Deakin Business School
Department of Finance
MAF 707 - Investments & Portfolio Management
Assessment 2 (30 marks), T2, 2019
Prepared by Kannan Thuraisamy
Due date: 15 September, 2019 11.59pm
1 Assessment objectives
This assignment requires you to write a report (3000 words with 500 words allocated for the executive summary and conclusion) covering Part I and Part II outlined below. The purpose of Part I of this assignment is to build your general understanding of index funds and exchange-traded funds (ETFs) in terms of their development over the last two decades. In addition, it aims to deepen your understanding of some of the popular exchange traded funds identified specifically in Part II. The specific discussion of the nine funds requires you to reflect on their fund structure, objectives, sectoral diversification, performance and risk analytics.
This requires you to conduct your own research about these individual funds in addition to using the information provided in the appendix section. We have appended selected Bloomberg screens from the ETF functionality and Portfolio & Risk Analytic function capturing structure and performance related issues associated with these funds at a given point in time – including the underlying assets that form part of the specific fund.
Carefully examine these screens from Bloomberg and interpret the information provided on these screens. The aim of this section is to develop industry based authentic learning outcomes by directly incorporating industry practices. Part II of this assignment requires you to engage your theoretical knowledge learned in this unit to implement portfolio management principles using Markowitz optimisation techniques. For this purpose, we have provided the price data (denominated in US$).
2 Specific details
2.1 Part I
Discuss your understanding of the evolution of index funds and exchange traded funds as disruptor to the asset management industry in general.
Further, discuss the nine ETFs identified in this assignment (see Part II for details) specifically in terms of fund structure, objectives, sectoral diversification, performance, holdings, asset allocation and risk analytics. To do this you are required to conduct your own research about the nine funds in addition to the appended Bloomberg screens from the ETF functionality provided in Appendix I.
(Word count: 1200 words = 15 marks)
2.2 Part II
Assume that you have been appointed as a graduate analyst by an investment company and your manager has assigned US$ 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]
3 Learning outcome details
3.1 Unit Learning Outcome (ULO) assessed
ULO1: Students will need to develop an understanding of exchange traded funds and apply trading rules to create and track portfolios.
ULO2: Students will need to reflect on understanding of portfolio optimisation and critically evaluate various trading strategies with respect to their portfolio performance.
ULO3: Students will need to write a report on ETFs and portfolio analysis using the assets provided in the assessment task.
3.2 Graduate Learning Outcome (GLO) assessed
GLO1: The assignment is for investment-specific knowledge and capabilities which is for appropriate to the level of study related to an investment or profession.
GLO3: The assignment is for digital literacy which is for using technologies to find, use and disseminate information.
GLO4: The assignment is for critical thinking ability which is for evaluating information using critical and analytical thinking and judgment.
GLO6: The assignment is for self-management ability which is for working and learning independently, and taking responsibility for personal actions.
GLO8: The assignment is for global citizenship which means to engage ethically and productively in the managed fund context and with diverse communities and cultures in a global context.
4 Submission details
4.1 Submission
Please use the dropbox assigned for submitting Assessment 2 under the Assessment Resources on CloudDeakin to lodge your assignment on or before the due date.
4.2 Late Submission
In accordance with University’s policy, the following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to five days, and work that is submitted more than five days after the due date will not be marked. You will receive 0% for the task. ’Day’ means working day for paper submissions and calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where it is unreasonable or impracticable to assess the task after the due date.
Extensions can only be approved by the Unit Chair. Extensions can be granted for documented serious illness (not just on the day the assignment is due!) or for compassionate reasons under extenuating circumstances. The unit chair can ask to see how much work has been completed before granting an extension. Work or holiday reasons are NOT grounds for an extension – you are expected to manage these issues as part of your studies. You are strongly encouraged to start early and to continually backup your assignment as you progress. Computer crashes or corrupted files will NOT be accepted as valid reasons for an extension of any length. For further information about Special Consideration, visit http://www.deakin.edu.au/students/assessments/special-consideration
4.3 Assessment Feedback
Students who submit their work by the due date will receive their marks and feedback within 15 business days of the due date.
4.4 Referencing
You are recommended to use the Harvard style of referencing in this assessment.
4.5 Academic Integrity, Plagiarism and Collusion
Plagiarism and collusion constitute extremely serious breaches of academic integrity. They are forms of cheating, and severe penalties are associated with them, including cancellation of marks for a specific assignment, for a specific unit or even exclusion from the course. If you are ever in doubt about how to properly use and cite a source of information, consult your lecturer or the Study Support website http://www.deakin.edu.au/students/study-support/referencing // Plagiarism occurs when a student passes off as the student’s own work, or copies without acknowledgment as to its authorship, the work of any other person or resubmits their own work from a previous assessment task.
Collusion occurs when a student obtains the agreement of another person for a fraudulent purpose, with the intent of obtaining an advantage in submitting an assignment or other work.
Work submitted may be reproduced and/or communicated by the university for the purpose of assuring academic integrity of submissions
http://www.deakin.edu.au/students/study-support/referencing/academic-integrity
Tunitin link: http://www.deakin.edu.au/students/help/about-clouddeakin/help-guides/assessment/assignments
5 Appendix 1
This appendix provides details of individual funds covered in this assignment. The ETF search functionalities provides the basic characteristics of individual funds covering profile (basic description), performance (recent performance of the fund), holdings (assets held by the fund) and allocation (allocation across different sectors).
1. ETF - AUST AU Equity (BetaShares Managed Risk Australian Share Fund )
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

2. ETF - CBDAX GR Equity (ComStage ETF DAX)
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

3. ETF - LYXDAX GR Equity (Lyxor Dax UCITS )
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

4. ETF - SH US Equity (ProShares Short S&P 500 )
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

5. ETF - SPXL US Equity (Direxion Daily S&P Bull 3X Shares )
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

6. ETF - SSO US Equity (ProShare Ultra S&P500 ETF)
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

7. ETF - XDAX GR Equity (Xtrackers DAX UCITIS ETF )
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

8. ETF - XIC CN Equity (iShare Core S&P/TSX Capped Composite Index ETF)
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics

9. ETF - SPY US Equity (SPDR S&P 500 ETF TRUST ETF)
a) Profile Description

b) Performance

c) Holdings

d) Allocations

e) Risk Analytics