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Portfolio of 20 Listed Stocks For Trading For Beginners' to Raise Funds

Question :

You are asked to assume as a beginner in working for a fund and your chief investment officer desires to spend your first working week for investigating the returns over previous 10 years for a passive and active investment strategy. Assume you have just begun working for a fund and your Chief Investment Officer (CIO) wants you to spend your first working week investigating the returns over the last 10 years for a passive and active investment strategy. 

  • Design a passive strategy, i.e. an index of the risk-free rate and a broad stock market index in a country of your choice from 2007–2016. Calculate your passive returns each calendar year over the period January 2007 to December 2016.
  • Design a diversified portfolio of 20 listed stocks (i.e. in the same country/exchange(s) as 1. above and equally-weighted at the beginning e.g. in December 2006), that you will select as of December 2006 and actively trade as of January 2007 until December 2016.
Answer :

INTRODUCTION

To analyze the market which will be adequate and helpful to businesses in relation with making the appropriate operational practices as well as determination of the market strength of entities. To determine the capital stability and the return payable by the companies there Have been selection of 20 industries which are listed in ASX 200 index. However, the analysis will be based on passive and active index analysis which will be measured and compared as per making clear observation on the operation

QUESTION 1

Designing a Passive Strategy to ascertain the risk-free rate of ASX 200

Abacus Property Group Stapled Securities

Analysis of Sharpe ratio

Less than 1

Not good

Between 1 to 1.99

Ok

Between 2 to 2.99

Good

More than 3

Exceptional

Interpretation: The above graph is reflecting Sharpe ratio of Abacus Property with huge fluctuation in one year but in remaining it is depicted as stable which can be interpreted that it is giving average return (Park, Chae and Cho, 2017).

Adelaide Brighton:

