Question (100 marks)

Assume you work as a fund manager at Fantastic Inc. (FTC). FTC has decided to create a new fund (Stable Fund) for its customers due to the recent global economic fluctuations. The objective of this fund is to achieve stable capital growth with low volatility through a portfolio of global bonds and equities.

Please forecast the economic or market trend, suggest the mixture of bonds and equities, select securities, and apply an appropriate investment strategy for the portfolio.

You are required to submit a report of 1,500 words on your recommendations by the due date.

Guidelines

a. You may forecast the economic trend and expected market performance for your consideration of portfolio construction.

b. Justify the number of stocks and bonds added in the portfolio and the capital allocation between them. Please illustrate how the portfolio can achieve a stable capital growth with low volatility by the concept of diversification.

c. For stock selections, please apply the top-down approach through economic analysis, industry analysis and company analysis. Briefly demonstrate the entire selection process using one or two stocks in your portfolio as an example.

D. For bond selection, please justify the choice of bonds (e.g. US Treasury notes or bonds), particularly from the perspectives of coupon, maturity and yield.

E. According to your forecast, select the proper asset allocation or investment strategies for the portfolio with justification.

F. Consider using derivatives to hedge any risk your portfolio may come across.

G. You may include other ideas based on the materials covered in class.