IntroductionAyyad Co. is a financial institution, created by a group of five individuals investing their savings until their retirement age which is in 15 years. They decided to allocate USD 200,000 per person and then manage their portfolio by themselves to achieve their investment objectives. The purpose of this Investment Policy Statement is to establish guidelines for the Company’s investment portfolio. The statement also incorporates investment objectives that will be used for monitoring the progress of the Portfolio’s investment program. Investment Objectives:
The investment objectives which are set by the company board of directors can be described by the following: 1-Annual absolute rate of return equal to 12%. 2-2% higher than the composite benchmark consisting of market indexes weighted according to the expected target asset allocations stipulated by the Portfolio’s investment guidelines. Risk Policy
1.Diversification: across and within asset classes is the primary means by which the company expects the Portfolio to avoid undue risk of large losses over long time periods. To protect the Portfolio against unfavorable outcomes within an asset class due to the assumption of large risks, the company will take reasonable precautions to avoid excessive investment concentrations. Specifically, the following guidelines will be in place:
a)No single investment security shall represent more than 15-20% of total Portfolio assets. b)With the exception of passively managed investment vehicles seeking to match the returns on a broadly diversified market index, no single investment pool or investment company (mutual fund) shall comprise more than 5% of total Portfolio assets. c)With respect to fixed income investments, for individual Bonds, the minimum average credit quality of these investments shall be investment grade (Standard & Poor’s BBB or Moody’s Baa or higher).
2.Rebalancing: it is expected that the Portfolio’s actual asset allocation will vary from its target asset allocation as a result of the varying periodic returns earned on its investments in different asset and sub-asset classes. The Portfolio will be rebalanced to its target normal asset allocation under the following procedures:
The investment manager will review the Portfolio semiannually (30th Jun and 31st Dec) to determine the deviation from target weightings. During each semiannual review, the following parameters will be applied: a)If any asset class (equity or fixed income) within the Portfolio is +/–5 percentage points from its target weighting, the Portfolio will be rebalanced. b)If any fund within the Portfolio has increased or decreased by greater than 20% of its target weighting, the fund will be rebalanced. 3. The investment manager may provide a rebalancing recommendation at any time. 4. The investment manager shall act within a reasonable period of time to evaluate deviation from these ranges.
Asset allocationOutline below are the long-term strategic asset allocation guidelines, determined by the company to be the most appropriate, given the Fund’s long-term objectives and short-term constraints. Portfolio assets will be allocated across broad asset and sub-asset classes in accordance with the following guidelines:
Asset ClassSub-Asset ClassTarget AllocationEquity60%U.S50%Non-U.S10%Bonds20%Mutual Funds5%Treasury Securities 15%Constrains:1-CashThe ceiling of cash available for the company is only one million dollars and it can be increased 15% maximum to meet our debt policy.
2-MaturityThe time horizon of the fund is 15 years no one shall withdraw or sell his equity shares unless a mutual agreement is made among company board.
3-Special CircumstancesAll agrees that all transactions and investment securities are according to Sharea compliance.
4-Tax constrains (zakat)All fees and required tax must be paid according to relevant rules and regulations, in addition a 2.5% zakat to be paid annually. Asset Selections: The selection of assets within an asset class is typically delegated to the investment managers. This is subject to investment guidelines that control risk, and otherwise determine the nature of potential investments for each mandate. Feedback & Control:
The Portfolio’s composite investment performance will be judged against the following standards:
1. The Portfolio’s absolute long-term real return objective. 2. A compositebenchmark consisting of market indexes weighted according to the expected target asset allocations stipulated by the Portfolio’s investment guidelines.
