FINA 1086 Investment Management: Portfolio Performance Analysis

This report delves into the construction and analysis of an investment portfolio, tailored to an investor seeking socially responsible and Islamic funds. The report outlines the investment objective and policy, emphasizing the dual goals of financial returns and positive social impact. It details the rationale behind portfolio construction, prioritizing investments in alternative property, crowdfunding, and Shariah-compliant options, with a small cash reserve. A risk-return performance analysis is conducted, utilizing Sharpe, Treynor, and Jensen's Alpha ratios to evaluate the portfolio's efficiency. The analysis demonstrates the portfolio's potential for returns and its alignment with the investor's objectives, including a comparison of investment assets, proportions, and risk metrics. The conclusion highlights the portfolio's effectiveness in achieving both financial and social goals, supported by relevant references.

Running head: INVESTMENT MANAGEMENT
Investment Management
Name of the Student:
Name of the University:
Authors Note:

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Contents
Definition of investment objective and policy:...............................................................................2
Portfolio construction and explanation behind the rationale of such portfolio construction:..........2
Characteristics and composition of the portfolio:............................................................................3
Risk-return performance analysis:...................................................................................................5
References:......................................................................................................................................8

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Definition of investment objective and policy:
At the case study document containing information about the client, it is clearly said that the
client is looking to invest in non-traditional investments such funds which are socially
responsible investment and Islamic funds etc. Thus, the objective of the investor is not limited to
earning maximum return on the amount of investment instead he is looking to invest in socially
responsible fund to ensure that the social causes are served along with his objective of earning
suitable return on the amount of investment. The objective of socially responsible funds also
referred to as social investment is to bring about social change along with providing financial
return to the investors. Thus, unlike traditional investments social investments try to achieve a
balance between positive social change and financial return whereas the former is primarily
concern about maximizing financial return on the amount of investment (Banasik, Barut and
Kloot, 2018).
As discussed the socially responsible investment has dual objective of bringing positive social
change along with providing financial returns to the investors thus, the policy of this kind of
investments is quite different as compared to traditional investments. The policy of the
investment in case of socially responsible funds and Islamic funds is mainly about investing in
socially responsible assets to reduce the wealth disparity between people. Traditional investment
vehicles mainly concerned about maximizing financial returns on the amount of investment thus,
the only aspect considered in traditional investments is about profitability. Often traditional
investments increases wealth disparity between people whereas the policy in relation to non-
traditional investment is directed towards social coherence and reduction of wealth disparity in
the society.

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Portfolio construction and explanation behind the rationale of such portfolio construction:
The construction of portfolio will provide the composition of the portfolio along with
characteristics of the portfolio. However, before discussing the composition and characteristics
of the portfolio for the client to achieve his objective of investing in socially responsible
investments a brief explanation about the rationale behind the construction of the portfolio is
provided here.
As already stated that the investor, i.e. client is not mainly concerned about the financial return
on the amount of his investment rather his objectives are dual, i.e. to contribute to the social
cause along with earning financial returns on the amount of investment. Thus, the rationale
behind selection of investment assets in the portfolio, i.e. the composition of the portfolio will be
dependent on the objectives of the client. Hence, the rationale behind selection of an investment
asset will not only be the expected return on such investment but also the impact of investing in
the particular investment assets on the society. Thus, form example, even if an investor will have
to choose between two investment proposals, i.e. proposal X and proposal Y with proposal X
expected to provide a return of 20% per annum with no positive impact on the society and
proposal Y is expected to provide an annual return of 10% with significant or slightest of
positive impact on the society then the portfolio of the investor will consist of proposal Y instead
of proposal X. Thus, the rationale behind selection of investment vehicle is equal importance to
social and financial objectives (Žėkienė and Ruževičius, 2017).
Characteristics and composition of the portfolio:
Before getting into the characteristics of the portfolio let us get a picture about the portfolio
composition since it is the most important aspect of portfolio construction. The portfolio

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expected consist the following investment vehicles to achieve the objective socially responsible
investment.
Investment assets Amount (£) Proportion of total investment
Alternative property
investment
166,500.00 0.37
Crowd funding 157,500.00 0.35
Shariah compliant
investment
103,500.00 0.23
Cash 22,500.00 0.05
450,000.00
Thus, out of the total fund available for investment, i.e. £450,000 the investor shall invest
£166,500 in alternative property investment; £157,500 in crowd funding to fund various projects;
£103,500 in Shariah compliant investment options and balance, i.e. £22,500 shall be kept in hand
as cash in case emergency requirements.
The characteristics of these investment vehicles are explained in brief below.
Alternative property investment provide the investor an opportunity to earn significant return on
investment by contributing to the development of alternative property market. Crowd funding to
the tune of £157,500 shall be extremely encouraging for the new age entrepreneurs as often new
ideas of new age entrepreneurs fail due to see the light of the day due to lack of finance.

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Investment in Shariah compliant investment vehicles will ensure contribution of investor to
achieve to reduce the wealth disparity in the society. In addition the portfolio shall have little
amount of cash left without investing on any particular inevstmnet option to ensure in case any
opportunity is there in the future to invest in socially responsible as well as profitable investment
vehicles the portfolio can include that particular asset in the overall portfolio (Puaschunder,
2018).
Risk-return performance analysis:
The risk return performance analysis is conducted with the help of various ratios based on the
following data.
Investment assets Amount
(£)
Proportio
n of total
investme
nt
Expect
ed rate
of
return
Risk Proportion
ate return
Proportion
ate risk
Alternative property
investment
166,50
0.00
0.37 9% 1.2 0.0333 0.444
Crowd funding 157,50
0.00
0.35 12% 1.3 0.042 0.455
Shariah compliant
investment
103,50
0.00
0.23 6% 1.1 0.0138 0.253
Cash 22,50 0.05 0.0891 1.152

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0.00
Expected rate of return is 8.91% as can be seen in the above table and wit risk free rate of 5% per
annum the calculation of various ratios are provided below.
Sharpe ratio is calculated using the following formula:
Sharpe ratio = 3.39
Treynor ratio is calculated using the following formula:
Treynor ration = 3.394
Jensen’s Alpha is calculated using following formula:
Jensen’s Alpha = 3.394
Assumption:
For the calculation of Sharpe ratio, Treynor ratio and Jenesen’s Alpha the risk free rate of return
has been assumed at 5% per annum.
It is clear from the above that the expected rate of return on the portfolio of the client constructed
above is significantly higher than the risk free rate of return. Considering the objective of the
investor to invest in socially responsible non-traditional investment funds including Islamic
funds the expected rate of return is quite encouraging for the investor. Further the Shrape ratio,
Treynor ratio and Jensen’s Alpha all are positively indicating to invest in the above portfolio to
achieve the objectives of the investor (Thampramoth, 2018).

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References:
Banasik, E., Barut, M. and Kloot, L. (2018). Socially Responsible Investment: Labour Standards
and Environmental, Social and Ethical Disclosures within the SRI Industry. Australian
Accounting Review, 23(7), pp.387-399.
Puaschunder, J. (2018). Socially Responsible Investment. SSRN Electronic Journal, 02(02),
pp.10-32.
Thampramoth, O. (2018). Socially Responsible Investment: Achieve Financial Goals?. SSRN
Electronic Journal, 1(1), pp.12-23.
Žėkienė, A. and Ruževičius, J. (2017). SOCIALLY RESPONSIBLE INVESTMENT AND THE
STUDY OF THE SOCIALLY RESPONSIBLE FUNDS DEVELOPMENT POSSIBILITIES IN
LITHUANIA. ECONOMICS AND MANAGEMENT, 19(4), pp.45-90.