Take the perspective of a high net worth individual, who is the owner of a small business. He/she has investable assets of about US$20 million. This individual is about 55 years old, married with one 15 year old child.

Design an asset allocation based only on the choices in the spreadsheet. Do NOT use an optimizer. Discuss the reasons for your choices. Please be as articulate as possible. You will undoubtedly feel constrained by the funds and asset classes that I have provided. Discuss the nature of these constraints and what you would have done differently, if you could. In doing so, discuss what data or information you would like to have had and what analysis you would have done with it. Attach your asset allocation plan to the above.

Description of the Spreadsheet

The excel spreadsheet contains information from 50 mutual funds available to investors. These are actual portfolios, but the names have been disguised to allow for confidentiality.

The sheet labeled data contains returns from 1999 to 2012. Cells in white contain returns from live portfolios. Cells in green contain returns that are simulated for the investment strategy that the fund follows. Live portfolio returns are net of transaction costs (due to trading) and net of expense ratios. Simulated returns do not include transaction costs but are also net of expense ratios. Wherever possible, live fund returns are provided.

The sheet labeled template contains funds are broken into seven groups 1. Fixed Income Funds 2. Tax Advantaged Fixed Income Funds 3. US Large Capitalization Stock Funds 4. US Small Capitalization Stock Funds 5. Developed Markets Large Capitalization Stock Funds 6. Developed Markets Small Capitalization Stock Funds 7. Emerging Market Stock Funds

Think of each of these as an asset class. For this assignment, ignore Tax Advantaged Fixed Income Funds (group #2).

The template sheet contains the annual portfolio turnover of each fund in percent, the average number of holdings in each fund and the net expense ratio in percent (so 0.30 means 0.30% or 30 basis points).

There are two key columns in the spreadsheet, labeled first iteration and second iteration. These allow you to enter an asset allocation to an asset class and/or fund. Note that at the bottom of these columns, you will see the total sum of the weights. You will also see the weighted average expense ratio (labeled OER), based on the asset allocation that you perform.

The box to the right of these columns shows average annualized returns and annualized standard deviations over the past 1, 3, 5, 7, 10 and 14 years. These are backward looking but useful in thinking of expected returns.

I have provided two such columns (first and second iterations) to make things easier for you. You can enter a set of weights in the first column, and leave that as is, make changes to two funds or more (increasing or decreasing allocations), and see how expected returns, standard deviations, and expense ratios change. This should allow you to do very simple form of asset allocation. Note that this is simplified because it does not take a whole host of other things into account.

