deliverable 4 asset allocation in portfolio management

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Competency

Examine facets of asset allocation.

Instructions

ABC Capital Management is one of the most prestigious asset management companies in the country. It has been managing the wealth of America for over 100 years. It utilizes various forms of fundamental, technical, and quantitative analyses in the design and implementation of its several investment strategies and portfolios. Today, ABC Capital is a global investment management firm that continues to focus on rigorous research and the development of innovative, practical investment strategies. Because of this, ABC Capital is able to achieve the goals of its clients: individuals, pension funds, endowment funds, banks, insurance companies, foundations, and sovereign wealth funds.

You work as a junior portfolio manager with ABC Capital. ABC Capital has assigned you to a multi-generational client. This family has three generations with different goals and objectives. The grandparents are in their 70s. They are more concerned with preserving their wealth than making any additional money, but still want to earn something. They want a portfolio that will have no more than a 0.3 beta and provide a minimum of a 4% income stream for a total return of 6% (income and growth). The parents are in their 50s. They are still looking to grow their money, but don’t want to take too much risk either. They are looking for an expected return of at least 10% and a beta of no more than 0.7. Lastly, the son is in his 20s. He doesn’t care about risk. He wants growth. He needs a 15% return.

The investment company provides you with 20 investment choices. You will:

  1. Create 3 generational portfolios that address the goals of the clients. Explain the composition of each portfolio.
  2. Calculate and show the risk/reward metrics including alpha, beta, Sharpe ratio, Treynor ratio, standard deviation, and correlation of each portfolio.
  3. Support the rationale for the investment selection.

Assume broad market returns are 8% annually and use the current 1-year treasury yield.

Use this template for your Excel calculations.
Use this template to answer the questions above.

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