EFB335   Investment

Task 1

Methodology

We categorized the asset classes into active and passive fund managers.

To select the best active fund managers, which are equities and property, we prioritize the Morningstar Rating (4 or 5 stars) for past performance and the Morningstar Medalist Rating (Gold, Silver, or Bronze) for future potential. Our selection is based on several key criteria, including the 5-year annualized total return and 5-year annualized standard deviation to assess   long-term performance, volatility, and stability. Additionally, we consider the 2-year annualized total return to capture more recent performance.

For passive management, including fixed-income and cash, we focus on selecting fund managers who replicate the performance of indexes in lower-risk investments.

Australian Equities

We selected two fund managers for this asset class.

The first is Chester High Conviction, which holds a 5-star Morningstar Rating and a Silver Morningstar Medalist Rating. It boasts the highest 5-year annualized total return in its asset class, along with a relatively low annualized standard deviation of 15.47%, indicating lower volatility compared to its peers. Despite its recent performance (1- to 2-year annualized returns) being less  remarkable, we chose this fund for its long-term stability and consistent performance.

The second fund manager is Hyperion Small Growth Companies, which holds a 4-star Morningstar Rating and a Gold Morningstar Medalist Rating. It has the second-highest 5-year annualized total return and has performed exceptionally well in the recent 2 years, with the highest 1-year and 2-year annualized total returns. Although its 5-year annualized standard deviation is relatively high, we selected this fund based on the belief that it will continue to perform. well in the future.

International Equities

We selected GQG Partners Global Equity Fund for its strong 5-year performance and low standard deviation, holding a 5-star Morningstar Rating and a Gold Medalist Rating.

We also selected Alphinity Global Equity, rated 5 stars with a Silver Morningstar Medalist  Rating, ranked third in 5-year total return. We chose this fund for its lower standard deviation and minimal performance difference compared to the second-ranked fund.

Property

For property, we selected GDA Diversified Property Trust for its highest 5-year annualized total return and lowest standard deviation in its class. It also boasts the highest 3-year total return and a strong 2-year total return.

Fixed-Income

We chose the Vanguard Aust Corporate Fixed Interest and Western Asset Cnsrv Inc A because their returns are consistent with the index trends, as demonstrated in the chart.

Cash

We chose CFS Wholesale Cash and Advance Cash Multi-Blend due to their consistent performance with the index trend.

Task 2

To calculate the annualized total return, we use the formula (1+n total return/100)^(1/n)-1, where n represents the time period of the total return.

For the annualized standard deviation, we multiply the monthly standard deviation by the square root of 12. It's important to note that the sample formula is used to calculate the standard   deviation.

Chester High Conviction (Equity AUS)

I. 3-month annualized total return: -0.0316. and standard deviation: 4.61%.

II. 6-month annualized total return: 0.14. and standard deviation: 8.47%.

III. 1-year annualized total return: 0.0974. and standard deviation: 10.24%.

IV. 3-year annualized total return: 0.0898. and standard deviation: 12.19%.

V. 5-year annualized total return: 0.1304. and standard deviation: 15.47%

Hyperion Small Growth Companies (equity AUS)

I. 3-month annualized total return: 0.0173. and standard deviation: 9.43%.

II. 6-month annualized total return: 0.2575. and standard deviation: 20.16%.

III. 1-year annualized total return: 0.2685. and standard deviation: 21.04%.

IV. 3-year annualized total return: 0.0459. and standard deviation: 26.28%.

V. 5-year annualized total return: 0.1281. and standard deviation: 24.01%.

GQG Partners Global Equity Fund (equity Global)

I. 3-month annualized total return: 0.0406. and standard deviation: 12.42%.

II. 6-month annualized total return: 0.5788. and standard deviation: 19.17%.

III. 1-year annualized total return: 0.3711. and standard deviation: 14.86%.

IV. 3-year annualized total return: 0.1812. and standard deviation: 13.09%.

V. 5-year annualized total return: 0.1725. and standard deviation: 11.77%.

Alphinity Global Equity (global equity)

I. 3-month annualized total return: 0.04929. and standard deviation: 13.23%.

II. 6-month annualized total return: 0.43496. and standard deviation: 14.06%.

III. 1-year annualized total return: 0.2208. and standard deviation: 13.32%.

IV. 3-year annualized total return: 0.116. and standard deviation: 14.24%.

V. 5-year annualized total return: 0.1446. and standard deviation: 12.69%.

GDA Diversified Property Trust (property)

I. 3-month annualized total return: 0.063. and standard deviation: 2.18%.

II. 6-month annualized total return: -0.002. and standard deviation: 4.62%.

III. 1-year annualized total return: -0.001. and standard deviation: 4.01%.

IV. 3-year annualized total return: 0.1029. and standard deviation: 5.98%.

V. 5-year annualized total return: 0.1061. and standard deviation: 6.22%.

Vanguard Aust Corporate Fixed Interest (fixed income)

I. 3-month annualized total return: 0.0076. and standard deviation: 2.94%.

II. 6-month annualized total return: 0.0306. and standard deviation: 2.18%.

III. 1-year annualized total return: 0.0599. and standard deviation: 3.28%.

IV. 3-year annualized total return: -0.0021. and standard deviation: 4.49%.

V. 5-year annualized total return: 0.0097. and standard deviation: 4.08%.

Western Asset Cnsrv Inc A (fixed income)

I. 3-month annualized total return: 0.0509. and standard deviation: 0.18%

II. 6-month annualized total return: 0.0519. and standard deviation: 0.14%.

III. 1-year annualized total return: 0.0514. and standard deviation: 0.41%.

IV. 3-year annualized total return: 0.0271. and standard deviation: 0.82%.

V. 5-year annualized total return: 0.0204. and standard deviation: 0.73%.

CFS Wholesale Cash (money market)

