Capital Markets Portfolio
1) Intro: use this to set out the terms of the exercise
a) 100,000 to invest
b) investment objective (what are you trying to achieve)
c) time period (over what time period are you seeking performance)
2) Identify the holdings
a) min 4 and max 6 holdings (undergraduate students)min 5 and max 10 holdings (post graduate students
b) all holdings must have quoted prices (source to be referenced)
c) consider costs
stamp duty if you are buying UK equities
initial charge on mutual funds
but assume you always deal at mid-price
d) rationale for each holding (not description) i.e. what features suggest that the holding will perform well over the time frame chosen, what are the risk factors and (briefly) what performance do you expect from each holding
e) charts detailing past performance over a long time period (5 years or longer)
3) Justification for overall shape of portfolio, key here is diversification
a) industry
b) country/currency
c) developed/developing markets
d) investment vehicles (funds, active/passive, derivatives)
3a) Explanation for any trading undertaken
4) Investment theory
I am not expecting all the following aspects of theory to be included, but a good demonstration of the theory will earn youbetter marks. You can either discuss investment theory as a separate section or you can work it into the structure of your coursework. The main thing is to make sure you have covered some theory somewhere.
a) Modern portfolio theory
risk-return trade-off and your risk profile
the principle of diversification
for extra marks: the efficient frontier and what it is demonstrates
b) CAPM
beta and weighted beta of portfolio (esp. if all UK stocks)
expected return per holding
c) Gordons growth model
estimated intrinsic value of a stock (to compare with actual share price)
d) investment styles
active/passive
value/growth/income
e) the efficient market hypothesis
f) behavioural finance
5) Evaluation of portfolio over time period
a) analysis on monetary basis in a table of data
performance of your portfolio by holding and overall return
consider a benchmark against which you can assess your performance
b) overall judgment
any comments to explain performance over the 5 weeks
what have you learned from the exercise?