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 has assigned you an existing client of the firm. ABC provides you the client's existing portfolio and the previous year's performance. In the process of reviewing with your client, you find out that the client is very nervous about market risk. The client is more concerned with preserving his wealth than growing it, but the client needs a 3% income stream and a total return of at least 5%. In addition to this, the client indicates that he wants to keep his portfolio as eco-friendly as possible. Assume broad market returns are 8% annually and use the current 1-year treasury yield.

 

You will:

•  a new Investor Policy Statement (IPS) based on the new information you received from the client.
•  a presentation with two parts:
• Evaluation of previous year's performance, indicating the description of allocation, performance, risk/return metrics including alpha, beta, Sharpe ratio, Treynor ratio, and standard deviation.
•   
• Outline of your recommendation for an allocation change indicating the description of allocation, expected performance, risk/return metrics including alpha, beta, Sharpe ratio, Treynor ratio, and standard deviation. Include the metrics for the portfolio as a whole.
• Support your analysis and recommendation by completing all required calculations in the spreadsheet linked below.

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Investment 1 Electric Company 2 Telephone Company 3 Chemical Company 4 IT Company 5 Airline Company 6 Healthcare Company 7 The Bank 8 Oil Drillers 9 Food Company 10 Car Company 11 High Yield Bond 12 Corporate Bond 13 Treasury Bond 14 Municipal Bond 15 Real Estate 16 Managed Futures 17 Agriculture 18 Oil 19 Gold 20 Cash Current Portfolio Investment 1 Chemical Company 2 IT Company 3 Airline Company 4 Oil Drillers 5 Real Estate 6 Oil 7 Gold Portfolio Beta Standard Deviation Correlation Dividend Yield 4% 5% 2% 3% 1% 2% 2% 3% 3% 5% Beta 0.02 0.51 1.5 3.18 1.21 2.62 2.89 4.09 1.04 1.3 0.7 0.55 0.33 0.4 2.11 0.08 0.71 1.96 0.42 0 1.5 3.18 1.2 4.09 2.1 1.96 0.42 8% 12% 18% 20% 18% 24% 20% 20% 15% 18% 11% 4% 3% 5% 12% 5% 18% 36% 19% 0% 1 1 1 1 1 1 1 1 1 1 0.7 -0.31 -0.28 -0.06 0.75 -0.05 0.124 0.5 0.04 0 Standard Deviation Correlation 18% 20% 18% 20% 12% 36% 19% 1 1 1 1 0.75 0.5 0.04 alpha 4% Coupon 5% 3% 1% 3% 0.25% Actual Return 2.35% 6.85% 7.39% 29.96% 10.17% 26.92% 20.42% 30.56% 6.06% 4.06% 6.12% 4.17% 2.75% 5.64% 13.04% 1.62% 3.76% 10.31% 5.20% 1.77% Sharpe Ratio Treynor Ratio Expected Return Dividend/Coupon Weighting 12.00% 25.44% 9.60% 32.72% 16.80% 15.68% 3.36% 18.15% 2% 3% 1% 3% 4% 0% 0% 10% 15% 15% 20% 10% 20% 10% 100% Investment 1 Electric Company 2 Telephone Company 3 Chemical Company 4 IT Company 5 Airline Company 6 Healthcare Company 7 The Bank 8 Oil Drillers 9 Food Company 10 Car Company 11 High Yield Bond 12 Corporate Bond 13 Treasury Bond 14 Municipal Bond 15 Real Estate 16 Managed Futures 17 Agriculture 18 Oil 19 Gold 20 Cash Current Portfolio Investment 1 Chemical Company 2 IT Company 3 Airline Company 4 Oil Drillers 5 Real Estate 6 Oil 7 Gold Portfolio Beta Standard Deviation Correlation Dividend Yield 4% 5% 2% 3% 1% 2% 2% 3% 3% 5% Beta 0.02 0.51 1.5 3.18 1.21 2.62 2.89 4.09 1.04 1.3 0.7 0.55 0.33 0.4 2.11 0.08 0.71 1.96 0.42 0 1.5 3.18 1.2 4.09 2.1 1.96 0.42 8% 12% 18% 20% 18% 24% 20% 20% 15% 18% 11% 4% 3% 5% 12% 5% 18% 36% 19% 0% 1 1 1 1 1 1 1 1 1 1 0.7 -0.31 -0.28 -0.06 0.75 -0.05 0.124 0.5 0.04 0 Standard Deviation Correlation 18% 20% 18% 20% 12% 36% 19% 1 1 1 1 0.75 0.5 0.04 alpha 4% Coupon 5% 3% 1% 3% 0.25% Actual Return 2.35% 6.85% 7.39% 29.96% 10.17% 26.92% 20.42% 30.56% 6.06% 4.06% 6.12% 4.17% 2.75% 5.64% 13.04% 1.62% 3.76% 10.31% 5.20% 1.77% Sharpe Ratio Treynor Ratio Expected Return Dividend/Coupon Weighting 12.00% 25.44% 9.60% 32.72% 16.80% 15.68% 3.36% 18.15% 2% 3% 1% 3% 4% 0% 0% 10% 15% 15% 20% 10% 20% 10% 100%

Answer rating: 100% (QA)

Investor Policy Statement IPS Client Client Name Date Date Risk Tolerance Conservative Investment Objective PrimaryCapital preservation SecondaryGenerate a 3 annual income stream TertiaryAchieve a tot... View the full answer