Portfolio Management: Analysis of Technical and Fundamental Methods

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