FIN30016 Management of Investment Portfolios Assignment 2, 2019

This assignment solution focuses on the management of investment portfolios, specifically addressing the selection and analysis of Exchange Traded Funds (ETFs) from the Australian Securities Exchange (ASX). It includes an analysis of Sydney Airport as an Infrastructure Fund, highlighting its revenue contributions from Aeronautical Services and Retail Business. The solution also covers the selection of International ETFs, including ETFS EURO STOXX 50 ETF, Beta Shares Global Bank ETF, Beta shares U.S. Dollar ETF, and SPDR S&P/ASX Australian Bond Fund, discussing factors influencing their performance. Furthermore, the assignment calculates excess return and tracking error for a given portfolio, comparing it against the S&P 200 Index. Finally, it computes the return and standard deviation of the Dow Jones Industrial Average and determines optimal asset allocation across different asset classes to maximize the return-to-risk ratio. The document concludes with a reference list.

Running head: MANAGEMENT PORTFOLIO
Management Portfolio
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................4
Question 3........................................................................................................................................5
References........................................................................................................................................8

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Question 1
1) Sydney Airport has been selected as the Infrastructure Fund whereby the key assets selected
were Aeronautical Services and Retail Business that has contributed significantly over the last
two financial years. This has played a significant role in the contribution of total revenue
generated by the company. The key business operational division that the Sydney Airport has
reported in the financials of the company are the Aeronautical Services that has currently
generated around 46% of revenue in the year 2018 and the contribution in the year was around
39% in the year 2017. The revenue generated by the company in the year 2018 was around
$1,587.4 Million and the same saw a particular increase of around 6.8% from the reported
numbers of 2017. The Aeronautical Services that is contributing the significant revenue for the
company is responsible for the various aspects of the business that is associated with the business
operations like aviation operations, activity, revenue and environment (Asx.com.au 2011).
2) The funds that have been selected for the purpose of analysis under the International Strategy
ETF are as follows:
International ETF’s (ETFS EURO STOXX 50 ETF (ESTX)): The ETF aims in providing
investors with a return that is closely related with Euro 500 Stock Index. The ETF primarily
invests in funds that are blue-chip stocks or are primarily leader in the Euro-Zone. The index
covers 50 Stocks from different 12 countries that are based in Europe allowing the investors gain
risk and return exposures associated with the EuroZone.
International Sector ETF’s (Beta Shares Global Bank ETF): The selected fund has been
considered for portfolio construction as it would be providing access to a wide range of portfolio

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of world’s largest bank (BetaShares 2019). The ETF would also be reducing the currency risk or
the foreign exposure as the currency movement is particularly hedged with the Australian
Dollars. The fund would be providing a diversification benefit with a single set of trade and
would also be giving an exposure to the world’s largest banking companies.
Cash and Currency ETF’s (Beta shares U.S. Dollar ETF): The selected fund that has been
considered will be providing us a great exposure to the US$ as a currency and the particular
changes in the currency would be providing a great advantage to the portfolio selected
(BetaShares 2019). Movement in the currency ETS would also be associated with the
movements in the US economy and various other macro-economy factors that are intended to
move on a positive scale for the economy.
Fixed Income ETF’s (SPDR S&P/ASX Australian Bond Fund): The fund that has been
selected for the purpose of analysis is the Australian Bond Fund that would be providing the
investors with a income generation source in the portfolio. In terms of capital stability the same
can be well evaluated with the help of the quality of bonds that are primarily rated A or primarily
which are investment grade bonds. The ETF would be providing the investors with a great
diversification benefit as the same would be incorporating around 160 Bonds while constructing
the ETF portfolio (Etfsecurities.com.au 2019).
The three potential factors that would be influencing the growth or performance of the above
stated fund would be primarily as follows:
 Performance of the European Zone primarily in the form of the Macro-economic
condition of Euro Zone and the associated business factors that would be playing a key
role in the overall performance of the economy.

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 Performance of the U.S Currency as compared to Australian dollar will be the key
factors that would be particularly affecting the performance of the International ETF.
 Movement in the banking shares of the European Global Banking Companies would be
the key factor that would be affecting the performance of this fund.
Question 2
a) The excess return of the portfolio will, be calculated with the help of the risk free rate and the
return generated by the portfolio on an annual basis. The differences earned in each of the asset
classes for a sum of three year period will be taken into consideration (Au.finance.yahoo.com
2019). The excess return on the portfolio will be calculated with the help of the formula Return
on Portfolio-Risk Free Rate (Ssga.com 2019). The excess return earned by the portfolio in the
stated period of time was around 37% on an annual basis as the risk free rate has been very
minimal which was around 1.15%. The risk free rate that has been taken into consideration for
the purpose of comparison is the 15-Year Old Risk Free Rate.
Asset Weights Return
A-REIT 20% 15.33%
Infrastructure 15% 13.84%
Int. Strategy 55% 7.31%
Cash 10% 0.12%
Port. Exc. Ret. 100% 37%
b) The tracking error of the portfolio will be calculated with the help of the excess return
generated by the portfolio in the given set of term period. The tracking error of the portfolio was
better calculated with the help of the formula Return on Portfolio-Return on Benchmark Index.
The Benchmark Index that has been considered for the purpose of investment is the S&P 200

