Business School Coursework

Portfolio Management and Investment Banking

(666086)

Group Coursework: “The Global Portfolio simulation”

Trimester 2, 2024-2025

Title: The Global Portfolio simulation

Overview

You are analysts ofthe HSBC UK holdings Group, and specifically in the asset management team (up to 3 members) and your target is to build and manage a global multi-asset portfolio over a simulated period. The focus is on risk and return, with

ESG considerations introduced as an integral, but flexible, component. The assignment will have 3 distinct components:

1.   Initial Portfolio selection:

a.   Select a portfolio of different securities (you must choose up to 30 to make the analysis simple). The choice is between international stock and bond market.

b.   The choice will be based on the typical ways of selecting securities, as well as constructing a portfolio

c.   Your answers need to be justified based on data and theory.

2.   A recalibration of the portfolio:

a.   You recalibrate your portfolio altering the current holding position in the market.

3.   Final report:

a.   In the final report, you must discuss and analyse the outcome of your portfolio, as well as the actions in the two other deliverables (initial portfolio selection and recalibration of the portfolio)

Detailed information

The deliverables are 3 documents, 2 excel files and 1 word file (and an appendix document if it is needed). The first deliverable will be related to the 1 distinct component. The second deliverable will be related to the second component (recalibration of the portfolio) and the last will be the final report. Moreover, you will need to include an appendix. The appendix could be either a new file (excel file, python code etc) or it could be the last part of the word file

Assignment Title: The Iterative Global Portfolio Challenge

Assignment Overview & Rationale

You are analysts for the HSBC UK Holdings Group, working within the asset management team (up to 3 members). Your task is to design, manage, and evaluate a global multi-asset portfolio over a simulated period. The challenge emphasizes achieving an optimal balance between risk and return while incorporating ESG (Environmental, Social, and Governance) considerations. The assignment has three distinct components:

1. Initial Portfolio Selection: Design and justify an initial portfolio using global equity and bond markets.

2. Portfolio Recalibration: Adjust and recalibrate the portfolio at defined intervals based on real market data.

3. Final Report: Provide a comprehensive analysis of the portfolio’s performance and insights gained from the exercise.

Critical comment: Failing to submit any of the first two excel deliverables (initial portfolio and calibrated), will cost you many points even if, you construct a theoretical portfolio in your final deliverable (the report)

Assignment Objectives

1.   Analyze global stock and bond market performance, including their relationships and correlations.

2.   Develop sectoral and regional allocation strategies using theoretical frameworks such as Modern Portfolio Theory (MPT).

3.   Integrate ESG considerations into portfolio decision-making.

4.   Provide actionable investment recommendations through critical analysis and data visualization.

5.   Develop innovative insights into portfolio management through recalibration and performance analysis.

Assignment Instructions

Component 1: Initial Portfolio Construction (17-March)

Objective:

Allocate a fictional capital of $1,000,000 among global asset classes (equities and bonds).

Guidelines:

1.   Select up to 30 securities from international stock and bond markets.

2.   Justify your selection based on:

o  Risk tolerance and expected returns.

o  Theoretical frameworks such as MPT and CAPM.

o  ESG criteria (optional but encouraged).

3.   Use data from Bloomberg and other credible sources to support your decisions.

4.   Deliverable: Submit an Excel file containing the initial portfolio allocation,

security details, and theoretical justifications. ( The justification will be included in the final word file)

Component 2: Portfolio Recalibration (7-April)

Objective:

Update and rebalance your portfolio at three distinct intervals.

Guidelines:

1.   At each interval, adjust portfolio holdings based on:

o  Market performance data (e.g., stock price movements, bond yield changes).

o  Changes in macroeconomic and industry indicators (e.g., GDP growth, interest rates, specific sector changes, stock market index data,

sentiments scores).

o  ESG developments (e.g., corporate scandals, sustainability initiatives).

o  Also, follow the relevant theory and practice for rebalancing portfolios in the relevant lecture’s material.

