 25th January
You are hired as an investment analyst in a leading portfolio management team. Given increasing interest in
“ethical investing”, the team is considering launching a new fund which follows an ethical investment
mandate. You are tasked with preparing a report and investment recommendation, as well as assessing the
performance of selected companies, and coming to a conclusion on the suitability and sustainability of this
type of investment strategy.
Part 1: Portfolio construction (30%)
Using traditional portfolio optimization tools, construct a portfolio following given investment mandate
- What are the expected returns, standard deviation and covariance for your chosen stocks?
- What are the optimal weights of the stocks in a portfolio of risky assets (subject to given investment
mandate constraints below)? Compare your result to:
a. An equally-weighted portfolio.
b. A portfolio which does not permit short selling.
- Identifying a suitable risk-free rate and determine the optimal composition of stocks now for any given
investor (assuming unrestricted borrowing and lending at this risk-free rate). Comment on how each
investor’s net position in each stock can vary.
- Discuss the limitations of the mean-variance optimization process to portfolio construction.
- The stock portfolio must contain between four and six companies
- No individual equity investment is to have 50% or more of the total stock portfolio allocation
- Companies must meet following criteria:
- Listed on the MSCI USA ex Tobacco ex Controversial Weapons Index, as listed here.
- At least two companies must have market capitalizations of at least $60 billion
- The chosen portfolio companies must be drawn from a minimum of three separate industries
Part 2: Asset pricing model analysis (40%)
Compare and discuss the alpha, beta, factor loadings and idiosyncratic volatility for each of the stocks
included in your portfolio.
- Is there any evidence of stocks outperforming the Fama-French 3-Factor model?
- Comment on the differences in systematic risk across the companies.
- Are the factor loadings consistent with the factor fundamentals?
- Which stock selected has the highest firm-specific risk?
- Identify whether the estimated regression coefficients are statistically significant.
- Do the estimated betas and factor loadings change over time (for example, between two separate sub-
- Based on your estimates, comment on whether the FF3F model is a suitable asset proving model.
Part 3: Ethical investing critique (30%)
Is a dedicated ethical investment portfolio a worthy venture of the fund?
- How do you define ethical investing? Is the investment mandate pursued by your fund suitable?
- Should additional screening and investment criteria be considered? What would you recommend?
- Identify and thoroughly discuss at least three major limitations specific to ethical investing.
- Does ethical investing underperform? Refer to both the theoretical and applied literature.
- Referring to your results in Part 2, is there evidence of underperformance/outperformance amongst the
companies you have included in your portfolio.
Additional report requirements
- Word limit: 1,500 words in main report. Penalties apply in excess of this limit.
- Charts, tables, figures: Not included in the word count.
- Appendices: Up to 10 additional pages (not counted towards the word limit).
- Maximum pages: The maximum number of pages of your report should not exceed 20.
- Excel spreadsheet: You must separately submit an Excel file with your complete workings. This will not
be directly assessed, but used if necessary to confirm your methodology. This is due by the same due date
as the report.
- Data: A clear description of the data used must be provided, including at a minimum the date range,
observation frequency, how any filtering may have been applied, and the data source. Share price,
fundamentals, and risk-free data can be accessed from any reputable source (eg Bloomberg, Google
Finance, Yahoo Finance). Historical price data prior to 2001 should not be considered. FF factors can be
downloaded from: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
- Formatting: Reasonable formatting is expected. The presentation of the report should be ‘professional’.
- Submission: Reports are to be submitted through Turnitin.
- References: The Business School Reference Guide should be followed.
Marks will be awarded for the clarity of your discussion and structure of your report. You are encouraged to
use graphs and tables to support your conclusion. Please include as one of your appendix pages a ‘picture’ of
your excel workings. However, please do not include your raw data in the appendix. There is a separate
submission portal for your Excel file.