Consider the following tables for four EM equity funds priced in US dollars. You can also invest in the MSCI EM index and in 1-year Treasury bonds whose yield is 1.5%. The table contains the average target price 1 year from now predicted by analysts, the current price and the historical return variance, price minimum and maximum during the last year.

(i) Assume you can invest in only one fund. Which one would you prefer to hold in combination with T-bills and why, based on all information given?

(ii) Assume you can now invest in all funds and the risk-free asset. Construct 3 portfolio of 3, 4 and 5 assets each (“asset” includes the funds, the index and the bond). Justify your choice of assets in each case and explain if and why any of those portfolio is more preferable than the previous choice
 

Price 230 432 134 189 MSCI EM index 1125 Vanguard EM Equity Fund Fidelity EM Equity Fund BlackRock EM Equity Fund Goldman Sachs EM Equity Fund Vanguard 1 0.32 0.61 0.50 MSCI EM index 0.73 Vanguard EM Equity Fund Fidelity EM Equity Fund BlackRock EM Equity Fund Goldman Sachs EM Equity Fund Target Price 283 475 166 280 1174 Fidelity 1 0.45 0.24 0.78 Variance 2.11% 1.12% 3.74% 5.23% 0.71% Correlations BlackRock 1 0.39 0.83 Min 195 364 80 152 1084 GS 1 0.52 Max 244 532 179 267 1155 MSCI EM 1