Australian Share Market Analysis

This assignment involves analyzing historical share price data for several Australian Securities Exchange (ASX) listed companies: VSO, MQA, ABP, and IXP. Students are required to calculate various financial metrics such as monthly returns, average returns, standard deviation of returns, and tracking errors. Additionally, the assignment explores portfolio performance by examining the overall performance of a portfolio constructed from these shares.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question i:..................................................................................................................................2
1. Identifying the overall top 3 assets that are been invested in the infrastructure fund, while
evaluating the profit distribution of the fund:............................................................................2
2.i) Justifying the decision for selecting Australia ETF and International ETF:.......................2
2.ii) Identifying three potential factors that might influence the performance of funds over the
period of 12 months:..................................................................................................................3
Question ii:.................................................................................................................................3
a) Calculating performance of the portfolio and comparing against returns of ASX S&P 200:3
i) Calculating excess returns of the portfolio against ASX S&P 200 index:.............................3
ii) Calculating the absolute tracking error:.................................................................................5
iii) Discuss the observations:.....................................................................................................6
b) Investigating over last 2 years of how much the investment portfolio could be influenced: 6
i) Return of AUD/USD exchange rate:......................................................................................6
ii) Return of the FTSE as the benchmark:..................................................................................8
Reference:................................................................................................................................10

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Question i:
1. Identifying the overall top 3 assets that are been invested in the infrastructure fund,
while evaluating the profit distribution of the fund:
The three assets that are involved in the infrastructure funds are mainly identified as
Gas Utilities, Electric Utilities, Multi-Utilities, Highway & Railtracks, Airport services and
Power producers & Energy traders. However, the infrastructure funds that is been chosen for
investment is mainly identified as MACQUARIE ATLAS ROADS GROUP. The overall funs
mainly investments in Highway & Railtracks, which are relatively adequate investments in
Australia (Asx.com.au 2017). Over the past 2 years from July 2015 to July 2017 the funds
value has been rising exponentially, which is directly increasing the overall return from
investment. In addition, the funds has also been provided relevant dividend, which is been
increasing since 2015. This overall increment in value in 2 years and provision for dividends
mainly indicate that fund has provided higher return from investment to the investors.
2.i) Justifying the decision for selecting Australia ETF and International ETF:
VANGUARD MSCI AUSTRALIAN SMALL COMPANIES INDEX ETF is mainly
identified as the Australian ETF and ISHARES GLOBAL TELECOM ETF is depicted as the
overall international ETF, which directly influences the overall return provided from the
portfolio. The ETF is mainly chosen due to the returns provided by ISHARES GLOBAL
TELECOM ETF is relatively adequate with the constant dividend that could only increase
return from investment (Asx.com.au 2017). Moreover, VANGUARD MSCI AUSTRALIAN
SMALL COMPANIES INDEX ETF is also chosen due to the constant dividends that is been
provided by the ETF to its investors. The overall profits and dividends that is been provided

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by the investment could eventually allow the portfolio to generate higher return from
investment and reduce any kind of risk from external environment (Class et al. 2016).
2.ii) Identifying three potential factors that might influence the performance of funds
over the period of 12 months:
The overall portfolio has been providing adequate returns from investments in past 2
years. However, the returns that could be provided by the portfolio in 12 months period might
be affected from the global financial movements, chances in regulation that is been imposed
by Australian government and the current trajectory of the IFRS rule. The above mentioned
factors could directly have an impact on the overall return that could be provided from
investment. The changes in IFRS annual report disclosure are mainly changing the annual
report of the organisations, which could directly affect its operations and increase
expenditure. Moreover, the global financial movement is also at stake, where Chinese market
has been manipulating and could start global crises, which in turn might affect the return
provided from the investment. Lastly, the changing rules in Australian government could
affect the index, which in turn could directly influence the index and return provided by the
portfolio (Chiu 2014).
Question ii:
a) Calculating performance of the portfolio and comparing against returns of ASX S&P
200:
i) Calculating excess returns of the portfolio against ASX S&P 200 index:
Date Portfolio returns ASX S&P200 index Return Excess Returns
31-07-15 -2.42% 5,167.00 -9.26% 6.84%

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31-08-15 0.16% 5,027.00 -2.71% 2.87%
30-09-15 5.60% 5,231.00 4.06% 1.54%
31-10-15 -3.29% 5,186.00 -0.86% -2.43%
30-11-15 1.27% 5,301.00 2.22% -0.94%
31-12-15 -2.43% 5,002.00 -5.64% 3.22%
31-01-16 1.56% 4,874.00 -2.56% 4.12%
29-02-16 1.91% 5,088.00 4.39% -2.48%
31-03-16 2.21% 5,225.00 2.69% -0.48%
30-04-16 4.70% 5,382.00 3.00% 1.70%
31-05-16 -2.37% 5,225.00 -2.92% 0.55%
30-06-16 3.23% 5,550.00 6.22% -2.99%
31-07-16 -2.08% 5,410.00 -2.52% 0.44%
31-08-16 -2.32% 5,435.00 0.46% -2.78%
30-09-16 -4.16% 5,285.00 -2.76% -1.40%
31-10-16 1.34% 5,442.00 2.97% -1.63%
30-11-16 1.94% 5,675.00 4.28% -2.35%
31-12-16 -1.97% 5,606.00 -1.22% -0.75%
31-01-17 1.83% 5,684.00 1.39% 0.44%
28-02-17 2.53% 5,866.00 3.20% -0.67%
31-03-17 2.31% 5,904.00 0.65% 1.66%
30-04-17 2.28% 5,740.00 -2.78% 5.06%
31-05-17 -3.81% 5,702.00 -0.66% -3.15%
30-06-17 -1.80% 5,701.00 -0.02% -1.79%