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Index and the return generated by the index was around 8.31%. The tracking error of the
portfolio was calculated to be around 0.60% whose details are presented below:
Portfolio Tracking Error
Asset Weights Return (%)
A-REIT 20% 16.46%
Infrastructure 15% 14.97%
Int. Strategy 55% 6.11%
Cash 10% 0.12%
Portfolio Ret. 100% 8.91%
Benchmark (S&P 500) 8.31%
Tracking Error (Rp-Rb) 0.60%
iii) The above analysis for the stocks well reflects that the portfolio constructed will be giving an
excess positive return whereby the portfolio is expected to outperform the benchmark Index by
around 0.60%. The analysis well shows that a monthly set of data was collected for each of the
fund that has been taken into consideration and the relevant analysis for the funds or asset classes
would be done accordingly by the company. The tracking error for the portfolio has been
positive and on the other hand side the excess return generated by the portfolio also has been
positive which is a good signal.
Question 3
i) The return generated by the Dow Jones Industrial Average will be computed for a set of two
years whereby the changes in the data collected will be taken into consideration for the purpose
of evaluating the overall portfolio return (Au.finance.yahoo.com 2019). The return generated by

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the Dow Jones Industrial Average has been around 14.02% which is the annual return on the
other hand the standard deviation of the benchmark index has been around 18.74%.In order to
well compute the volatility of the index which is well reflected by the volatility index the same
can be better reflected with the help of the standard deviation showing the changes in the index
under the time period taken into consideration.
ii) In order to best decide the allocation of funds amongst the three asset class selected we would
be computing the portfolio standard deviation and the portfolio return. The portfolio return will
be calculated with the help of the weights that have been given to each of the asset class and the
associated return generated by each of the asset class. On the other hand, the risk or the SD of the
portfolio will be calculated with the help of the covariance matrix that will be calculated for the
various pair of stocks that has been taken into consideration for the stock. The key aim of the
portfolio in this case would be to maximize the return to risk ratio that can be well done with the
help of allocating around 10% in Australian RIET, 25% in Infrastructural Funds and around
65% in the International Sector Fund.
Asset Weight Return
Landlease 10% 16.46%
Sydney Air. 25% 14.97%
Euro Stox 45% 12.66%
Global
Bank 0% 8.78%
U.S. $ ETF 5% 5.44%
Bond Fund 15% 5.07%
Total 100%
E {R} 12.12%
S.D 32.36%
Return/
Risk 0.37 0ptimized

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References
Asx.com.au. 2011. Complete list of exchange-traded products on ASX.. [online] Available at:
https://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm [Accessed 3 Oct.
2019].
Au.finance.yahoo.com. 2019. Yahoo is now a part of Verizon Media. [online] Available at:
https://au.finance.yahoo.com/quote/%5EDJI/history?
period1=1475260200&period2=1569954600&interval=1mo&filter=history&frequency=1mo
[Accessed 3 Oct. 2019].
Au.finance.yahoo.com. 2019. Yahoo is now a part of Verizon Media. [online] Available at:
https://au.finance.yahoo.com/quote/SKJJF/history?p=SKJJF&.tsrc=fin-srch [Accessed 3 Oct.
2019].
BetaShares. 2019. Global Banks ETF - Currency Hedged | BetaShares. [online] Available at:
https://www.betashares.com.au/fund/global-banks-etf-currency-hedged/#each-overview
[Accessed 3 Oct. 2019].
BetaShares. 2019. US Dollar ETF | BetaShares. [online] Available at:
https://www.betashares.com.au/fund/us-dollar-etf-betashares/ [Accessed 3 Oct. 2019].
Etfsecurities.com.au. 2019. [online] Available at: https://www.etfsecurities.com.au/product/estx
[Accessed 3 Oct. 2019].

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Ssga.com. 2019. BOND: SPDR S&P ASX Australian Bond Fund | State Street ETFs. [online]
Available at: https://www.ssga.com/au/en_gb/individual/etfs/funds/spdr-sp-asx-australian-bond-
fund-bond [Accessed 3 Oct. 2019].