Reference no: EM133539036
Advanced Funds Management
Assignment Brief
Patagonia Conservation Foundation has been setup in the US and is managed by Verde Investment House located in Adelaide. VIH has investment managers that specialise in US Fixed Income Market and Australian Equities, and also services such as fund evaluation for Private Banking and Financial Advisors in the Australasian markets. VIH also specialises in taking over poor performing funds to restructure them into better performing funds.
The Board of Directors of PCF have requested for a portfolio of mutual funds to:
1. Ensure that the portfolio of mutual funds generates a return of more than a 30:70 benchmark of US Aggregate bond Index:ASX 300 Index.
2. Ensures that the portfolio of mutual funds has volatility equal to or lower than a 30:70 benchmark of US Aggregate bond Index:ASX 300 Index.
3. Ensures that the portfolio of mutual funds takes on Active Risk (Tracking Error) to generate Active Returns (Alphas). The level of Active Risk will be justified by the VIH by looking at similar portfolio of funds in the developed markets.
4. The portfolio of mutual funds must include the (i) US Aggregate Bond Index ETF, (ii) Bloomberg AusBond Composite ETF, (iii) VIH US Active Bond Fund, (iv) ASX 300 ETF, (v) MSCI USA ETF, and (vi) VIH Australian Active Equity fund.
5. The VIH US Active Bond fund and VIH Australian Active Equity fund must play a vital role in improving returns, and/or decreasing volatility of the portfolio of mutual funds.
1. Patagonia Conservation Foundation fund (portfolio of mutual funds) Patagonia Conservation Foundation fund creation will combine (i) US Aggregate Bond Index ETF, (ii) Bloomberg AusBond Composite ETF, (iii) ASX 300 ETF, and (iv) MSCI USA ETF. To achieve the investment objective - Return and Risk - as defined in point 1, 2 and 3 above. The allocation of each fund may be (i) quantitatively driven whereby teams can choose to use the risk and/or $ allocated methodologies) based on each asset performance measures and/or (ii) qualitatively driven whereby teams will allocate funds based on each asset characteristics. Teams that incorporate both aspects will create a quality portfolio of mutual funds.
Teams will fill the following table to show:
1. Aus bond maturity weights (by groups)
2. US Bond maturity weights (by groups)
3. Aus Equity index ETF sector allocation
4. US Equity index ETF sector allocation
Bond Maturity Groups
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Maturity
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1-3y
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3-5y
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Aus Index
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US Index
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Equity Sectors
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Sectors
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Financials
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Materials
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Aus Index
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US Index
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Teams will next explain the allocation process across the two asset classes and with each asset class.
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ETF
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Asset Class
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% Allocation
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Aus Bonds
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US Bonds
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Aus Equities
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US Equities
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(a) Teams will provide details of the allocation decision between bonds and equities, including details of any quantitative methodology and/or a qualitative/subjective employed.
(b) Teams will next provide details of the allocation decision with the bonds component (Aus bond index and US bond index) and the equities component (Aus Equity index and US equity index including details of any quantitative methodology and/or a qualitative/subjective employed.
A quantitative methodology will either be Risk Allocated (not risk parity) and/or MV optimised for assets within, and across the asset classes. Teams will list and explain (i) the objective, and (ii) specific constraints employed if using Excel Solver in the table below.
Teams many have employed an allocation methodology that considers groups of assets within each asset class, such as sector and/or country-based allocation for the equities component and duration-based allocation for the bonds component of the GAM LifeStyle fund.
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Asset Class
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Optimization Parameters/Constraints and Justification for each parameter/constraint
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Allocation
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Bonds
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xxxxxxx
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x%
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Equities
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yyyyyyy
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y%
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Allocation of Bonds and Equities:
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Sub-Asset
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Optimization Parameters/Constraints and Justification for each parameter/constraint
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Allocation
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Aus Bonds Index
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xxx
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a%
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US Bond Index
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xxx
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b%
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Aus Equity Index
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xxx
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c%
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US Equity Index
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xxx
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d%
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2. VIH US Active Bond Fund VIH will takeover a US active bond fund and will:
(i) Fund's non-performance details from Refinitiv or/and Morningstar
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Measure
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Value
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Discussion
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Fund Manager(s) and
Fund Company
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Smith, John
Gold Asset Management
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Fund Manager(s) Qualifications and
experience
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MBA, w years
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Fund Size (AUM)
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$y
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Fund Manager(s) own
investment
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$j
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Fund inception date
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mm/yyyy
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Number of bonds in the
fund
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X
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......
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Any other detail
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Fund manager is one of the founders of
the fund complex
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(ii) Identify issues with maturity allocation of the fund over the last 3 periods. VIH will use the US benchmark yield curve to help with this analysis.
(iii) Provide forecast of how the yield curve will change. VIH will generate economic forecast using macro indicators such as maturity and/or credit yield spreads, and directions by central banks and/or analysis by research firms.
(iv) Create a maturity allocation to outperform its benchmark. In revising this active fund, teams must balance the desire to outperform the index with a limit on active risk.
Morningstar defines the following maturity groups:1-3, -5, 5-7, 7-10, 10-15,15-20, 20-30, and 30+ years. VIH will first decide if the current the investment strategy for the fund is still relevant. The investment strategy will be revised to achieve (iii) above.
Examples of investment strategy can be "The fund is expected to outperform the benchmark by x% net (after costs) by using riding the yield curve strategy".
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Duration OR
Maturity
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%
in
BM
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% in VIH
Active Bond
Fund
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% Active
Weights
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Current Yield Curve (please provide yields for each Maturity/Duration
group)
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Forecast Yield Curve (please provide yields for each Maturity/Duration
group)
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1-3
years
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A%
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B%
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A-B%
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3-5
years
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3. VIH Australian Active Equity Fund VIH will take over an Australian Active Equity fund and will:
(i) Fund's non-performance details from Refinitiv or/and Morningstar
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Measure
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Value
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Discussion
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Fund Manager(s) and Fund Company
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Smith, John Gold Asset
Management
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Fund Manager(s)
Qualifications and experience
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MBA, w years
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Fund Size (AUM)
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$y
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Fund Manager(s) own
investment
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$j
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Fund inception date
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mm/yyyy
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Number of firms in the
fund
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X
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......
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Any other detail
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Fund manager is one of the founders of the
fund complex
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(ii) Conduct a top down analysis
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Measure
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Fund
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BM
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Discussion
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Average Return
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A%
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B%
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......
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Volatility
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C%
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D%
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Alpha
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Y%
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Beta
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Z
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Tracking Error
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P%
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Sharpe Ratio
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S
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T
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Information Ratio
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U
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(iii) Conduct a bottom-up analysis
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Industry
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Selection Effect
%
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Allocation Effect
%
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Analysis of the FM's sector attribution
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Financials
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...
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..
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Total
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(iv) Identify issues with sector allocation of the fund over the last 3 periods. VIH will use the Australian benchmark yield curve to help with this analysis.
(v) Create a revised sector allocation to outperform its benchmark. Morningstar defines 11 Industry Super sectors.
VIH will revise the investment objective for the active fund, and the allocation methodology they will employ in managing the active fund. For example "The fund is expected to outperform the benchmark by x% net (after costs) by using momentum driven allocation methodology".
Attachment:- Advanced Funds Management.rar