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Multi-Asset Investment Strategy
The document presents a detailed case study on a multi-asset investment strategy by a major asset management firm focused on long-term growth through diversified and calculated risk allocation. It outlines investment criteria, portfolio composition, and performance metrics, revealing both successes and losses across various market sectors, especially highlighting their hedging strategies against market volatility. The firm emphasizes fiduciary responsibility, innovation, and a commitment to outperforming benchmark returns while careful of overvaluation risks.
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Multi-Asset Investment Strategy
- 1. F I NA N C E P O R T F O L I O C A S E S T U D Y IE Business School Financial Markets – Prof. Darío Cestau, PhD C A S E T E A M Antonio Auricchio, Théo Tortorici, Julius Kühn, Eudore Pirmez, Radhika Goyal, Andrea Roa M U L T I A S S E T I N V E S T M E N T S T R A T E G Y
- 2. Our aim islong-term, sustainable growth, achieved through careful risk assessment and intelligent fund allocation I. A B O U T U S 1 Our Firm § 70 offices in 30 countries § Worlds largest asset manager with currently $5.1 trillion assets under management § Comprehensive range of services offerings, market access and products § Among our clients are governments, companies, foundations and wide range of individuals Our core principles § We are a fiduciary to our clients – their interests come first and we are the market voice on their behalf § We are passionate about performance – our success requires that we out-think and out-work the competition § We are one BlackRock § We are innovators Sources: Fund website Fin Chem Services CGHCS Eco Insurance Rest Senior Secured 1st Debt Senior Secured 2nd Debt Unsecured Debt Preferred Equity Common Equity & Other
- 3. 2 II. E XE C U T I V E S U M M A R Y Transaction details § Invested capital: 1,000,000 € § Sharpe Ratio: 1,16 § PTF Return: 3.05 % § PTF Risk: 2.63 % § BM Return: 1.64% § BM Risk: 3.45% R² = 0,78024 R² = 0,96823 0% 5% 10% 15% 20% 25% 30% 201720162015 Benchmark Performance Portfolio Performance Poly. (Benchmark Performance) Poly. (Portfolio Performance) Strategy brief § Investment in stable, well-performing, less-hyped industry leaders § Bear Put Spread to hedge against US exposure § Core-Satellite ROW strategy: participate in the individual markets through ETFs and a small selection of market-making stocks
- 4. III. I NV E S T M E N T E N V I R O N M E N T
- 5. III.I M AR K E T S 4 § US being the largest economic partner for Japan (20% of imports). § Continuous innovation in automotive sector. § Potential economic and corporate policies benefit long term investments. United States Japan Europe Brazil § US market is skyrocketing due to the imminent interest rate increase by the Fed § 235,000 new jobs in February § Inflation rate: 2% § Trump’s tax reform: from 35% to 20% Sources: Company website § New Liberal President: Michel Temer. § Team composed with professionals from the energy sector. § Reforms to improve foreign investments. § GDP growth demands more power capacity and transmission § Elections in three major countries. § Uncertainty due to Brexit negotiations. § Solid companies contribute to a balanced economy.
- 6. III.II U PC O M I N G T R E N D S Singapore § A lower seller’s stamp duty may benefit real estate sector. Hence, a 3% growth in the number of residential property transactions is expected. Europe § Technological companies raised $3 billion in Q3 2016. § New tech hubs emerging. § Maersk’s announcement of purchasing the German rival, Hamburg Süd. Brazil § Government’s ten-year energy expansion plan. Japan § Companies are transforming demographic liability into assets thanks to robots. Non-US Securities 5
- 7. IV. P OR T F O L I O
- 8. Off the beatenpath: avoiding S&P 500 “trendy names” and grossly inflated (overvalued) titles. IV.I O U R C R I T E R I A 7 Equity and ETF § US Stocks § “Value” oriented stocks using Bloomberg rating (3.5+ grade or above) § Consistent Market Cap/EBTIDA ratio to avoid inflated/hyped titles (Netflix, Facebook, Snapchat etc.) § The best-performing stocks in a 3M, 6M, 1Y, 3Y period § ROW Stocks § Complementary with ETF strategy, mainly focused on technology (ASTM – Inmarsat), robotics (Fanuc), mining (CMIG4) and shipping (Maersk) industry. § ETF § US market: two ETFs to boost performance as interest rates increase § Insurance à Insurance companies will maximize their returns on underlying bond investments so as to amplify the effect on the market growth § Currencies: Dollar Index ETF will gaining momentum against other currencies since higher rates will attract foreign capital into US domestic market. § ROW: Core-Satellite approach. § Almost 80% of our exposure is in index-tracker ETFs mirroring the given benchmark § The remaining funds were invested into high-growth potential stocks
