The assignment is an individual report on investment strategy for a small ethical fund.

You are the portfolio manager of a UK-based fund and have to build a small portfolio of ethical assets (investments not allowed in Tobacco, Defence and Gambling industries).

The fund should be a balanced portfolio of equities and bonds and should include equities from 4 companies as well as 3 bonds (government or corporate debt securities). All assets must be from ethical companies (provide your own individual ethical guidelines).

You are borrowing 10,000,000 for three weeks at the rate LIBOR + 2% (annualised quote).

Your objective as portfolio manager is to produce a fund that should deliver an annualised return of 14%. The holding period is 3 weeks (beginning and end of investment to be decided by the fund manager).

Trading is allowed during the holding period (transaction costs are assumed to be zero).

No short-selling, nor use of other funds or derivative contracts allowed.

Required:

Part 1

A) By undertaking fundamental analysis of company shares select at least two equity sectors that you expect to perform well in the coming 3 weeks. Within each sector, on the basis of your analysis (qualitative as well as quantitative such as company news, current and expected P/E ratios, EPS, Dividends, return and sales forecasts, etc.) select two companies that you expect to outperform the FTSE100 market index. By undertaking fundamental analysis on government and corporate bonds (government debt, expectations on credit rating, changes in yield, duration, convexity) select 3 debt securities that you expect to perform well in the coming weeks.(Marks allocated: 40%)

B) By using your own judgement and appropriate financial concepts determine the best asset allocation (% of capital allocated to each asset within the portfolio)(Marks allocated: 10%)

C) Select a benchmark index against which to compare your results at the end of the investment period. The benchmark index must be representative of your equity investment.

(Marks allocated: 10%)

Part 2

Monitor the performance of the portfolio on a weekly basis. In terms of fundamental factors explain reasons for the changes you are observing. Critically evaluate the performance of your portfolios against the performance of the selected benchmark by using the Treynor ratio or Jensen's Alpha.

(Marks allocated: 20%)

Part 3

Conclude and explain the divergences you observe between your portfolio and the benchmark in terms of passive or active management theories and concepts.

(Marks allocated: 20%- no more than 200 words)