PORTFOLIO CONSTRUCTION & ANALYSIS (PART 2) Harvard Case Solution & Analysis

PORTFOLIO CONSTRUCTION & ANALYSIS (PART 2) Case Solution

Introduction

The first part of this portfolio assignment had emphasized on the comparison and analysis of two funds. The two funds which had been chosen were basically T.Rowe Price Global technology and the Technology and the Select Sector SPDR ETF (XLK) fund. Both of these funds belong to the technology sector of the market however; the objectives which could be served for the investors through these funds are different.

The first fund lets the investors to take higher risks and targets those investors who are basically seeking higher returns and long term returns. The first project of this assignment had analyzed and compared the performance of both of these funds by analyzing a range of statistical metrics and ratios such as the holding period returns, mean returns, standard deviations and Sharpe ratios.
The purpose of this second project of this portfolio assignment is to basically construct a portfolio and then analyze the performance of the portfolio by comparing with the benchmark SPY fund.As. part of the construction of the portfolios, optimization has also been performed with and without the consideration of certain constraints. Moreover, before the construction of the portfolios, the minimum variance portfolio has also been created and graphed in the excel spreadsheet.

Statistics of Assets

In the part of this assignment the historical monthly prices for both the funds and the benchmark SPY fund had been extracted from Yahoo Finance website. Based upon those monthly prices, the monthly returns for the T. Row fund and the XLK fund along with the benchmark SPY fund had been calculated. Based upon these monthly returns, certain statistical metrics had been computed for the two funds and the benchmark SPY. These could be seen in the table below:

KEY STATISTICS OF FUNDS

SPY PRGTX XLK

Mean Monthly Returns 1.09% 1.60% 1.11%
Annualized Mean Returns 3.79% 5.53% 3.85%
Monthly Standard Deviation 3.33% 4.73% 3.54%
Annualized Standard Deviation 11.53% 16.37% 12.25%
Coefficient of Variation 304.50% 295.80% 318.46%

First of all, the mean monthly returns and the monthly standard deviation have been computed and then using it the annualized mean returns and the standard deviations have been computed. It could be clearly seen that the highest returns are shown by the PRGTX fund as compared to the XLK and the benchmark SPY fund.
Finally, the coefficient of variation has also been computed for all the three by dividing the annualized standard deviation with the annualized mean returns.The lowest coefficient variation has been calculated for the PRGTX fund and this shows that if the investors are willing to take higher risks then they can achieve higher returns by investing in this fund. These statistics also show that the performance of the PRGTX fund is much higher as compared to the XLK and the benchmark SPY fund. These statistics have been used in the next sections of this second project for the construction of the portfolios under different constraints. Basically the portfolios which have been created are two asset portfolios.....................

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