2.2 Part II
Assume that you have been appointed as a graduate analyst by an investment company and your manager has assigned US$ 100 Million to be invested across the following exchange traded funds:
1. AUST AU Equity (BetaShares Managed Risk Australian Share Fund )
2. CBDAX GR Equity (ComStage ETF DAX)
3. LYXDAX GR Equity (Lyxor Dax UCITS )
4. SH US Equity (ProShares Short S&P 500 )
5. SPXL US Equity (Direxion Daily S&P Bull 3X Shares )
6. SSO US Equity (ProShare Ultra S&P500 ETF)
7. XDAX GR Equity (Xtrackers DAX UCITIS ETF )
8. XIC CN Equity(iShare Core S&P/TSX Capped Composite Index ETF)
9. SPY US Equity (SPDR S&P 500 ETF Trust)
Using the data provided in the spreadsheet (File name: ETFdata.xlsx) for these nine funds, you are required to generate continuously compounded returns for each fund on a daily basis and form an equally weighted portfolio as a naive trading strategy requiring equal distribution of the available fund (US$ 100 million) across these nine funds.
a) Comment on the performance using measures such as return, risk, Sharpe ratio and Treynor ratio
associated with the equally weighted portfolio and evaluate the performance.
In your summary you will also cover issues such as correlation between funds including their relationship with the market indices, summary statistics of individual funds using the historical data.
(300 words = 3 marks)
b) Assuming short-sales are not permitted, you are required to construct an efficient frontier using the continuously compounded return data from 10 November 2015 to 8 August 2019 (data has been provided in the folder) for different target returns such as 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%, 11%, 12%, 13%, 14%, 15%, 16%, 17%, 18%, 20% and 25%.
Provide details (weights, and annualized returns and standard deviations) of the efficient portfolios forming the frontier for the above target returns that achieve convergence and you are advised to present these estimation output in an appendix (please maintain neatness and readability of the estimation output with respect to individual target returns). Having completed these estimation procedures, you are required to briefly comment on the performance of these portfolios using different performance measures (such as return, risk, Sharpe ratio and Treynor ratio) over the sample period. [1000 words - 12 marks]