FIN 4504 Trading Simulation

Written Assignment: Portfolio Analysis

The fund ended the first quarter of the financial year from 1 February 2023 to 31 January 2024

with a value increase of 3.48%. On the reporting date, the fund had a market value of USD

1,034,795.70 The fund pursues an active investment approach, meaning the fund manager can

invest in any asset classes that appear to be attractive based on fundamental and technical analysis.

The portfolio consists of 25 equity positions, one option, U.S. government Treasury bonds, and

a remaining cash position.

Diversification played a crucial role in the fund’s investment strategy. The high levels

of diversification can be seen at a portfolio beta of 0.86. Besides equities (81.9% of portfolio

value), the capital was invested in bonds (9.7%), and options (cf Fig. 3). To maintain liquidity

to take advantage of emerging investment opportunities, the fund manager decided to keep 8.2

% of the fund’s value in a cash position. Furthermore, the investment approach spread risk

across different geographies as well as industries. The top five positions for equities were

Technology, Banking & Insurance, Pharmaceutical, Mining, and Telecommunications (cf Fig.

1). The fund invested in companies based in the United States, China, the United Kingdom,

Europe, and Israel (cf Fig. 2). However, as the fund invested only in companies that were listed

on U.S. stock exchanges, the portfolio value was not exposed to exchange rate risk. Therefore,

the fund manager did not exercise currency hedging.

The fund’s investments in the technology sector have performed particularly well. The

technology positions have returned 12.3% (cf Fig. 4). Perion Network, an Israel-based

digital marketing company has returned 37.4% in the first quarter. Microsoft and Alphabet have

returned 14.9% and 13.9% respectively. Investments in the consumer goods sector

(9.4% return) and the

telecommunications sector (6.5% return) have also been profitable. Small losses were realized in

the banking & insurance (-0.1%) and aerospace investments (-0.5%). The mining industry has

underperformed in the overall portfolio resulting in a loss of 10.0%.

As a ban on the social media platform Tik Tok by the U.S. government seems very likely, the fund

manager decided to buy a call option on Meta Platforms Inc.’s stock. Meta is a social media

technology company and a direct competitor of Tik Tok. If the U.S. government follows through,

Meta would directly profit from a ban on its competitor. The fund manager decided to increase the

potential profitability of this investment by using a call option in this case. So far, the call option’s

value has increased by 10.4%.

9.7% of the portfolio value was invested in a risk-free asset. The Treasury bonds earned USD

1,240.89 in accrued interest.

During the first quarter, the fund had a short position in Bed, Bath & Beyond stock. As the company

announced that it will fail to meet its debt obligations and is looking for an investor, the fund

invested short at a stock price of USD 4.75. The position was closed for USD 1.54, earning the

fund a profitable return.

The overall fund performance of 3.48% was below the SPY ETF return of 5.70%. However, for

the first attempt at investing, I am happy with the fund's overall performance. Having learned about

bond valuation in class, I would have invested a larger portion of the portfolio in bonds. Due to

the current market environment, bonds seem like an attractive investment that could have

contributed well to the fund’s performance and further increased portfolio diversification.

Unfortunately, as the simulation closed early for me, I was unable to trade a limit order and the

futures trade. Nevertheless, I have learned a lot from the trading simulation as I could apply some

of the concepts I learned during the lectures in a real-world scenario.

Appendix

Fig. 1: Stock por/olio industry weights

Fig. 2: Stock por/olio geography weights

Fig. 3: Asset alloca=on

Fig. 4: Industry performance