Finance Portfolio Management: Selection, Performance and Correlation Analysis

FINANCE
PORTFOLIO
MANAGEMENT
STUDENT ID:
[Pick the date]

Based on the requisite considerations highlighted, selection has been made for the portfolio
which is summarised below.
a) A-REITS: SCG Scentre Group (Portfolio Allocation: 20%)
b) INFRASTRUCTURE FUND: AST AusNet Services (Portfolio Allocation: 15%)
c) INTERNATIONAL ETF: BetaShares Global Gold Miners ETF – Currency Hedge
(Portfolio Allocation: 55%)
CASH: Australian Government 10-year Bond (Portfolio Allocation: 10%)
Question (i)
1) The two largest infrastructure assets held by the selected infrastructure fund during the last
two financial years are given below.
 High Voltage Electricity Transmission Network in Victoria
 Gas Distribution Network in Victoria
2) (i) In the recent times, it has been seen that the global economy is increasingly vulnerable
to economic shocks as the impact of any economic problem in a certain part of the world
essentially has global impact. This is apparent from the global financial crisis in US,
sovereign debt crisis in Europe and now the trade wars between US & China. In such
uncertain times, there is an increased tendency on the part of the investors to view gold as
the perfect hedge to this risky environment. This had led to significant increase in the gold
price over the last decade or so.
Instead of taking exposure to gold as a commodity, I rather wanted to invest in gold miners
whose profits and valuation would essentially be a function of the gold prices. Unlike
commodity funds which tend to be volatile, the share price of the gold miners would be less
volatile since any small change in the gold price does not immediately get reflected in the
stock price. Also, the selected ETF is currency hedged thereby ensuring the currency risk is
non-existent. This is a pivotal consideration owing to the volatility in all currencies against
USD seen over the last year or so.
(ii) Three potential factors which would impact the performance of this fund over the next 12
months are as follows.

 Resolution of US –China trade war – If the trade situation between US & China does
improve, then it is expected that global recession would be prevented. However, if
there is no trade deal between US and China over the next 12 months, then slowdown
is imminent owing to which gold prices would surge. This would result in superior
performance of the selected fund.
 Result of the US Presidential Election 2020 – It has been witnessed that President
Trump has led to increased risk in the global asset markets over to his mercurial
decision making and not averting from pressure tactics. As a result, if he is re-elected,
then it is likely that the prices of gold would inch higher, thereby having significant
influence on the fund’s performance.
 Global Economic Growth – It has been empirically seen that there is a negative
correlation between returns on gold and returns on equity. If the global economic
growth continues to witness fall over the next 6 to 12 months, then the risky asset
classes such as real estate, equities would underperform. In such scenario, it may be
expected that there would be a higher amount of inflows into gold for hedging the
recessionary fears which would enhance the performance of the fund.
Question (ii)
1) The excess return on the portfolio has been computed using the ASX 200 as the
benchmark index. For each of the 36 months, the excess returns is obtained by subtracting
the expected returns on the ASX 200 index from the expected returns of the portfolio. This
is summarised as follows.