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Ref No: 804

Portfolio Management

On the basis of results provided by the four ratios namely Sharpe, Treynor, Jensen and M – square, it can be analyzed that the risk adjusted return of Alpha are best among all the portfolios as shown by sharpe and M – Square ratios. Whereas when it comes to systematic risk – adjusted returns, the returns of momentum watch and big potential are highest as indicated by the Treynor measure and Jensen Alpha. Therefore, these portfolios can be considered for the investment by an investor.

Q.2)

As the given data shows that the benchmark weights of the assets are different than actual weights assigned by the investor which has resulted in underperformance of the portfolio in all the asset classes because actual returns are lower than the actual returns. This proves that a portfolio manager who has invested the money aligned with index must have earned more returns.

The security selection matters a lot in the relative performance of the portfolio; in this case the selection was not efficient. It can be seen that the index equity return is 3.1% and the actual return on portfolio is 2.6% this shows that the selected equities underperformed by 0.5%. Same results can be seen for bonds and cash as well so the contribution of security selection is an important and critical factor.

The asset allocation is another important aspect of the performance of portfolio. The relative performance of the portfolio is sum of the performance from security selection and asset allocation…. Read More