1 Portfolio Management Assignment

RMIT Classification: Trusted
BAFI1045 Investment
Portfolio Management Assignment (30%)
Assessment Task 2: Portfolio Management Assignment

Marks/Weighting: 30 marks, accounting for 30% of the total grade for this course
Assignment Due Date: Friday of Week 14, 15th October 2021, 10 pm, Singapore time
Word Limit: Maximum 3,500 words
Submission Instructions: The assignment will be submitted via Canvas, Turnitin
Rubric/Marking criteria: A marking rubric is provided on Canvas.
The assessment is submitted as an individual assignment
You will be given funds to invest in the share market. You are required to construct two
$1,000,000 equity investment portfolios:
1. A passive portfolio replicating the return of The Straits Times Index (STI)
2. An active portfolio to achieve your investment objective of outperforming the index
You will then prepare a report in which you can explain your investment strategy for
constructing a passive and an active portfolio and then evaluate the investment
performance of each in terms of absolute and relative return, risk and attribution effects to
explain the differences in performance of each portfolio. You will be given ten companies
selected from STI index that tracks the performance of the top 30 companies listed on the
Singapore Stock Exchange to create an active portfolio
This assessment replicates the tasks that would be undertaken by portfolio managers in a
real-world investment company. For the passive portfolio, your task will be to replicate, as
closely as possible, the risk and return characteristics of the Straits Times Index (STI)
benchmark index. For your active portfolio, your task will be to select stocks and sectors
from ten stocks selected from companies in the STI Index, which will result in your
portfolio, achieving a higher return than the index.
Your task is not necessarily to produce a positive return. If the markets fall in value, then
your passive portfolio should fall in value by a similar degree. Your active portfolio should
aim to outperform the return on the index: if the index falls your portfolio should fall by a
lesser amount; if the index rises, then your portfolio should rise by a higher amount.
` BAFI 1045 Investment Page 1 of 5

The final submission should fulfil the following minimum requirements
For Passive portfolio

 calculate the numbers of shares required for your passive portfolio to replicate the
composition of the STI index
For Active portfolio
Assess all ten companies and sectors from the stocks shared with you
 analyse the outlook for each company’s industry
 analyse the macroeconomic environment at the global and domestic level
 identify the firms and sectors which you consider will outperform relative to the
index and build your active portfolio to reflect your predictions
 analyse charts of price movements relative to the index over three years (for any
three stocks where you find a buy/sell signal using moving averages and volume
indicator)
 analyse and comment on the financial ratios of each company over the previous
five years. Examples of ratios that can be used-
 Return on Equity
 PEG Ratio
 Net Profit Margin
 Earnings Growth
 Debt to Equity
Evaluate your findings and select six companies for your active portfolio
 after assessing the ten companies, select six to be included in your active
portfolio
 describe the reasons for your selections (around 5 bullet points for each stock)
 also, describe the reasons why you have not chosen the other four firms (around
5 bullet points for each stock)
 assign portfolio weights for each of your companies and discuss why you have
chosen the weights in comparison to the weight of each stock in the index
 calculate the number of shares required for each company to create a portfolio
with the initial weights you have selected for your active portfolio
è why are some companies overweight in your portfolio, and why are others
underweight as compared to the index?

è what do these active weights mean for your portfolio’s potential performance
relative to the index?
Portfolio Creation Dates

Passive and Active Portfolios
 Start Date: September 20th, 2021, Monday
Benchmark Portfolio
 Straits Times Index (STI)
Portfolio Analysis period for both portfolios

 Start Date: September 20th, 2021, Monday
 End Date: October 1st, 2021, Friday
Observe your portfolios’ performances over two weeks

 as the share prices change over the evaluation period, you will be able to watch
how the returns on the index, your active portfolio and your passive portfolio react
For each portfolio

 explain the reasoning for your stock selection and weighting relative to the index
 provide comments on total return/risk and active return/risk of your portfolios
 discuss the sectors and securities’ active weights in your portfolio
 report your results for each portfolio
 analyse the active return of your portfolios with reference to the allocation and
selection effects
 What was the overall performance of the active portfolio, your passive portfolio
and the benchmark index?
 describe any major market events which contributed to the return performance of
the benchmark or of your portfolios
 have you achieved (or not achieved) the goal for your passive/active portfolio
Finally, which of the two portfolios will you recommend and why?

