Project: diversified fund (portfolio) of about 10 stocks (can be North American or International)
Groups: 3 to 5 members (you are the fund managers)
Two parts: (1) Written report, and (2) in-class PowerPoint presentation (last 2 classes of term)
I. Written Project Outline:
1. Portfolio Summary Page: follow style of link below:
https://research.tdwaterhouse.ca/research/public/MutualFundsProfile/Summary/ca/TDB622
a. Chart of 5 year past performance of proposed portfolio of stocks (download past 60 monthly returns from Yahoo for each stock in Excel, sum weighted total for each month, plot the result)
b. Holding Details
c. Fund Profile
d. Holdings / Diversification (Asset Class, Top 5 Sectors, Geographic Regions)
e. Top Holdings
2. Top down analysis of economic environment (about 1 to 2 pages)
a. International and domestic economic outlook
b. Your expectation for global macroeconomic variables such as economic growth rates, interest rates, energy prices, geopolitical factors that might be relevant (e.g. wars, global political trends)
c. Regional variables if relevant (e.g. North American housing starts, interest rates, etc.)
3. Summary of each stock (1 page for each stock):
a. 1 paragraph summary of what the firm does
b. 1 industry / sector summary
c. 1 paragraph for competitive advantage
d. 1 paragraph of recent events (acquisition, management change, etc.)
e. Descriptiveratios (e.g. ROE, ROA, D/E, D/A, Quick, Current, Inventory Turnover, Acc Rec Turnover)
f. Comparable ratios for industry / sector
g. 1-year forward valuations by 3 methods, and expected return: (1) CAPM, (2) ratio (P/E or P/EBITDA), (3) discounted cash flow (use CAPM for discount rate)
h. Plot of past 5 year stock price, versus benchmark index
4. Performance projection for overall portfolio
a. Create a summary table for portfolio characteristics:
Unlevered beta is calculated as follows from levered Beta:
βU = βL * [1 / (1 + (1 – Tc)(D/E))]
Sources such as Bloomberg and Yahoo give the levered beta because this is the real situation of the firm. Use Tc = 25% for corporate tax rate.
b. From the table above, calculate portfolio values:
• Portfolio beta, expected return (from CAPM), and portfolio dividend yield
• Portfolio unlevered beta, and expected return if companies had no long term debt.
5. Discuss (1 page):
a. Expected portfolio performance, and how much of performance is attributable to dividends and use of debt
b. Susceptibility of portfolio to economic downturn
c. Major risks that might affect portfolio (e.g. domestic / international growth rate, exchange rates, interest rates, etc.)
d. Appropriate investors for this portfolio (e.g. those seek capital appreciation, retirees seeking income, etc.), and relate this to the risk and fund profile
II. Class Presentation (in last 2 classes)
a. PowerPoint
b. About 10 minutes (depends on number of groups)
c. Portfolio summary – include style (growth, dividend, etc)
d. Top down analysis of economic environment
e. Brief presentation of key stocks in the portfolio to illustrate choices, including reasons for picking those stocks (competitive advantage, future prospects).
f. Summary of expected portfolio performance, susceptibility to economic downturn, and target investor