- 9. We used linearprogramming to optimize the our portfolio diversification and expected return. IV.II P O R T F O L I O O P T I M I Z A T I O N 8 Data preparation § Calculate the weekly percentage return of different assets § Create a Var/CoVar matrix § Compute the risk and return for the portfolio assuming equal distribution Linear programming § Linear function to be optimized § Maximization of the portfolio Sharpe ratio § This creates the best possible diversification § Problem constraints § 100% of the portfolio should be invested § Non-negativity § All weights have to be positive, no short-selling Result = Ideal portfolio composition Return Risk PTF Return: 3.05 % PTF Risk: 2.63 % Benchmark Return: 1.64% Benchmark Risk: 3.45% R² = 0,78024 R² = 0,96823 0% 5% 10% 15% 20% 25% 30% 201720162015 Benchmark Performance Portfolio Performance Poly. (Benchmark Performance) Poly. (Portfolio Performance)
- 10. The portfolio compositionfocusses on outperforming the benchmark with high US exposure, while minimizing volatility through hedging and index diversification. IV.II A S S E T A L L O C A T I O N 9 Equity; 60% ETFs; 39% Real Estate 2% Derivatives 1% US 50% EU 30% JPY 10% EM 10% Asset Allocation Equity Altria Group 15,2% Berkshire Hathaway 5,9% Johnson & Johnson 0,3% Northern Trust 7,8% Phillip Morris 3,0% Reynolds American 8,0% Union Pacific 7,4% Union Pacific 7,4% AP Moller - Maersk 3,0% STM 3,0% Inmarsat 2,5% Fanuc 1,5% Companhia Energetica de Minas 1,5% ETF Fidelity VIP High Income Portfolio 1,5% Dollar Index Spot 0,5% Lyxor UCITS ETF Euro Stoxx 50 21,0% Lyxor UCITS ETF Euro Stoxx 50 21,0% LYXOR JPX-NIKKEI 400 (DR) UCITS ETF Daily Hedged C-EUR5,5% Robo Global Robotics & Automation Index ETF 3,0% Lyxor ETF Brazil (IBOVESPA) EUR 7,0% Real Estate CapitaLand Commercial Trust 1,5% Derivatives Future on S&P 500 Put @ 2115 (June 2017) 0,3% Future on S&P 500 Put @ 2000 (June 2017) 0,3%
- 11. IV.III H ED G I N G S T R A T E G Y 10 1850 1900 1950 2000 2050 2115 2150 2200 2250 2300 2350 Short Put Long Put Bear Put Spread Bear Put Spread § Low-cost bear put spread as protection against a general deflation of the S&P500 (nearly 22 times trailing earnings) § The strikes were chosen at 2115 and 2000, thus the portfolio will experience a benefit for a fall in the index up to 2000 § Due to the expiry date of the puts (June 2017) they will maintain a certain residual value even at the end of the month during which the portfolio is considered § Considering the low market volatility, this strategy will be relatively cost efficient Profits S&P 500 quotation
- 12. V. F IR S T - M O N T H P E R F O R M A N C E
- 13. -$9.542 $5.025 -$3.238 -$3.953 $1.038 -12.000 -10.000 -8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000 Market Performance Breakdown USA EUJP BRA SGP United States (50%) • Lower asset value due to market volatility: US $9.542 • Major loss from Altria Group: US $6.000 • Strict anti-smoking regulations. • Lower sales than expected due to increase of selling price. Positive performance: • Philip Morris: (5,80%) • Reynolds American: (3,35%) • VIP High Income: (1,30%) Assets weight on total PTF: 11,50% V.I U N I T E D S T A T E S
- 14. -$9.542 $5.025 -$3.238 -$3.953 $1.038 -12.000 -10.000 -8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000 Market Performance Breakdown USA EUJP BRA SGP Europe (30%) • Higher asset value: US$ 5.025 Positive performance: • Inmarsat (12,42%): yet only 2,98% was invested. • Euro Stoxx 50 (1,53%): share price only increased 0,5 points. • French elections. • Uncertainty after Brexit. V.II E U R O P E A N U N I O N
- 15. -$9.542 $5.025 -$3.238 -$3.953 $1.038 -12.000 -10.000 -8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000 Market Performance Breakdown USA EUJP BRA SGP Japan (10%) • Return: US $3.238 • Weaker yen: JP stocks plunged after lowing interest rates in the US. • Geopolitical risks lead to concerns about Japanese companies’ earnings. Positive performance: • Fanuc shares: (3,79%) • The company benefited from weaker Yen. V.III J A P A N
- 16. -$9.542 $5.025 -$3.238 -$3.953 $1.038 -12.000 -10.000 -8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000 Market Performance Breakdown USA EUJP BRA SGP Singapore (1,5%) • Return: US$ 1.038 • CapitaLand Commercial Trust increased share price 5% due to better real estate market’s condition. Brazil (8,5%) • Return: US $3.953 • Companhia Energetica de Minhas displayed a significant drop in its share price due to political turmoil commercial partners worsened stability. V.IV B R A S I L & S I N G A P O R E