I. 3-month annualized total return: 0.0493. and standard deviation: 0.11%.

II. 6-month annualized total return: 0.05124. and standard deviation: 0.09%.

III. 1-year annualized total return: 0.0513. and standard deviation: 0.09%.

IV. 3-year annualized total return: 0.0293. and standard deviation: 0.62%.

V. 5-year annualized total return: 0.0214. and standard deviation: 0.56%.

Advance Cash Multi-Blend (Money market)

I. 3-month annualized total return: 0.0456. and standard deviation: 0.10%.

II. 6-month annualized total return: 0.0453. and standard deviation: 0.10%.

III. 1-year annualized total return: 0.0451. and standard deviation: 0.09%.

IV. 3-year annualized total return: 0.0255. and standard deviation: 0.55%.

V. 5-year annualized total return: 0.0177. and standard deviation: 0.51%.

Task 3

Growth Assets:

● Australian Equities: Chester High Conviction, Hyperion Small Growth Companies

● International Equities: GQG Partners Global Equity Fund, Alphinity Global Equity

● Property: GDA Diversified Property Trust

Defensive Assets:

● Fixed-Income: Vanguard Aust Corporate Fixed Interest, Western Asset Cnsrv Inc A

● Cash: CFS Wholesale Cash, Advance Cash Multi-Blend

Portfolio asset allocation

● Conservative Portfolio

-    Growth 30% total allocation

Australian Equities: 10% (5% Chester, 5% Hyperion)

International Equities: 10% (5% GQG, 5% Alphinity)

Property: 10% (GDA Diversified Property Trust)

-    Defensive 70% total allocation

Fixed-Income: 50% (25% Vanguard, 25% Western)

Cash: 20% (10% CFS, 10% Advance)

● Balanced Portfolio

-    Growth 60% total allocation

Australian Equities: 20% (10% Chester, 10% Hyperion)

International Equities: 20% (10% GQG, 10% Alphinity)

Property: 20% (GDA Diversified Property Trust)

-    Defensive 40% total allocation

Fixed-Income: 25% (12.5% Vanguard, 12.5% Western)

Cash: 15% (7.5% CFS, 7.5% Advance)

● High growth Portfolio

-    Growth 85% total allocation

Australian Equities: 30% (15% Chester, 15% Hyperion)

International Equities: 30% (15% GQG, 15% Alphinity)

Property: 25% (GDA Diversified Property Trust)

-    Defensive 15% total allocation

Fixed-Income: 10% (5% Vanguard, 5% Western)

Cash: 5% (2.5% CFS, 2.5% Advance)

Correlation matrix

Task 4

To calculate the annualized return of each portfolio regarding conservative, balanced and high growth we have to use the formula:

Rgrowth=(w1×r1)+(w2×r2)+(w3×r3)+…+(wn×rn)

Where w is the weights of each asset in each portfolio, r is the respective returns of each portfolio and n stands for how many assets we have.

To calculate the Standard deviation we use the formula:

Conservative portfolio

-    Growth 30% total allocation

Australian Equities: 10% (5% Chester, 5% Hyperion)

International Equities: 10% (5% GQG, 5% Alphinity)

Property: 10% (GDA Diversified Property Trust)

-    Defensive 70% total allocation

Fixed-Income: 50% (25% Vanguard, 25% Western)

Cash: 20% (10% CFS, 10% Advance)

I. 3-month annualized total return: 0.0342 and standard deviation: 0.0224

II. 6-month annualized total return: 0.1006 and standard deviation: 0.0301

III. 1-year annualized total return: 0.0853 and standard deviation: 0.0314

IV. 3-year annualized total return: 0.0437 and standard deviation: 0.0375

V. 5-year annualized total return: 0.0508 and standard deviation: 0.0356

Balanced portfolio

● Balanced Portfolio

-    Growth 60% total allocation

Australian Equities: 20% (10% Chester, 10% Hyperion)

International Equities: 20% (10% GQG, 10% Alphinity)

Property: 20% (GDA Diversified Property Trust)

-    Defensive 40% total allocation

Fixed-Income: 25% (12.5% Vanguard, 12.5% Western)

Cash: 15% (7.5% CFS, 7.5% Advance)

I. 3-month annualized total return: 0.0345 and standard deviation: 0.0367

II. 6-month annualized total return: 0.1582 and standard deviation: 0.0546

III. 1-year annualized total return: 0.1167 and standard deviation: 0.0533

IV. 3-year annualized total return: 0.0711 and standard deviation: 0.0605

V. 5-year annualized total return: 0.0854 and standard deviation: 0.05805

High growth portfolio

● High growth Portfolio

-    Growth 85% total allocation

Australian Equities: 30% (15% Chester, 15% Hyperion)

International Equities: 30% (15% GQG, 15% Alphinity)

Property: 25% (GDA Diversified Property Trust)

-    Defensive 15% total allocation

Fixed-Income: 10% (5% Vanguard, 5% Western)

Cash: 5% (2.5% CFS, 2.5% Advance)

I. 3-month annualized total return: 0.0323 and standard deviation: 0.0526

II. 6-month annualized total return: 0.2177 and standard deviation: 0.0801

III. 1-year annualized total return: 0.1513 and standard deviation: 0.0768

IV. 3-year annualized total return: 0.0932 and standard deviation: 0.0857

V. 5-year annualized total return: 0.1153 and standard deviation: 0.0824