PortfoliHunber Het First Iteration Iteration XP Index First Iteration 2 Turnover Holdings atio 32. 000. 20 DDD Short-Term Government I DDD Two-Tear Global Fixed-Income I VWW Short-Term Investment-Grade Adm Tine Returns Stdev 1 Year | 12.94% | 7.57% 3 Year | 8.50% | 11.70% 5 Year 3.10% | 14.65% 7 Year! 5-09% | 12-83% 10 Year| 8.15% | 11.44% 14 Year| 7.10% | 10.99% 107 80 40 109 0. 18 12.00%| 12, 00% 1668 0.11 Fixed Inco e 4030. 30 BBB Short-Term Bond Inst 1380. 40 3980. 30 BBBAggregate Bond Inst 137| 0.28 {DDD Five-year Global Fixed-incone 1 3960.22HDDD Short-Tern Extended Quality 14.00% 14.00% | 14.00% 14.00% 0.12 SSS Core Bond I 64 58 21 OER Equi ty 0. 27 DDD Inflation-Protected Securities I 210.13 415 0.62 LLL t Floating Rate1I 3910. 54TTT High-Yield Prenier 5100. 80 273 0.22DDD Short Term Nunicipal Bond I 12 13 81 62 Second Iteration Tine Returns Stdev 1 Year | 12.94% | 7.57% 3 Year | 8.50% | 11.70% 5 Year | 3.10% | 14.65% 7 Year 5.09% | 12.83% 10 Year| 8.15% | 11.44% 14 Year| 7.10% | 10.99% PPP Global High Vield 20 15 20 19700. 12 HVW Ltd-Term Tx-Ex Adm OER Fied Incone 2360. 23* 145 0.23 | a,DDD Intermediate-Term Municipal Bd I DDD CA Short-Term Hunicipal Bond I 0.12 18 1011 0.12VVV CA Interm-Term Tax-Exempt Adm 1024 0.12E VVV Long-Term Tax-Exempt Adm 15 OER Equity 5430. 20 V CA Long-Term Tax-Exempt Inv 1950| 0.61 |-|NNN High Yield Municipal Bond I 16 19 53 93 355 0.68NNN CA High Yield Hunicipal Bond NN Preferred Securities AAA Tax-Hanaged Honentun 92 0. 82 3620.55 218 0. 20DDD US Large Cap Crowth Instl 4740.50 AAA omentum L 508| 0.05 1VVV 500 Index Signal 207| 0.49 | |AAA US Defensive Equity I 192| 0.85 |CCC US Eq Div and Pre. Instl 68 11, 25%| 11, 25% 30 67 ndowS 31 25560.22 22DDD Tax-Hanaged US Eq PortfoliHunber Het First Iteration Iteration XP Index First Iteration 2 Turnover Holdings atio 32. 000. 20 DDD Short-Term Government I DDD Two-Tear Global Fixed-Income I VWW Short-Term Investment-Grade Adm Tine Returns Stdev 1 Year | 12.94% | 7.57% 3 Year | 8.50% | 11.70% 5 Year 3.10% | 14.65% 7 Year! 5-09% | 12-83% 10 Year| 8.15% | 11.44% 14 Year| 7.10% | 10.99% 107 80 40 109 0. 18 12.00%| 12, 00% 1668 0.11 Fixed Inco e 4030. 30 BBB Short-Term Bond Inst 1380. 40 3980. 30 BBBAggregate Bond Inst 137| 0.28 {DDD Five-year Global Fixed-incone 1 3960.22HDDD Short-Tern Extended Quality 14.00% 14.00% | 14.00% 14.00% 0.12 SSS Core Bond I 64 58 21 OER Equi ty 0. 27 DDD Inflation-Protected Securities I 210.13 415 0.62 LLL t Floating Rate1I 3910. 54TTT High-Yield Prenier 5100. 80 273 0.22DDD Short Term Nunicipal Bond I 12 13 81 62 Second Iteration Tine Returns Stdev 1 Year | 12.94% | 7.57% 3 Year | 8.50% | 11.70% 5 Year | 3.10% | 14.65% 7 Year 5.09% | 12.83% 10 Year| 8.15% | 11.44% 14 Year| 7.10% | 10.99% PPP Global High Vield 20 15 20 19700. 12 HVW Ltd-Term Tx-Ex Adm OER Fied Incone 2360. 23* 145 0.23 | a,DDD Intermediate-Term Municipal Bd I DDD CA Short-Term Hunicipal Bond I 0.12 18 1011 0.12VVV CA Interm-Term Tax-Exempt Adm 1024 0.12E VVV Long-Term Tax-Exempt Adm 15 OER Equity 5430. 20 V CA Long-Term Tax-Exempt Inv 1950| 0.61 |-|NNN High Yield Municipal Bond I 16 19 53 93 355 0.68NNN CA High Yield Hunicipal Bond NN Preferred Securities AAA Tax-Hanaged Honentun 92 0. 82 3620.55 218 0. 20DDD US Large Cap Crowth Instl 4740.50 AAA omentum L 508| 0.05 1VVV 500 Index Signal 207| 0.49 | |AAA US Defensive Equity I 192| 0.85 |CCC US Eq Div and Pre. Instl 68 11, 25%| 11, 25% 30 67 ndowS 31 25560.22 22DDD Tax-Hanaged US E