Data for your report from Eikon
Eikon calculates the portfolio statistics you will require for your report. The information you
will need can be found as listed below.
Information Eikon Location

Total and Active Return Balanced Summary – Contribution
Contribution to Return Equity Summary – Performance/Contribution
Contribution to Portfolio Weight Equity Summary – Allocation
Allocation and Selection Effects Brinson Single Currency
Contribution to Total Risk Ex-ante Multi-factor Risk – Portfolio Summary
Contribution to Active Risk Ex-ante Multi-factor Risk – Active Summary
Performance Ratios (Sharpe, Treynor) Return Statistics
You will need to select six stocks for your active portfolio from the following ten stocks that
are constituents of the STI Index:
Code Company Sector

Real Estate / Real Estate Management and
C09 City Developments Limited
Development
Consumer Staples /Food and Staples
D01 Dairy Farm Int'l Holdings Ltd
Retailing
C07 Jardine Cycle & Carriage Ltd Consumer Discretionary / Retailing
Hongkong Land Holdings Real Estate / Real Estate Management and
H78
Limited Development
S58 Sats Ltd Industrials / Transportation
U96 Sembcorp Industries Ltd Capital Goods / Industrial Conglomerates
Singapore Tech Engineering
S63 Capital Goods / Aerospace and Defence
Ltd
Consumer Staples / Food, Beverage &
Y92 Thai Beverage Public Co Ltd
Tobacco
U11 United Overseas Bank Ltd Financials / Banks
Oversea-Chinese Banking
O39 Financials / Banks
Corp

References and Citations

Use proper citations and references and include a list of references you use in your report.
Failure to do so will result in a lower grade. RMIT provides a web site that explains the use
of the Harvard reference system.
Please consult it here: https://www.lib.rmit.edu.au/easy-cite/
Some useful resources for this assignment include

Reilly, Frank K., Keith C. Brown and Sanford Leeds, Investment Analysis and Portfolio
Management (11th Edition), Thomson South-Western, 2019.
You should also conduct your own analysis using the companies’ web sites, annual
reports, Refinitiv Eikon, IBISWorld and any other sources you consider to be relevant for
your report. The more resources you use for your research, the better your analysis will
be.
Assignment submission procedure

All assignments must be submitted online through the course Canvas Turnitin for a
plagiarism check. They must be accompanied by an assignment cover sheet.
An Important Note on Plagiarism
What is Plagiarism?
Plagiarism is the presentation of the work, ideas or creation of another person without
appropriate referencing, as though it is one’s own. Plagiarism can occur in oral and written
presentations and is never acceptable. The use of another person’s work or ideas must be
acknowledged. Failure to do so may result in charges of academic misconduct, which
carry a range of penalties, including cancellation of results and exclusion from the course.
Students are advised to read and understand the University’s policy on plagiarism.

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What is the goal of constructing a passive portfolio?

What is the goal of constructing a passive portfolio?

What is the goal of constructing an active portfolio?

What is the goal of constructing an active portfolio?

RMIT Classification: Trusted

Assessment Task 2: Portfolio Management Assignment

The assessment is submitted as an individual assignment

` BAFI 1045 Investment Page 1 of 5

The final submission should fulfil the following minimum requirements

For Passive portfolio

` BAFI 1045 Investment Page 2 of 5

Portfolio Creation Dates

Portfolio Analysis period for both portfolios

Observe your portfolios’ performances over two weeks

For each portfolio

` BAFI 1045 Investment Page 3 of 5

Data for your report from Eikon

Information Eikon Location

Code Company Sector

` BAFI 1045 Investment Page 4 of 5

References and Citations

Some useful resources for this assignment include

Assignment submission procedure

An Important Note on Plagiarism

` BAFI 1045 Investment Page 5 of 5

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