YOUR ASSIGNMENT: You have excess cash ($25,000) from your year-end bonus and want to invest in a portfolio of assets.You have the option of investing in some combination of Fund 1, 2, 3, 4, 5 which are listed below. Using the information learned in this class and the BASIC INFORMATION listed below detailing the five different investment funds, develop a 1200-1500 word rational for your investment strategy. Your paper should include the following:
1. Define your return objective and risk tolerance. (25% of grade)
2. Construct your portfolio from the Basic Information Table listed below. What is your allocation of assets? (30% of grade)
3. Explain why you constructed this portfolio allocation bringing into your discussion such concepts as portfolio diversification, Efficient Market Hypothesis, market anomalies, behavioral bias, risk factors, duration, liquidity issues, etc. Bring as many of these (or other) investment concepts into your narrative. (30% of grade)
4. Explain how you will manage your portfolio going forward. What actions will you take if your portfolio outperforms your benchmark? If it underperforms? How will you define success at the end of 5 years? (15% of grade).
FINAL THOUGHTS: This portfolio should be suited to your personal risk tolerance and return objectives. It is all about YOU. The objective is to pull together many of the concepts we have learned this semester. This paper is worth 15% of your final grade and is due Sunday December 15 at 11:59pm
BASIC INFORMATION: Consider the four US equity mutual funds. The first is an investment grade bond fund, consisting of Treasury and corporate bonds with a 3.5 year duration, the second is a US large capitalization focused fund, the third is a large capitalization NON US fund, the fourth is a small capitalization US fund, and the fifth is the S&P 500 index (ETF) portfolio that perfectly tracks the benchmark. Each fund has an expense ration of .75%; except for Fund 5 which can be purchased for .05%. The following returns are net of fees.
1 year return Last 3 year Last 5 year Last 10 year !0 year risk
return return return (STD DEV)
Fund 1: 3.0 5.5 5.0 4.9 4.5%
Fund 2: 10.8 7.7 15.1 8.5 15.1%
Fund 3: 14.3 8.1 4.9 6.9 14.0%
Fund 4: 18.3 5.1 9.2 9.8 18.1%
Fund 5: 12.0 8.9 14.7 7.0 15.5%
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