Uploaded byLeon Liang
Portfolio Management
This document outlines Gangming Liang's portfolio management strategy to achieve a goal of buying a $1M house in the Bay Area within 5 years. The portfolio aims for a moderate to high risk tolerance with an expected annual return of 14.87% through a strategy of rebalancing and exploiting imperfect asset correlations. The portfolio consists of a diversified mix of international stocks, US large cap stocks, small cap stocks, and short-term bonds. Technical analysis indicates the current market may be reaching the top of its cycle.
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Portfolio Management
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- 2. 1) Goal: To buy a $1M house in the Bay Area within 5 years; Expected Annual Return of 14.87% 2) Risk preference: Moderate to High 3) Trading Strategy: Rebalancing (buy low sell high) Unperfect Correlation IPS
- 3. Asset Allocation Time horizon: Upto 5 years Goal: $ 500 000 profit Risk Tolerance: High Expected return: 14.87% Standard Deviation: 11.99%
- 4. Correlation Correla'on Matrix Interna'onal Stock US Large Cap Small Cap Short Term Bonds iShares MSCI EAFE Index (EFA) S&P500 Russel 2000 Vanguard Short-‐ Term Bond ETF (BSV) Interna'onal Stock iShares MSCI EAFE Index (EFA) 1.00 0.92 0.81 0.09 US Large Cap S&P500 0.92 1.00 0.93 -‐0.02 Small Cap Russel 2000 0.81 0.93 1.00 -‐0.16 Short Term Bonds Vanguard Short-‐ Term Bond ETF (BSV) 0.09 -‐0.02 -‐0.16 1.00 There is a high correlation among International, US Large Cap and Small Cap stocks, 2009-2013
- 5. Asset allocation Asset Class Index Ave.Return St.Dev Weight Weighted Return Monthly return Interna'onal iShares MSCI EAFE Index (EFA) 1.34% 5.76% 10.0% 0.13% Average return 1.24% Large Cap S&P500 1.62% 4.27% 52.6% 0.85% St.Dev 3.46% Small Cap Russel 2000 1.79% 5.84% 12.4% 0.22% Short term Bonds Vanguard Short-‐Term Bond ETF (BSV) 0.23% 0.44% 15.0% 0.03% Total 100% 1.24% Annualized Return Average return 14.87% min 0.23% 0.44% St.Dev 11.99% max 1.79% 5.84% average 1.24% 4.08%
- 6. 1) Stocks: P/E < 20 & PEG > 1 Market Up: Beta > 1 Market Down: Beta < 1 2) Funds: Top 10% Rank & 5 Morning Stars Diversified Emerging, Small Cap, Large Cap 3) Bonds: High Yield & Short-‐ Term 4) Options: Protective Put, Out-‐ of-‐ Money Selection Requirements
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- 9. Mutual Funds (asset allocation)
- 10. * IBM * Beta * Alpha * Sharpe ratio * Treynor ratio Ratios p fp σ RR ratioSharpe − = p fp β RR ratioTreynor − = Beta 0.7030 Alpha 0.0006 Sharpe Ratio -0.0848 Treynor Ratio -0.0226
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- 13. * Protect the losses for Decreasing Prices * Narrow Range of Bollinger Bands: Long Options * Out-‐ of-‐ Money: K>S Protective Put Long IBM+ Long Put= Long Call
- 14. Technical & Behavior Analysis Current Market: Sell Option Almost Reach Top of Cycle Lacking Volume In Upward Channel Government Debts and Deficit Real Estate & Low Interest % Federal Reserve
- 15. 1) Selection: Beta v.s. Market Movement Allocation v.s. Risks History v.s. BlackSwan Event 2) Trading: Costs Control Timing Option Demand Learning Process