Portfolio Management: Analysis of Technical and Fundamental Methods

This report provides an analysis of portfolio management using technical and fundamental methods. It includes a literature review of efficient market hypothesis and behavior finance theory, as well as a methodology for technical analysis. The report also presents the results and analysis of both portfolios, including graphs and tables.

PORTFOLIO MANAGEMENT

Table of Contents
Introduction................................................................................................................................3
Literature Review.......................................................................................................................3
Rational and Methodology.........................................................................................................5
Result and Analysis....................................................................................................................5
Analysis of portfolio which has been assessed on the basis of technical method:................5
Analysis of portfolio which has been assessed on the basis of fundamental method..........16
References................................................................................................................................19

INTRODUCTION
Portfolio management can be referred as art and science of making appropriate decision
relating to investment. Further, it relates to development of policies and strategies in order to
match the investment objectives with the asset allocation for individuals and
corporation(KHAN, TARIQ, and KHAN, 2016). The active management strategy is usually
applied in order to track the market index which is also knows as index investing.
Fundamental and Technical analysis have been applied in present study in order to select the
companies for investment as well as for analysing the performance of same. The report
presents detail analysis of Efficient market hypothesis and behaviour finance theory and
application of same for assessing the companies in which investment in been made. Lastly,
analysis of both the portfolios has been done in order to assess whether the same beat the
market or not along with the analysis of method applied.
LITERATURE REVIEW
The investment philosophy applied by an investor enhances the market benchmark return as
well as assists in attaining the investment objectives. Efficient market theory makes efficient
efforts in assessing the manner in which stocks behave. The specified hypotheses provides
results on the basis of information which is available publicly relating to the companies in
which investment in been made (Laengle, Loyola, and Merigó, 2017). However, the weak
point of EMT theory is that is works on the assumption that present stock price depends
wholly on historical information which comprises return of past years. But the fact is only a
little quantum of benefit can be attained from fundamental analysis which comprises
assessment of financial statements of the company. Fundamental analysis is based on some
variants such as earning per share, price earnings ratio, dividend yield, Beta of the company
and others (Lydenberg, 2016) The main core which can be accessed from the application of
strong form of EMT method is that price of a stock not only reflect the historical as well as
present information which is available in public. As the insider information also affect the
price of a stock in significant manner (Pajares, and López, 2014). Another fundamental
method which is being applied is utility function which represents the overall view of market
and preference of price as well as index level. The specified aspect is not similar as asset
pricing model for which utility is a specific function of wealth which comprises all assets

comprising human capital. Thus, the utility function u(S) exists and is different for each
stock. Usually, the higher the S the asset (stock) owner is happier, however the investors who
attempt to purchase the stock are not happy with same as the prices become too high (Petty,
Titman, Keown, Martin, Martin and Burrow, 2015).
Behaviour finance theory relates with the investment strategy which is being applied by the
investor in order to assess the performance of a stock. In order to assess the same, it is
analyzed on a continue basis that whether strategy is consistently pursued or not and with
high convictions positions are attained or not.The main variants which are applied in
technical analysis of a stock are moving averages, average directional index ad smooth
relative index. Exponential and simple moving average emphasizes mainly on the trend of
rates or the changes in price in order to assess the fluctuation within it. Further, moving
average convergence divergence in applied in order to gauge the strength of stock price
movement. The behavioural theory represents a linear relationship between return and risk.
However, the relationship is obtained without assumptions relating to market equilibrium,
specific utility function and market portfolio (Newell, Pham, and Ooi, 2015). The main
strength of this method is that the pricing error of capital asset pricing method is not an error
as the same is attributable to higher-order moments of return. Behaviour finance theory also
applies another technical method: empirical test which provides that relative risk aversion
coefficient is positive as well as it changes with the time. Further, it correlates negativity with
volatility as well as return (Lam, 2018).
One of central concept which is followed by the investors in those higher returns relates to
higher risk. Thus, investment is made in riskless security along with risky securities in order
to attain appropriate return in terms of risk-return trade off. Fundamental techniques mainly
assess the information which is publicly available as the past performance of the return
(Tjemkes, Vos, and Burgers, 2017). On the contrary technical methods emphasize on the
present performance of the stock as well the market position. The reason behind same is that
it believes that expected return is linearly related to risk. It is based on the concept that
relationship between risk and return is dependent on rational expectations, market
equilibrium, and specific utility function along with elusive market portfolio. The main
assumption which is made by all economic and financial theory is that probability density
function of return exists (Joshi, Bharathi, and Rao, 2016). However, the technical methods
make assumption that probability density function is differentiable in respect to time and
return.