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ii) Calculating the absolute tracking error:
MONTHLY RETEUN SERIES
Date PORTFOLIO BENCKMARK ABSOLUTE TRACKING ERROR
31-07-15 -2.42% -9.26% 6.84%
31-08-15 0.16% -2.71% 2.87%
30-09-15 5.60% 4.06% 1.54%
31-10-15 -3.29% -0.86% 2.43%
30-11-15 1.27% 2.22% 0.94%
31-12-15 -2.43% -5.64% 3.22%
31-01-16 1.56% -2.56% 4.12%
29-02-16 1.91% 4.39% 2.48%
31-03-16 2.21% 2.69% 0.48%
30-04-16 4.70% 3.00% 1.70%
31-05-16 -2.37% -2.92% 0.55%
30-06-16 3.23% 6.22% 2.99%
31-07-16 -2.08% -2.52% 0.44%
31-08-16 -2.32% 0.46% 2.78%
30-09-16 -4.16% -2.76% 1.40%
31-10-16 1.34% 2.97% 1.63%
30-11-16 1.94% 4.28% 2.35%
31-12-16 -1.97% -1.22% 0.75%
31-01-17 1.83% 1.39% 0.44%
28-02-17 2.53% 3.20% 0.67%
31-03-17 2.31% 0.65% 1.66%
30-04-17 2.28% -2.78% 5.06%

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31-05-17 -3.81% -0.66% 3.15%
30-06-17 -1.80% -0.02% 1.79%
Average 2.18%
SD 1.57%
iii) Discuss the observations:
The overall observations of the returns provided in question (ii) mainly state that
average returns provided from the absolute tracking error is 2.18%, while its SD is mainly at
1.57%. This only indicates that the overall tracking error returns averages 2.18%, which is
relatively higher than the benchmark returns. Hence, indicating that the portfolio is relatively
providing a higher return from investment as compared to the benchmark. This only indicates
that the portfolio designed ha effective return generation capacity. Ling, Sun and Yang
(2014) mentioned that use of tracking error directly allows the investor to understand the
portfolio risk and the impact of the index on the overall portfolio return. Therefore, the
tracking error directly indicates that overall risk of the portfolio against the benchmark is
relatively low, which could increase profitability of the investor.
b) Investigating over last 2 years of how much the investment portfolio could be
influenced:
i) Return of AUD/USD exchange rate:
Date AUD/USD Return PORTFOLIO Absolute Tracking Error
Aug-15 0.7113 -2.63% -2.42% 0.21%
Sep-15 0.702 -1.31% 0.16% 1.47%

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Oct-15 0.7139 1.70% 5.60% 3.90%
Nov-15 0.7228 1.25% -3.29% 4.54%
Dec-15 0.728 0.72% 1.27% 0.56%
Jan-16 0.7085 -2.68% -2.43% 0.25%
Feb-16 0.7142 0.80% 1.56% 0.75%
Mar-16 0.7658 7.22% 1.91% 5.32%
Apr-16 0.7603 -0.72% 2.21% 2.93%
May-16 0.7233 -4.87% 4.70% 9.57%
Jun-16 0.7451 3.01% -2.37% 5.38%
Jul-16 0.7597 1.96% 3.23% 1.27%
Aug-16 0.7518 -1.04% -2.08% 1.04%
Sep-16 0.7664 1.94% -2.32% 4.26%
Oct-16 0.761 -0.70% -4.16% 3.46%
Nov-16 0.7386 -2.94% 1.34% 4.28%
Dec-16 0.7216 -2.30% 1.94% 4.24%
Jan-17 0.7585 5.11% -1.97% 7.08%
Feb-17 0.7658 0.96% 1.83% 0.87%
Mar-17 0.7629 -0.38% 2.53% 2.91%
Apr-17 0.7489 -1.84% 2.31% 4.14%
May-17 0.743 -0.79% 2.28% 3.07%
Jun-17 0.7691 3.51% -3.81% 7.33%
Jul-17 0.8003 4.06% -1.80% 5.86%

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Averag
e
3.53%
SD 2.42%
ii) Return of the FTSE as the benchmark:
Date FTSE 100 Return PORTFOLIO Absolute Tracking Error
Aug-15 6,247.94 -6.70% -2.42% 4.28%
Sep-15 6,061.61 -2.98% 0.16% 3.15%
Oct-15 6,361.09 4.94% 5.60% 0.66%
Nov-15 6,356.09 -0.08% -3.29% 3.22%
Dec-15 6,242.32 -1.79% 1.27% 3.06%
Jan-16 6,083.79 -2.54% -2.43% 0.11%
Feb-16 6,097.09 0.22% 1.56% 1.34%
Mar-16 6,174.90 1.28% 1.91% 0.63%
Apr-16 6,241.89 1.08% 2.21% 1.12%
May-16 6,230.79 -0.18% 4.70% 4.88%
Jun-16 6,504.33 4.39% -2.37% 6.76%
Jul-16 6,724.43 3.38% 3.23% 0.15%
Aug-16 6,781.51 0.85% -2.08% 2.93%
Sep-16 6,899.33 1.74% -2.32% 4.05%
Oct-16 6,954.22 0.80% -4.16% 4.96%
Nov-16 6,783.79 -2.45% 1.34% 3.79%
Dec-16 7,142.83 5.29% 1.94% 3.36%
Jan-17 7,099.15 -0.61% -1.97% 1.36%
Feb-17 7,263.44 2.31% 1.83% 0.48%