Posted: December 2nd, 2013
Name
Course
Instructor
Date
Portfolio project
Data
Bloomberg and Morningstar were used in the search for risky assets and Tbill 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 ninesquare 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 riskreturn 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 50  
AGG 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  
Nov13 
Nov15 
Nov17 
Nov22 
Nov32 

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 Periods  AGG Equity  ATHAX Equity  BRPIX Equity  DMCVX Equity  IBOBX Equity  IYR Equity  PRMTX Equity  RFV Equity  SPY Equity  VDC Equity  VGT Equity  VTMSX Equity  WASAX Equity  
AGG 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* = (0.01380.0014)/ (4*0.0375^{2}) = 2.20
The risky assets are 220%
1Y = 1.2 (120% in Tbill. This is the borrowing at Tbill rate)
4. Summary statistics
This analysis is based on 81 periods
The average return is 6.49%
The average return is 5.63%
Normally this mean is lower than the arithmetic mean.
In comparison with the expected return, the dispersion is minimal.
Positive Sharpe ratio value shows that risk adjusted performance has been taken into consideration in the portfolio.
This value is compared to the market return. If the market value is lower than the market the portfolio is underperformed.
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.
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 riskless investment per unit of market risk.
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.
Higher values of information ratio provides for increased return of the portfolio. 0.1769 is low as managers generally achieve rations close to onehalf.
Histogram
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