RATIONAL AND METHODOLOGY
Technical Analysis
The companies which have been selected on the basis of technical analysis have been
assessed on the basis of following variants: exponential moving average, simple moving
average, average directional index, volume weighted average and moving average
convergence and divergence. All these variants play significant role in technical analysis of
each security. Exponential moving average assesses the prices of securities and provides data
points on the basis of same(Alam, Uddin, and Taufique, 2017). The main difference between
simple moving average and exponential moving average is the sensitivity represented in data
applied for calculating the same. As EMA (exponential moving average) provides higher
weighted to current prices and SMA (simple moving average) provides equal weight to all the
data. Further, moving average convergence divergence is a trend following indicator
momentum which represents the relationship ship within two moving average of a security
price. All these variants are assessed in technical analysis method in order to take decision
that whether security should be put on hold or sold or purchased.
RESULT AND ANALYSIS
Analysis of portfolio which has been assessed on the basis of technical method:
Sr. No Security Exponential
Moving
Average (20)
Simple
Moving
Average
(20)
Volume
Weighted
Average
(20)
Average
Directional
Index
Moving Average
Convergence and
Divergence
(monthly)
1. Sembcorp
Industries
2.62 2.64 2.64 18.78 -.01
2. Singapore
Airlines
9.62 9.64 9.64 10.31 .05
3. DBS Group 24.23 24.45 24.43 13.19 .02

Holding Ltd
4. Singapore
Press
Holdings
2.24 2.22 2.22 35.48 35.78
5. Singapore
Technologies
Engineering
3.64 3.64 3.65 30.34 .05
6. Singapore
Telecom
3.02 2.99 3.02 12.29 .01
7. StarHub 1.78 1.79 1.78 16.71 .01
8. Wilmar
International
3.26 3.26 3.26 20.28 .04
9. United
Overseas
Bank
25.54 25.85 25.84 16.3 .07
10. PCI Limited 1.27 b 1.30 1.30 40.54 .04

Figure 1: Graph representing technical analysis of SembCorp Industries Ltd
(Source:SembCorp Industries Ltd, Technical Analysis, 2019)

Figure 2:Graph representing technical analysis of Singapore Airlines
(Source:Singapore Airlines, Technical Analysis, 2019)

Figure 3Graph representing technical analysis of DBS Group Holding Ltd.
(Source:DBS Group Holding, Technical Analysis, 2019)

Figure 4:Graph representing technical analysis of Singapore Press Holding
(Source:Singapore Press Holding, Technical Analysis, 2019)

Figure 5Graph representing technical analysis of Singapore Technologies Engineering
(Source:Singapore Technologies Engineering, Technical Analysis, 2019)

Figure 6Graph representing technical analysis of Singapore Telecom
(Source:Singapore Telecom, Technical Analysis, 2019)

Figure 7Graph representing technical analysis of Star Hub
(Source:Star Hub, Technical Analysis, 2019)

Figure 8Graph representing technical analysis of Wilmar International
(Source:Wilmar International, Technical Analysis, 2019)

Figure 9Graph representing technical analysis of United Overseas Bank
(Source:United Overseas Bank, Technical Analysis, 2019 )

Figure 10Graph representing technical analysis of PCI Limited
(Source:PCI Limited, Technical Analysis, 2019)
Analysis of portfolio which has been assessed on the basis of fundamental method
Fundamental analysis is refers as a process of assessing the security to evaluate its intrinsic
value. It is based on financial, qualitative and some quantitative aspect of the company. The
main objective of this analysis is to produce a quantitative value by which the investor can
make the comparison of the security. Further for the evaluation of the stock, this analysis
consider the profit, earnings per share, future growth and some other element on which the
value and probable future growth of the company can be ascertained (Chandra, 2017).

