A simulated bond portfolio from Sep 2017 tp Dec 2017 including portfolio construction, strategy / rebalance and portfolio evaluation.

1. Fixed Income
Portfolio
@ Xinyuan Zhang

2. Content
Fixed Income Portfolio _Xinyuan Zhang 212/09/2016
01
 Portfolio
Construction
• Market Situation
• Portfolio
Distribution
02
 Strategy and
Rebalance
• Long Only
• Long and Short
03
 Portfolio
Evaluation
• P&L
• Return and Risk
Content

3. 12/09/2016 3
Portfolio Construction

4. 12/09/2016 Fixed Income Portfolio _Xinyuan Zhang 4
CUSIP NAME COUNTRY INDUSTRY_SECTOR MATURITY CPN_TYP RTG_MOODY Notional Weighting
912828G46 US TREASURY N/B US Government 11/30/2016 FIXED Aaa 50,000,000$ 12.35%
912828H78 US TREASURY N/B US Government 1/31/2017 FIXED Aaa 50,000,000$ 12.35%
912828K66 US TREASURY N/B US Government 4/30/2017 FIXED Aaa 50,000,000$ 12.35%
478160AU8 JOHNSON & JOHNSON US Consumer, Non-cyclical 7/15/2018 FIXED Aaa 50,000,000$ 12.35%
054303AX0 AVON PRODUCTS INC US Consumer, Non-cyclical 3/15/2020 FIXED B1 10,000,000$ 2.47%
378272AK4 GLENCORE FUNDING LLC US Basic Materials 4/16/2020 FIXED Baa3 10,000,000$ 2.47%
172967JE2 CITIGROUP INC US Financial 11/24/2017 FIXED Baa1 10,000,000$ 2.47%
06051GFJ3 BANK OF AMERICA CORP US Financial 8/25/2017 FIXED Baa1 10,000,000$ 2.47%
023135AH9 AMAZON.COM INC US Communications 11/29/2017 FIXED Baa1 10,000,000$ 2.47%
084664BS9 BERKSHIRE HATHAWAY FIN US Financial 5/15/2017 FIXED Aa2 25,000,000$ 6.17%
UV3893798 DAIMLER FINANCE NA LLC US Consumer, Cyclical 8/3/2017 FLOATING A3 15,000,000$ 3.70%
89233P6S0 TOYOTA MOTOR CREDIT CORP US Consumer, Cyclical 10/5/2017 FIXED Aa3 25,000,000$ 6.17%
US00828EBH18 AFRICAN DEVELOPMENT BANK SNAT Government 11/3/2017 FIXED Aaa 50,000,000$ 12.35%
78012KFV4 ROYAL BANK OF CANADA CA Financial 7/30/2018 FLOATING Aa3 25,000,000$ 6.17%
25468PCV6 WALT DISNEY COMPANY/THE US Communications 12/1/2017 FIXED A2 15,000,000$ 3.70%
405,000,000$
Market and Portfolio Construction
 Market:
• Strong expectation of rising rate
 Characteristic:
• Short term
 Source of Return:
• MTM and Accrual
 Source of Risk:
• Interest Risk
 Bond Selection Criteria:
• Short Term
• High Coupon Rate
• Diversify between investment grade and
speculation grade
• Country and Sector Diversification

5. Fixed Income Portfolio _Xinyuan Zhang 512/09/2016
Portfolio Distribution
 Summary
• 81% on US
• 50% on Treasury Bill
• 50% < 1year, 95% < 2 years.
• 60% on AAA, 87% > A ; 10% on
Baa ; 3% on high yield bond
• DV01 : 0.0107

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Strategy and Rebalance

7. Fixed Income Portfolio _Xinyuan Zhang 712/09/2016
NAME
Weekly Average
Contribution to PnL
AVON PRODUCTS INC 82.63%
GLENCORE FUNDING LLC 21.57%
DAIMLER FINANCE NA LLC 20.22%
BERKSHIRE HATHAWAY FIN 14.62%
US TREASURY N/B 11.67%
ROYAL BANK OF CANADA 8.26%
BANK OF AMERICA CORP 7.04%
US TREASURY N/B 2.20%
US TREASURY N/B 1.36%
WALT DISNEY COMPANY/THE 0.54%
CITIGROUP INC -1.14%
TOYOTA MOTOR CREDIT CORP -3.55%
AMAZON.COM INC -10.47%
AFRICAN DEVELOPMENT BANK -19.76%
JOHNSON & JOHNSON -35.21%
Total 100.00%
Long Only ——Stop Gain and Loss
 Strategy1——Long Only
• Stop Gain 3%
• Stop Loss 1%
 10/07
• AVON triggered Stop Gain
• Correlation with Stock Price
• Reason: Third Quarter Good
Performance

