ECOM097 Portfolio Construction
Final Portfolio Report General Guidelines
Aim:
To broaden students’ knowledge of portfolio construction, monitoring and evaluation, including performance and risk attribution using a “real world” case study.
Structure:
The assignment will be completed individually at home; it is worth 80% of your final mark and it needs to be submitted in May 2024 (during the Final Exam Session)
Final Report Assessment criteria:
Written Report: min 3,000 words (max 3,500 words) (the exact deadline in May will be specified in the final assignment)
Stage 1: You will be expected to create your own portfolio, which is different from the initial strategic allocation provided and incorporates three of your own trade ideas. These trade ideas can be introduced in response to the client’s objectives and constraints and/or recent market developments. This stage needs to be completed by the end of February with the new asset allocation sent to the TA (Konstantina Mari) via Submission Link on QM Plus, using the template provided on QM Plus.
Stage 2: You will then need to monitor your portfolio from the end of February till the end of March so that it remains within prescribed volatility bands and does not violate minimum tracking error constraint by the month end in February and March. If it breaches these constraints at the end of February or at the end of March, the adjustment needs to be made before the final written report is submitted in May. You will not be penalised for the breach itself but you will have to propose a remedial action to bring your portfolio back within pre-agreed parameters.
Important: if no constraints are breached, you are not allowed to make ANY adjustments to the portfolio you submitted to the TA in Stage 1. Adjustments can be made if and only if any of the constraints are breached.
Stage 3: A Final Report, including the performance attribution analysis of the dynamic asset allocation decisions relative to the initial SAA and the rationale for the proposed adjustments, is submitted in May
Note: Presentation matters! While the assignment itself carries a maximum mark of 100, up to 10 bonus marks may be awarded for exceptionally good-looking reports. For example, additional bonus marks could be awarded to students who
- Structure their report well, with each section clearly marked or
- Present summary of key client objectives and constraints in a clear and concise way or
- Format tables/charts in such a way that immediately draws readers’ attention to the key data/information etc.
The written report should contain the following elements:
- Clear and concise summary of key client objectives and constraints and a description of their initial strategic asset allocation (SAA)
- Investment rationales for three dynamic deviations or off-benchmark bets from the initial SAA;
Note: if any further changes to the portfolio had to be made after the initial adjustment because of any breaches (e.g. after the end of February), these too need to be documented and justified
- Risk Report outlining how the portfolio satisfied its volatility and tracking error constraints by month-end and/or if any changes had to be made
- Performance Attribution Report assessing the impact of dynamic asset allocation decisions
- Final Recommendation outlining whether the student believes the asset allocation should be maintained going forward (beyond May 2023) or whether any changes need to be made on the back of the assessment of the portfolio live history since the end of February or changes in client’s circumstances
Constraints:
- minimum tracking error constraint which will be assessed by looking at the backtested relative returns of the proposed portfolio versus the given strategic asset allocation
- volatility range which will be assessed by the annualised standard deviation of backtested returns
- minimum and maximum constraints on specific assets (as per client’s unique preferences)