Earnings per share of the company is one of the important element of the fundamental
analysis as if the revenue of the company increasing but because of the higher cost the
company is not able to grab this revenue, in such case the investor can determine the actual
earning of the company on the basis of EPS. Further Beta of the company represents the
existence of the risk in the company. Dividend Yield measure the amount of dividend paid to
the shareholder of the company in cash. Moreover if the price earnings ratio is high then
investors are expecting the higher growth of the company in coming years (Smith & et.al
2015).
Table 1Fundamental analysis
Sr.No. Security Earnings Per
share
Price to
earnings
Ratio
Beta-75Days Dividend
Yield ratio
1 Creative
Technology Ltd.
.78447 6.884 1.528 -
2 Ascendas Real
Estate
Investment
Trust
.15427 17.567 .371 5.554
3 CapitaLand .37252 8.912 .818 3.688
4 CapitaLand
Commercial
Trust
.13942 13.556 .375 4.603
5 City
Developments
Limited
.57925 15.675 1.325 0.883
6 ComfortDelGro
Corporation
0.13924 16.662 .711 4.479
7 Jardine Cycle &
Carriage
2.82355 13.437 .889 3.050

8 Genting
Singapore
.04988 22.053 1.482 3.179
9 Keppel
Corporation
.52073 11.541 1.146 2.504
10 Golden Agri-
Resources
0.00777 32.175 .915 3.236
RESULT
Technical analysis
Name of the
Company
Semb
corp
Indu
stries
Singa
pore
Airli
nes
DB
S
gro
up
hol
din
g
Singa
pore
Press
Holdi
ngs
Singap
ore
Techn
ologies
Engine
ering
Singa
pore
Telec
om
Star
Hub
Wilma
r
Intern
ational
Unit
ed
Ove
rsea
s
Ban
k
PCI
Limi
ted
Opening Price
(05/11/2018) 2.69 9.44 24 2.64 3.47 3.17 1.96 3.14
24.6
5 0.95
Investment
1084.
07
5475.
2
851
0.16
1248.
72
2252.0
3
849.5
6
950.
6
9598.9
8
9490
.25
1054
0.25
Number of
units 403 580
354.
59 473 649 268 485 3057 385
1109
5
Closing price
(25/01/2019) 2.64 9.72
24.2
2 2.52 3.68 3.05 1.82 3.28
25.8
8 1.3
Closing value
of investment
1063.
92
5637.
6
858
8.17
1191.
96
2388.3
2 817.4
882.
7
10026.
96
9963
.8
1442
3.5
After assessing all the significant variants of technical method on all the securities of
portfolio, it can be concluded that securities relating to Sembcorp Industries, Singapore
Airlines, DBS Group Holding and United Overseas have neutral average. The securities
relating to Star Hub, Wilmar International and Singapore Press Holding have non fluctuative
exponential moving average and simple moving average. Overall the return of portfolio has
beaten the return rate of market as the return rate of above specified portfolio exceeds 5%.

Fundamental Analysis
On the basis of the variants of the fundamental analysis, the portfolio is constructed, which
results in the higher return as compare with the market return. The overall return generated
from the portfolio is 12.98%, which is significantly more than the market rate of return. The
earning per share of the above security is more as compare with its competitors, therefore in
the future these securities will also generate the good profit. Further the price earnings ratio
the expectation of the investor can be measures. It has been seen that investor expect the good
return on the securities. The risk of some security is high and some has low, but the
fundamental analysis leads to the optimum portfolio construction in which the investor get
the higher return by mitigating its risk. Along with this, the cash dividend paid on the
securities is also good, therefore the investor get the return in terms of cash from the
securities.
Table 2 Market price from Finance.yahoo.com
Name of the
Company
Creative
Technology
Ltd
Ascend
as Real
Estate
Invest
ment
Trust
Capit
aLand
Capita
Land
Comm
ercial
Trust
City
Develop
ments
Limited
Comfort
DelGro
Corporat
ion
Jardi
ne
Cycl
e &
Carr
iage
Genti
ng
Singa
pore
Keppel
Corpor
ation
Golde
n
Agri-
Resou
rces
Opening
Price
(05/11/2018) 5.91 2.51 3.1 1.69 8.28 2.3
31.7
7 0.93 6.11 0.25
Investment 851.04
1450.
78
1119
.1
1253.
98
10879.
92 1244.3
254
16
4498
.41
1637.
48 1650
Number of
units 144 578 361 742 1314 541 800 4837 268 6600
Closing price
(25/01/2019) 5.43 2.71 3.3 1.9 9.06 2.33
37.2
6 1.06 6.2 0.27
Closing
value of
investment 781.92
1566.
38
1191
.3
1409.
8
11904.
84 1260.53
298
08
5127
.22
1661.
6 1782

REFERENCES
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