Investment Report Harvard Case Solution & Analysis


            This investment report aims to address all the critical issues in formulating the most diversified portfolios and it considers a range of classes of the assets, some of which could be termed as the ultimate portfolio diversifiers. Furthermore, the optimal allocation of the different asset classes has also been performed in this report through the use of complex models. The measurement of the portfolio performance in comparison of a particular index has also been performed within this report.

            Overall, this is an advanced investment plan and it outlines the main criteria and the performance measurement areas which should be paid the greatest attention in order to make an investment in a particular fund or formulate a portfolio, which comprises of the best combination of all the asset classes. The combination of all the specific asset classes would only be optimal if the overall risk is minimized or diversified and the overall return is maximized.

Advanced Investment Plan

            The advanced investment plan has been formulated by first identifying a range of metrics for evaluating the performance of a particular portfolio. A fund has been created. which comprises of 10 assets each with their individual daily returns. Based on the average daily returns, the average return for the ABC fund has been calculated. Moreover, the performance of the fund has been compared with the S&P 400 index fund. The return data has been extracted from one of the past HBR case. The reference has been provided in the end of this report. All the necessary metrics, on the basis of which the performance of the ABC fund has been evaluated in comparison to the S&P 400 index fund. The calculation of the performance metrics has been performed in the excel spreadsheet which has been interpreted below.

Performance Assessment of a Portfolio

            The comparison of the performance for the ABC fund against the S&P 400 index fund based upon the return data for a complete year. The risk free rate has been assumed to be 2%. Based upon the daily returns the annualized return for S&P 400 index has been calculated, which is 14.2%, however, the annualized return for the ABC fund is much higher with a higher standard deviation, which confirms the finance principle of high risk and high return.

            The correlation has also been calculated between the returns of the fund with the returns of the market which is found to be 90%. This is a highly positive correlation and this shows that there is a strong relationship between the returns of the market and the returns of the fund. Furthermore, the tracking error which measures the excess return which has been generated by the ABC fund in comparison to the benchmark or the market return is found to be 9.66%. This shows that the performance of the fund is lot better than the market.

            The Sharpe ratio has been found to be around 19% which shows the return per each unit of the risk in investing in this particular fund. The Treynor measure shows the risk premium per each unit of risk has been calculated to be around 22.36%. This is quite low because the beta of the fund is high, which is 0.98. Furthermore, the Jensen’s Alpha has also been calculated. This ratio measures the returns generated by the portfolio in return of the volatility of the returns of the portfolio. It also calculated the excess return over the required return of the investors from the portfolio. This has calculated to be 9.96%, which is a good margin. Lastly, the information ratio has been calculated which shows the excess return generated by the fund per unit of the risk. This has been calculated to be 1.00 for the ABC Fund, which shows that the performance of the ABC Fund is exceptional as compared to the market. These are the core measurement metrics, which are used to evaluate the performance of a particular diversified portfolio.Investment Report Case Solution

Active and Passive Investment

            Investment and the formulation of the portfolios can be done in two ways which is either through active investment or passive investment. Active investment is basically when the individual investors invest in a portfolio based upon the same proportions as in a specific index (Malkiel, 2003). The formulation of the portfolio is relatively easy and the portfolio managers are not involved in the formulation of the portfolio such as which stocks to include in the portfolio or which should not be included......................

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