Assignment 2:Transactions History
Below are the transactions history for our portfolio:Trade DateTransactionType/SecuritySymbolCompany NameQTYPriceAmount*Curr./Exch 12/16/2013Market – Buy EquitiesRBCAARepublic Bancorp Inc.4,30023.35-100,405.00USD /2:16 PM 112/16/2013Market – Buy BondsB-T-7.500-15112024T-BOND 7.500% 15-Nov-202470#####-100,468.12USD / 1:53 PM 112/16/2013Market – Buy BondsB-T-5.125-15052016T-NOTE 5.125% 15-May-201690#####-100,473.47USD / 1:44 PM 112/16/2013Market – Buy EquitiesCOSCanadian Oil Sands Limited5,10019.54-94,113.24CAD /1:36 PM 0.9412/16/2013Market – Buy EquitiesHPHelmerich & Payne Inc.1,20080.64-96,768.00USD /12:29 PM 112/16/2013Limit – Buy EquitiesESLTElbit Systems Ltd.1,70058.53-99,501.00USD /12:12 PM 112/21/2013-EquitiesCVXChevron Corporation0061,450.00USD /9:07 AM12/21/2013-EquitiesTOTTOTAL S.A.0059,560.00USD /9:05 AM12/21/2013-EquitiesMNSTMonster Beverage Corporation0033,125.00USD /9:02 AM12/20/2013Market – Sell EquitiesRBCAARepublic Bancorp Inc.-3,46424.0283,205.28USD /1:31 PM 112/20/2013Market – Sell EquitiesRBCAARepublic Bancorp Inc.-83624.0220,080.72USD /1:21 PM 112/20/2013Market – Sell EquitiesESLTElbit Systems Ltd.-1,70059.17100,589.00USD /1:19 PM 112/19/2013Market – Buy EquitiesXOMExxon Mobil Corporation95099.39-94,420.50USD /1:10 PM 112/19/2013Market – Buy EquitiesGEGeneral Electric Company3,45027.16-93,702.00USD /1:10 PM 112/16/2013Market – Buy MutualFundsDNREXDUNHAM REAL EST STK FD (N)41015.6-6,400.00USD / 9:43 PM 112/16/2013Market – Buy MutualFundsDCREXDunham Real Estate Stock Fund Class C43715.1-6,600.00USD / 9:43 PM 141632Market – Sell EquitiesCOSCanadian Oil Sands Limited-510019.9896018.49CAD /0.40625 0.9441632Market – Buy EquitiesHASIHannon Armstrong200013.85-27700USD /0.4 141632Market – Buy EquitiesAMBAAmbarella Inc.300028.99-86970USD /0.395833333 141631Limit – Buy EquitiesCVXChevron Corporation500122.76-61380USD /0.636805556 141631Market – Buy EquitiesTOTTOTAL S.A.100060.09-60090USD /0.397916667 141631Market – Buy EquitiesCVXChevron Corporation500123.37-61685USD /0.395833333 141631Market – Buy EquitiesMNSTMonster Beverage Corporation50066.5-33250USD /0.395833333 1
Portfolio Performance Vs. index Performance
DatePortfolio ReturnPortfolio ValueRankTradeNYSE Index CloseRm (%) Sunday, December 15, 20130 10,012.748 0.122% Monday, December 16, 20130.01%$1,000,130.0438 10,024.969 0.122% Tuesday, December 17, 20130.00%$999,970.1348 9,989.080 -0.358% Wednesday, December 18, 20130.41%$1,004,074.6228 10,154.200 1.653% Thursday, December 19, 20130.13%$1,001,314.60510 10,151.530 -0.026% Friday, December 20, 20130.76%$1,007,643.50213 10,194.995 0.428% Saturday, December 21, 20130.77%$1,007,677.38213
Sunday, December 22, 20130.88%$1,008,758.67213Monday, December 23, 20130.68%$1,006,842.04217 10,246.680 0.507% Tuesday, December 24, 20131.03%$1,010,280.57220 10,284.400 0.368% Wednesday, December 25, 20131.03%$1,010,295.14220
Thursday, December 26, 20131.94%$1,020,482.51120 10,330.008 0.443%
1.Portfolio Performance vs. Dow Jones ETF Performance
The reason behind choosing Dow Jones ETF index is that this index has most of the companies we traded in. On the other hand, we traded in one company from Canada stock market which has a slight effect on our portfolio performance and so we didn’t index it to Canadian market.
Assignment 3Portfolio Returns vs. Market Return
DATERpRmMonday, December 15, 203100.122Tuesday, December 16, 20310.010.122Wednesday, December 17, 20310-0.358Thursday, December 18, 20310.411.653Friday, December 19, 20310.51-0.026Saturday, December 20, 20310.760.428Tuesday, December 23, 20310.680.507Wednesday, December 24, 20311.030.368Friday, December 26, 20311.970.443Average0.5966670.362111STDEV0.6330480.557091Sharpe0.9267330.632053Treynor2.811862E(Rp)0.083464Jensen alpha0.5132020.362111VaRp95%-0.44786-447863VaRp99%-0.87834-878336
From the above performance calculations we can conclude the following: 1.We made 0.926 units of return for each unit of total risk incurred. 2.We made 2.812 units of return for each unit of systematic risk incurred. 3.Expected Return is 8.34%.
4.We beat the market expectations by 51.32% return.
5.We are 95% confident that the maximum loss will be 44.78% for the coming 10 days. 6.We are 99% confident that the maximum loss will be 87.83% for the coming 10 days.