Reference no: EM133009455

Advance Fund Management

Assignment Brief

Temple Asset Management (TAM) is an Australian investment house with several business units, including Wealth Management, Investment Advisory, and several Equity and FIS mutual funds. TAM has been asked by their client Food Retailers Group (FRG) to create a unique solution for their members' investment needs.

FRG's have 75,000 members across the country who have similar investment needs of a multi-asset class fund of mutual funds. The investment vehicle, fund of mutual funds, must have the following requirements:

Data will be provided to you for few task and need to take from website where ever needed.

a) The investment vehicle must have a 20:80 bias of Bonds:Equities (also the benchmark) and must be diversified within each asset class - Bonds and Equities.

b) Bonds component of the investment vehicle must consist of government, corporate and agency bonds from the US market only. The bonds component must be diversified across duration and credit risk.

c) The equity component must consist of US (Large and Small cap with value and growth biases), EAFE and EM (large cap blend only). ( data attached )

d) The investment vehicle must ensure outperformance (Jensen's Alpha of more than 0.5% per annum) against the 20:80 benchmark while ensuring that the tracking error of the fund does not exceed 5% per annum.

e) The investment vehicle, fund of mutual funds, must invest in a maximum of 10 mutual funds. Maximum of 4 US Bond funds and a maximum of 4 US Equity funds and 2 Non-US Equity funds.

f) Each mutual fund selected must be domiciled in USA and must have at least 3 years of operating history.

g) The weighted average indirect cost of all the mutual fund selected must be less than 0.5% per annum.

h) None of the mutual funds selected should charge performance fee, hold short positions, or use leverage. Derivatives can only be used in Index ETFs.

• Each team will need to create a shortened/abbreviated product disclosure statement (PDS). The essential aspects of the PDS will consist of:

1. Name (chosen by the team) of the Fund of Mutual Funds - "XXXXXX Fund".

2. Fund of Mutual Funds' Investment and Risk management objectives.

3. Fund of Mutual Funds' weighted average management costs/indirect expenses ratio.

4. Team member details (age, experience, amount invested in their own fund, etc.) and positions (fund manager, equity analyst, bond analyst, economist, risk analyst, etc.).

5. Fund of Mutual Funds' selection methodology and rebalancing strategy.

6. Fund of Mutual Funds' allocation methodology.

7. Fund of Mutual Funds' style analysis (based on the last 3 years of weekly data)

8. Fund of Mutual Funds' Top-Down Analysis (based on the last 30 days of daily data)

9. Fund of Mutual Funds' Bottom-Up Analysis (based on the last 90 days of daily data)

The Fund of Mutual Fund will be created based on the following steps:

1. Teams will gather 5 years of weekly index data (this is provided to you ) for each asset class/sub-asset class to create an asset allocation. The benchmark for this investment vehicle is a 20:80 Bonds:Equity portfolio based on Bloomberg Barclay's US Aggregate Bond Index and the MSCI USA equity index.

2. Teams will create an asset allocation using both, Mean Variance Optimization and Risk Allocation. MV Optimisation will be used to allocate US Bonds and US Equities sub-asset classes, while US bonds, US equities, EAFE equities and EM Equities will be allocated using Risk Allocation methodology. Teams will also use reverse optimisation to generate expected returns with the MV Optimisation process. Tracking Error against a 20:80 benchmark portfolio will be constrained to 5% per annum and the return must be equal to or greater than returns of the benchmark.

3. Teams will then select US domiciled mutual funds with at least a 3 year operating history. Mutual fund selection methodology will be restricted to 2 performance measures - Tracking Error and Jensen's Alpha over the last 1 year.

4. Teams will conduct a Style analysis of the Fund of Mutual Fund using indexes for Barclay's Bloomberg US Bonds (Government, Corporate and Agency) indexes and MSCI US Equities (Large cap and Small Cap), MSCI EAFE and MSCI EM indexes. Teams will use the last 3 years of weekly data for this analysis. data (this is provided to you )

5. Teams will conduct a Top-Down analysis against the 20:80 benchmark over the last 30 trading days. Teams will analyse Jensen's Alpha, Tracking Error, Information Ratio and the Sharpe Ratio of the Fund of Mutual Funds.

6. Teams will conduct a Bottom-Up analysis of the Fund of Mutual Funds using the data over the last 90 days. The Bottom-Up analysis will be conducted for the US bonds component separately to the US, EAFE and EM Equities component of this investment vehicle. Teams will analyse the collective fund managers' Market Timing and Stock Selection abilities.

Attachment:- Advance Fund Management.rar