2.   Deliverable: Submit an updated Excel file with recalibration details and

written justifications for changes. (the justification will be included in the final word file)

Component 3: Final Report and Presentation (28-April)

Objective:

Analyze the overall portfolio performance, evaluate decision-making processes, and provide actionable recommendations.

Guidelines:

1.   The report should include and have the following structure:

a. Introduction (200 words):

1.   Overview of the initial strategy, including risk/return goals and ESG criteria.

b. Main Body (2100 words)

1. Defining benchmarks and strategy:

•   A short overview of the current performance of asset classes or, financial markets in an international

framework. Based on this, you need to define the benchmark for your portfolio

•   You choose a benchmark in relation with your risk aversion and expected reward to risk.

2. Initial portfolio Justification: Explain why you choose this combination of securities in Component 1: “Initial Portfolio  Construction”

•   Explain based on your risk tolerance and risk aversion

•   Explain based on your risk/reward goals

•   Use appropriate models and theory for balancing and allocating securities in a portfolio

•   Include any ESG considerations

3. Rebalancing Decisions:

•   Analysis of portfolio performance at the time interval between the initial and the rebalanced (deliverable 1   &2) portfolios, with metrics (e.g., returns, volatility).

•   Explain why you did the rebalances you did

•   Use again theory and tools described in the workshops and lectures

4. ESG Impact:

•    How ESG considerations influenced portfolio decisions.

5. Portfolio performance and reflection:

•    Analyze the portfolio performance

•   Compare the performance with the benchmark

c. Conclusion (200 words)

1.   Adjustments:

•   What adjustments would you make in your trading strategy?

•   Was your strategy the appropriate one, based on the

financial conditions? Should you follow a more active, passive, risky or safe strategy

2.   Include advanced visualizations:

a.   Comparative charts showing stock and bond market movements.

b.   Sectoral and regional performance plots.

c.   Risk metric trends over time.

3.   Deliverable: Submit a 2,500-word report in Word format.

Data Requirements

1. Data Sources: Bloomberg, Yahoo Finance, or other credible platforms.

2. Types of Data:

o  Historical stock and bond market data (five years, monthly or quarterly frequency).

o  Macroeconomic indicators (GDP growth, inflation, monetary policy rates).

o  Sectoral performance data (e.g., technology, energy).

3. Analysis Tools: Excel, Python, or Bloomberg Terminal functions.

4. Graphs and Plots: Include advanced plots, such as comparative charts and yield curve trends, to support analysis.

Submission Requirements

1. Deliverables:

o Deliverable 1: Excel file with initial portfolio selection.

o Deliverable 2: Excel file with portfolio reallocation of securities.

o Deliverable 3: Final report in Word format (2,500 words).

o  Identify your file using your student number.

2. Report Length: 2,500 words (±10%), excluding title page, tables, figures, references, and appendices. Exceeding the word count will be penalized with10 points.

3. Excel File: Submit an Excel file containing:

o  Data sources, securities allocation, and securities details

4. Formatting: Double-spaced, Times New Roman, size 12, standard margins.

5. References: Use Harvard referencing style. Ensure all cited works are included in the reference list and vice versa.

General Suggestions

1. Start Early: Allocate sufficient time for research, analysis, and review.

2. Use Data Effectively: Justify recommendations with credible data and clear visualizations.

3. Base your answers on module’s content: During the lectures and workshops, we will use metrics to estimate the return of the portfolio, measure risk, and proposing alternative strategies for defining the optimal portfolio. I expect you to use what will be taught.

4. Collaborate: Leverage team strengths to divide tasks and ensure high-quality deliverables.

5.   It will be uploaded an excel file as a “template” for your deliverables

6.   You will also have to do a few estimations. For example, you may need to estimate the correlation between asset, or the beta of the portfolio amongst others. These estimations have to be clear in the appendix document or section of the main report. Similarly, you have to include charts that may be helpful.