CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION Essay Example

Investment portfolios analysis

  • The Australian economy has in the recent past facing challenges that have been heightened by the upcoming US elections. The US elections have increased the volatility of the market and investors are expressing this worry. There is increased volatility with investors being skeptical of a financial market with Trump presidency. Moreover, over the investment period, the Brexit vote introduced a political risk on the global economy as well. Therefore in order to capture all the risks that pertain to the financial market over the same period, a diversified strategy will be adopted. This portfolio includes the shares purchased including short sales; hedging financial instruments, options and futures; LICs and ETFs. The diversification in the portfolio extents to acquiring investments portions from very different industries including energy, banking, restaurant and leisure and manufacturing.

The choices of the assets in which to invest are based on the economic conditions and financial situations of Australian Markets. Therefore, the impact of the Brexit vote, the Trump election, the Australian dollar changes were most considered.

  • The portfolio performance will be based on the portfolio constructed in case study 1. The overall portfolio outcome for the period can therefore be summarized as:

Futures contract position: settlement value at the start= 5189

: Settlement at the end period = 5415

Therefore the settlement account value per futures contract=
CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION = 4350

Since there are 4 future contracts, the future contract position is =
CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 1

Cash investment component is made up of the interest received, short sales repurchase requirement, and the final cash balance

Interest received= cash investment amount *[0.0215*(92/365)] =CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 2

Short sales repurchase requirement= short sales value at the end period= 228570

Final cash balance: cash investment amount interest received-short sales purchase requirement

=CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 3

portfolio outcome

13/07/2016

13/10/2016

direct shares

short sales position

0

LICs and ETPs investments

Futures Contract position

cash management trust investment

-23178.95

953957.05

The diversified portfolio on the overall gained some value. However the following portfolio component has been seen to increase the value of the portfolio

Contributors to portfolio increase:

  • Treasury wine estates by +8600

  • Aristocrat leisure by +3600

  • Cochlear by +12712

Detractors to portfolio increase:

  • Adelaide by -2250

  • APA Group by -11700

  • Vocus by -13160

  • Dexus property by -440

  • Rea Group by -4490

  • CSL by -5432

Performance of investment Portfolio

The return on the portfolio is found by:

CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 4

Interest income= 1107.05

Dividend income= 12036.06

Portfolio value change= 953957.05-1000000=-46042.95

Therefore
CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 5

DIRECT INVESTMENTS VALUE

LICs and ETPs value

futures contract value

cash holding

portfolio value

portfolio return

1184980.95

1,427,265

7/14/2016

1190917.67

1,429,802

0.001776

7/15/2016

1192263.14

1,430,547

0.000521

7/18/2016

1200422.14

1,435,906

0.003739

7/19/2016

1199247.89

1,435,432

-0.00033

7/20/2016

1209748.63

1,442,033

0.004588

7/21/2016

1214459.61

1,443,344

0.000909

7/22/2016

1208685.2

1,439,169

7/25/2016

1220439.88

1,449,324

0.007031

7/26/2016

1222889.96

1,450,974

0.001138

7/27/2016

1223323.61

1,450,508

-0.00032

7/28/2016

1231478.37

1,456,962

7/29/2016

1233079.73

1,458,464

8/1/2016

1231744.42

1,454,428

-0.00277

8/2/2016

1221527.67

1,448,912

8/3/2016

1208876.2

1,444,360

-0.00315

8/4/2016

1205522.29

1,439,406

-0.00344

8/5/2016

1209385.7

1,440,970

0.001086

8/8/2016

1220293.11

1,449,377

0.005818

8/9/2016

1209277.66

1,437,762

-0.00805

8/10/2016

1210771.87

1,439,456

0.001178

8/11/2016

1213399.79

1,444,284

0.003348

8/12/2016

1222530.89

1,451,415

0.004925

8/15/2016

1218902.69

1,446,787

-0.00319

8/16/2016

1216952.01

1,445,636

8/17/2016

1221677.15

1,447,961

0.001607

8/18/2016

1222382.36

1,452,066

0.002831

8/19/2016

1228561.37

1,456,345

0.002943

8/22/2016

1234590.51

1,462,875

0.004473

8/23/2016

1243227.66

1,469,012

0.004186

8/24/2016

1243520.83

1,466,505

-0.00171

8/25/2016

1239261.37

1,465,345

-0.00079

8/26/2016

1230990.66

1,459,775

-0.00381

8/29/2016

1225576.28

1,457,860

-0.00131

8/30/2016

1224717.77

1,456,202

-0.00114

8/31/2016

1213349.66

1,449,734

-0.00445

9/1/2016

1210035.28

1,446,819

-0.00201

9/2/2016

1196892.69

1,439,477

-0.00509

9/5/2016

1,440,206

0.000507

9/6/2016

1203441.53

1,439,726

-0.00033

9/7/2016

1203005.01

1,438,989

-0.00051

9/8/2016

1193905.73

1,434,790

-0.00292

9/9/2016

1187980.67

1,432,965

-0.00127

9/12/2016

1165982.73

1,423,367

-0.00672

9/13/2016

1175967.04

1,434,151

0.007548

9/14/2016

1167698.33

1,421,782

-0.00866

9/15/2016

1162889.82

1,415,874

-0.00416

9/16/2016

1170674.79

1,419,059

0.002247

9/19/2016

1169988.285

1,418,972

-6.1E-05

9/20/2016

1173331.37

1,420,215

0.000876

9/21/2016

1168933.99

1,412,518

-0.00543

9/22/2016

1182653.32

1,423,137

9/23/2016

1193354.11

1,427,238

0.002877

9/26/2016

1194164.55

1,428,349

0.000778

9/27/2016

1188278.67

1,423,463

-0.00343

9/28/2016

1195450.93

1,431,235

0.005445

9/29/2016

1203373.83

1,432,958

0.001203

9/30/2016

1196282.28

1,430,566

-0.00167

10/3/2016

1204551.57

1,434,036

0.002422

10/4/2016

1209531.02

1,438,115

0.002841

10/5/2016

1201667.19

1,434,251

-0.00269

10/6/2016

1200953.74

1,430,138

-0.00287

10/7/2016

1195686.49

1,426,570

10/10/2016

1191900.82

1,421,785

-0.00336

10/11/2016

1192504.68

1,421,889

10/12/2016

1190832.26

1,421,216

-0.00047

10/13/2016

1190424.68

1,424,809

0.002525

The portfolio performance summary statistics

Investment portfolio: average daily returns:
-0.00002610 AND Standard deviation: 0.003574017

Market portfolio index: average daily returns: 0.00047799 and standard deviation: 0.006457169

Risk free asset: average daily returns: -0.00021 and standard deviation: 0.001594

Portfolio performance measures:

Sharpe index:
CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 6

CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 7

Treynor Index:
CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 8

CASE STUDY 6: INVESTMENT PORTFOLIO PERFORMANCE EVALUATION 9

The investment portfolio has provided negative return to the investor over the period of investments. The Sharpe ratio shows that the investment portfolio was not properly selected, given the ratio was below the recommended value of 1. Moreover, the market portfolio outperformed the investment portfolio shown by the Sharpe ratio and the Treynor index as well. Both the performance indicators show that the market outperformed the investment portfolio and that the investment portfolio did not perform as with the market expectations.

The uncertainty that looms with the US elections could be partly responsible for this. There is also chance that the volatility in the interest rates, the Australian dollar instability and the suspicion over investigations in the ASX could have impacted on the portfolio performance. Therefore it would be reasonable to shy away from the volatile portfolio components of the portfolio such as the direct shares, especially those of which are of companies with parent companies in US. The non performing shares such as the shares from APA group should be closed out, since they were also the most detractors from the portfolio increase.