Date

Sharpe Ratio

31-12-06

0

31-01-07

1.487610634

28-02-07

0.998851873

31-03-07

2.561909086

30-04-07

2.837574896

31-05-07

0.925918018

30-06-07

-1.912130482

31-07-07

1.850402482

31-08-07

29.34707508

30-09-07

-1.049184845

31-10-07

0.355352083

30-11-07

-0.204938283

31-12-07

0.742597729

31-01-08

0.873565025

29-02-08

-0.022193353

31-03-08

0.038733786

30-04-08

1.902777049

31-05-08

0.813080216

30-06-08

-1.211933293

31-07-08

0.120844035

31-08-08

-0.963229899

30-09-08

-165.9149462

31-10-08

-12.0964096

30-11-08

1.311182621

31-12-08

-2.156881804

31-01-09

0.789944457

28-02-09

10.06693783

31-03-09

4.551713587

30-04-09

1.628480678

31-05-09

-0.845601478

30-06-09

1.200805407

31-07-09

6.126101949

31-08-09

-0.352836908

30-09-09

0.917428472

31-10-09

-1.294689988

30-11-09

2.983234435

31-12-09

-2.598449218

31-01-10

-1.114378695

28-02-10

4.884986333

31-03-10

1.293467063

30-04-10

0.164007824

31-05-10

0.379799126

30-06-10

2.088872834

31-07-10

1.036697936

31-08-10

5.066418877

30-09-10

5.237344597

31-10-10

-1.595924557

30-11-10

3.076059114

31-12-10

1.63996991

31-01-11

-0.928563688

28-02-11

-1.321231265

31-03-11

-1.756418335

30-04-11

0.656805069

31-05-11

0.135368163

30-06-11

-2.190544613

31-07-11

1.090815411

31-08-11

0.493455195

30-09-11

0.367660658

31-10-11

0.786225703

30-11-11

0.61756767

31-12-11

-0.442340231

31-01-12

0.359581734

29-02-12

-0.834195312

31-03-12

2.270255818

30-04-12

0.474501634

31-05-12

1.50159983

30-06-12

0.688494152

31-07-12

-1.312619985

31-08-12

2.391042033

30-09-12

5.44446981

31-10-12

0.985065417

30-11-12

-0.869141471

31-12-12

4.259274568

31-01-13

3.722964343

28-02-13

-0.390092725

31-03-13

-0.809575462

30-04-13

0.528158937

31-05-13

0.552973716

30-06-13

-0.746093761

31-07-13

0.60320371

31-08-13

1.66227561

30-09-13

0.14900488

31-10-13

0.233532361

30-11-13

-1.219083243

31-12-13

0.94107747

31-01-14

3.953993863

28-02-14

-1.569994758

31-03-14

-1.001502817

30-04-14

-1.407927411

31-05-14

0.991677513

30-06-14

0.883941544

31-07-14

-1.477959722

31-08-14

-2.283926338

30-09-14

1.976216536

31-10-14

0.85722464

30-11-14

8.059011104

31-12-14

-0.675533957

31-01-15

2.583897322

28-02-15

1.288890048

31-03-15

0.959431839

30-04-15

1.319996364

31-05-15

-0.688783515

30-06-15

8.001721257

31-07-15

0.446529586

31-08-15

0.00510699

30-09-15

-0.834077191

31-10-15

1.104958144

30-11-15

2.212361719

31-12-15

0.678873793

31-01-16

1.048640876

29-02-16

-0.41401906

31-03-16

0.499247202

30-04-16

2.087980027

31-05-16

0.311620065

30-06-16

-0.039485949

31-07-16

-1.918549257

31-08-16

1.428148169

30-09-16

0.176383486

31-10-16

-1.047994232

30-11-16

1.214783041

Interpretation: The above graph is depicting Sharpe ratio of Adelaide Brighton which has various fluctuations as it is indicating that it is giving extraordinary returns in between but due to many new entrants in its industry it started giving average return but in stable position (Clark, 2016).

ALS Limited:

Interpretation: ALS Limited is not up to the mark as its Sharpe ratio is not giving perfect return as compared to its industry and it considers huge fluctuations (Walden, 2015).

Ansell Limited:

Interpretation: The above graph of Ansell Limited is depicting the worst return as it seems it is giving return on basis of seasonal aspect but when it is giving negative return in high aspect which cannot be hedged (Cremers and et.al., 2016).

Vocus Group Limited:

Interpretation: Vocus group limited is giving Sharpe ratio with various fluctuations as once in while it is depicting negative return but that can be ignored while observing profit margin.

TPD Telecom Limited

Interpretation: The telecom industry is emerging in whole world especially in UK as it is depicting huge fluctuations but it is able to achieve huge return or specific return (Kahn and Lemmon, 2016).

Harvey Norman Holdings Limited

Interpretation: The above graph is depicting huge fluctuations in past year but in present era, it is giving more than average return, it will be coming in category of exception.

Evolution Mining Limited:

Interpretation: Evolution mining Limited is reflecting major fluctuations but on its contrary it is giving loss also but it is depicting more than average return which is good for organization (van Duuren, Plantinga and Scholtens, 2016).

Tabcorp Holdings Limited

Interpretation: Considering the operational efficiency of the organization on which Sharpe Ratio has bring the most appropriate as there are positive outcomes have been seen in the analysis (Klingebiel and Rammer, 2014). It will be recommended to the organization that they must have effective operating control which will let it remain on positive extent.

TPG Telecom Limited:

Interpretation: Ascertaining the information listed in the above graph on which it can be said that there is a huge fluctuation in the outcomes which insist that in the current times the ratio have reflected most favorable outcomes which will be fruitful for the industry (Cao, 2018).

Seven Group Holdings:

Interpretation: Demonstrating the operational variations in the outcomes on which it can be said that there are differences in the outcomes there are various negative and positive outcomes.

Alumina Limited (AWC.AX):

Interpretation: Ascertaining the outcomes on which it can be said that there is various operation on which it can be said that there are maximum negative outcome.

Altium Limited (ALU.AX):

Interpretation: There are negative outcomes from analyzing the Sharpe ration of this organization which is not preferable on investment point of view.

Beach Energy Limited (BPT.AX):

Interpretation: there are mix outcomes from this company on which it can be said that it will be preferable and appropriate in terms of making the adequate operational practices.

