The proposal to create a new Unit Trust Fund

You all are part of the investment committee members of Sunway Mutual Fund Corporation (SMFC). SMFC is a prominent unit trust company in Malaysia, and it currently manages over 20 types of funds with a total net asset value (NAV) of RM10 billion.

Presently, you are tasked to develop a new open-end mutual fund, with a theme that is based on an emerging investment trend. You are required to prepare a detailed report of your proposed investment strategic plan, which will be presented to the board of directors for review and approval. Your report generally must include the following:

1. Fund Theme and Investment Objectives

2. Securities Selection and Portfolio Construction

3. Portfolio Management.

In order to assist you in the preparation for your report, you are required to answer the following questions with full details and comprehensive analysis conducted.

Assignment Instruction

1. Fund Theme and Investment Objectives (TOTAL: 35 marks) Based on your analysis of the current emerging investment trends, you are to decide on the theme and the objectives for the new unit trust fund. (Note: The rest of the report should follow the theme of the fund strictly, therefore, choose wisely).
2. a.) Choose ONE (1) of the following 2 potential emerging investment focuses to be the theme of your proposed fund with justifications (Note: you need to identify at least one comparable fund(s) and explain how your proposed Fund is different from the existing funds): (10 marks)
3. 1.) Geographical/sector market focused (eg. some emerging markets / US
4. 2.)ESG (technology) market / China market / European market etc)
5. b.)Briefly explain your Funds investment objective, investing style/strategies including the targeted asset mix, and a suitable Fund name that would create an impression to the potential investors. (10 marks)

c.) Determine the appropriate benchmark to be used in your Funds performance evaluation with justifications. (5 marks)

d.) Set your Funds targeted rate of return to be achieved with the consideration of your Fund portfolio asset mix, market returns, returns of comparable funds, the current and future market conditions, and any others relevant factors. Show your analysis in details. (10 marks)

2. The Securities Selection and Portfolio Construction (TOTAL: 35 marks) Limited by the boundaries that you have set in your fund theme, the investment strategy and portfolio construction strategy are done with the following guidelines:

a.)Recommend THREE (3) stocks to be invested in your Fund portfolio (even though your proposed Funds portfolio comprises of much more than three securities). Explain your stock selection strategy and analysis in details. (15 marks)

b.)Construct an optimal portfolio based on your recommended stocks in part (a) above by using most recent 5-year historical stock performance in terms of past returns and standard deviations for each stock. You need to show your answer in an appropriate diagram. (10 marks)

c.)Smart beta is a rules-based portfolio construction process to obtain alpha. Smart beta strategies seek to exploit these market inefficiencies by anchoring on factors other than price. Research on the topic of smart beta and comment on the merits of the above statement. (10 marks)

3. Portfolio Management (TOTAL: 30 marks)

Provide a detailed analysis of risk exposures and your portfolio management strategy.

a.)Recent events such as the widespread of Covid-19 pandemic has led to a surge in the market uncertainty and has posed a real threat to the worlds economy potentially leading to the collapse of the worlds financial markets. Identify and discuss THREE (3) main types of investment risk exposures for your Funds portfolio. (15 marks)

b.)Based on your answers in Part (a), propose and discuss with details an appropriate risk management program for your proposed Fund to mitigate the risks. You may consider using literature in the relevant research area to support your arguments. (15 marks)