8. 12/09/2016 Fixed Income Portfolio _Xinyuan Zhang 8
Rebalance 1
 Selection criteria
• Balance between investment limit with
more coupon
• Focus on corporate bonds
• Take sector factor into consideration
• Still Short Term
CUSIP NAME INDUSTRY_SECTOR MATURITY CPN RTG_MOODYNotional WeightingDVO1
912828G46 US TREASURY N/B Government 2016/11/30 0.5 Aaa $50,000,000 14% 0.0022
912828H78 US TREASURY N/B Government 2017/1/31 0.5 Aaa $50,000,000 14% 0.0039
912828K66 US TREASURY N/B Government 2017/4/30 0.5 Aaa $50,000,000 14% 0.0064
378272AK4 GLENCORE FUNDING LLC Basic Materials 2020/4/16 2.875 Baa3 $10,000,000 3% 0.0337
172967JE2 CITIGROUP INC Financial 2017/11/24 1.85 Baa1 $10,000,000 3% 0.0119
06051GFJ3 BANK OF AMERICA CORP Financial 2017/8/25 1.7 Baa1 $10,000,000 3% 0.0095
084664BS9 BERKSHIRE HATHAWAY FIN Financial 2017/5/15 1.6 Aa2 $25,000,000 7% 0.0068
UV3893798 DAIMLER FINANCE NA LLC Consumer, Cyclical 2017/8/3 1.4691 A3 $15,000,000 4% 0.0089
89233P6S0 TOYOTA MOTOR CREDIT CORP Consumer, Cyclical 2017/10/5 1.25 Aa3 $25,000,000 7% 0.0106
78012KFV4 ROYAL BANK OF CANADA Financial 2018/7/30 1.2915 Aa3 $25,000,000 7% 0.0187
25468PCV6 WALT DISNEY COMPANY/THE Communications 2017/12/1 1.1 A2 $15,000,000 4% 0.0121
278642AG8 EBAY INC Communications 2017/7/15 1.35 Baa1 $10,000,000 3% 0.0084
89233P6S0 TOYOTA MOTOR CREDIT CORP Consumer, Cyclical 2017/10/5 1.25 Aa3 $25,000,000 7% 0.0106
064159EK8 BANK OF NOVA SCOTIA Financial 2017/4/11 1.25 Aa3 $25,000,000 7% 0.0058
17275RAT9 CISCO SYSTEMS INC Communications 2017/3/3 1.1 A1 $15,000,000 4% 0.0048
0.1544

9. Fixed Income Portfolio _Xinyuan Zhang 912/09/2016
Cash Security Price Conven Yield Conver Factor
T 2 ½ 08/15/23 101-24 3/4 2.217 0.8139
T 2 ¾ 11/15/23 103-10 3/4 2.235 0.8217
T 1 ⅜ 08/31/23 94-24 1/4 2.206 0.7541
Rebalance 2 —— Short with Future
 10/28
 Yield Curve : Steepen
• Long short term and short long term
 Short bonds VS Enter short position in future
• Relatively low transaction cost
• Choose to short 10-year-treasury bond
future ( CBOT)

10. 12/09/2016 10
Portfolio Evaluation

11. 12/09/2016 Fixed Income Portfolio _Xinyuan Zhang 11
Profit and Loss
 Cumulative P&L
• Long Only : $1,118,189.07
• Short With Future: $5,430,689.07
 Summary:
• Short is the main source of profitability
in the recent market.
• Profit from accrual > profit from MTM

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Return and Risk
 Return:
 Simple return:
Strategy Period 1 Period 2
Long Only 0.152% 0.139%
 Risk
 VaR:
• Using Historical Method
• 61 trading days.
• A 1-day 95% VaR of my Portfolio is
$63,474
 Volatility
• Daily Return Volatility : 0.000117

13. 12/09/2016 Fixed Income Portfolio _Xinyuan Zhang 13
Thoughts After this whole semester:
 Yield Curve! Yield Curve! Yield Curve!
 Low Risk does not mean not losing money!
 Limit is hurting!
Website:
http://seekingalpha.com/investing
-strategy/bonds
http://www.finra.org/

14. 12/09/2016 14