Computershare Limited:

CSR limited:

Dexus Units FP Stapled:

Incitec Pivot:

Mirvac Group Stapled Securities:

Orica Limited:

Active index return:

Considering the appendix which consists of all the information of 20 ASX 200 listed stock such as Abacus Property Group Stapled Securities, Adelaide Brighton, ALS Limited, Vocus Group Limited, TPD Telecom Limited, Harvey Norman Holdings Limited, Evolution Mining Limited, Tabcorp Holdings Limited, TPG Telecom Limited, Seven Group Holdings, Alumina Limited (AWC.AX), Altium Limited (ALU.AX), Beach Energy Limited (BPT.AX), Computershare Limited, CSR limited, Dexus Units FP Stapled, Incitec Pivot, Mirvac Group Stapled Securities and Orica Limited.

QUESTION 2

Critically reflecting ways of strategy of active portfolio

The strategy of active portfolio is replicated as portfolio management strategy which includes investments which are outperforming the index of investment benchmark. While managing small active fund along with CIO active management strategy has been followed as it is exploiting inefficiencies of market by purchasing securities which are undervalued or short position for securities which are overvalued. It could be in both forms whether in combination or alone. There has been absence of volatility as compared to index of benchmark which is directly dependent on target for fund for specific hedge or for portfolio of investment. There is usage of huge number of factors which are considered for preparing portfolio.

In the same series there are various strategies for creating portfolio such as merger arbitrage, quantitative measures, asset allocation, sector investments, option writing and buying stocks according to turnover etc. The above portfolio which has been prepared which includes 20 stocks which are listed on ASX 200. The criteria which has been selected is according to turnover or mid-caps. The companies which are having market cap of 2 billion to 10 billion are termed as mid cap companies. The portfolio of mid cap stocks is riskier than compared to large cap stocks but it is considered as less risky if compared from stocks of small caps.

Midcap Companies

Abacus property Group Units

Adeliade Brighton

Als limited

Ansell limited

Vocus group Limited

TPD telecom limited

Harvey Norman Holdings limited

Evolution mining Limited

Tabcorp Holdings Limited

TPG telecom limited

Seven Group holdings

Alumina Limited

Altium Limited

Beach energy Limited

Computershare Limited

CSR limited

Dexus Units FP Stapled

Incitec Pivot

Mirvac Group Stapled Securities

Orica Limited

The above stated companies are termed as mid cap stocks which are considered for evaluated for constructing portfolio because of the risk basis and volatility.

Critically differentiating the outcome of Active and Passive portfolio returns

Analyzing the outcomes from operation where it can be said that the active index analysis has bring the adequate determination of the operations which will be appropriate and helpful to the investors in relation with analyzing the profitability, effei9cincy of organizations. Thus, in accordance with Sharpe ratio analyzing as listed in Appendix where it can be said that there are various organization which have positive outcomes and that will be effective and helpful to the industry in relation with having the appropriate investors.

Discussing the analysis and results

As per making the most appropriate determination of the profitability of the organization where the analysis have been made on 20 ASX200 listed shares such as Abacus Property Group Stapled Securities, Adelaide Brighton, ALS Limited, Vocus Group Limited, TPD Telecom Limited, Harvey Norman Holdings Limited, Evolution Mining Limited, Tabcorp Holdings Limited, TPG Telecom Limited, Seven Group Holdings, Alumina Limited (AWC.AX), Altium Limited (ALU.AX), Beach Energy Limited (BPT.AX), Computershare Limited, CSR limited, Dexus Units FP Stapled, Incitec Pivot, Mirvac Group Stapled Securities and Orica Limited

CONCLUSION

By considering the above study on which it can be said that there are various operational practices which in turn will be useful in analyzing the efficiency of businesses. Active and Passive analysis have been made on 20 ASX 200 Lised stocks such as Abacus Property Group Stapled Securities, Adelaide Brighton, ALS Limited, Vocus Group Limited, TPD Telecom Limited, Harvey Norman Holdings Limited, Evolution Mining Limited, Tabcorp Holdings Limited, TPG Telecom Limited, Seven Group Holdings, Alumina Limited (AWC.AX), Altium Limited (ALU.AX), Beach Energy Limited (BPT.AX), Computershare Limited, CSR limited, Dexus Units FP Stapled, Incitec Pivot, Mirvac Group Stapled Securities and Orica Limited.

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