The Australian Security Exchange (ASX) boasts one of the biggest Exchange Traded Funds (ETF) in the region.

• Go to ASX website and select 1 fund from each of the following category: A-REITS, Infrastructure Funds, 1 fund from International/Strategy ETF. Make sure these funds have been in the market for at least 49 months (January 2016 to July 2020). In addition, use the following criteria in your selection:
  1. A-REITS: Use the first alphabet in your first name to select the A-REITS with the same alphabet. i.e. if you name is Magdalene, then you could select either MPS, MGR or MIX. If your name is Harry and there is no fund starting with H on the list, then go to the next alphabet in the sequence. i.e. you could choose either IEF, IOF or ILF.
  2. Infrastructure Fund: Any fund of your choice from the Infrastruture Funds List.
  3. International/Strategy ETF: Select one fund from either: LICs/LITs or ETPs.
  4. Cash: Keep it in the interest-bearing account. Choose the appropriate interest rate from one of the Australian banks.

• Form a portfolio and apply the following allocation

(a) A-REITS	(b) Infrastructure	(c) International/Strategy ETF	(d) Cash
20%	50%	20%	10%

Question (i) (15%, 500 words)

1. Identify the two largest infrastructure assets owned by the infrastructure fund selected from part (b) over the last 2 financial years. This information is usually available from the annual reports or DatAnalysis. If the fund only owns one physical asset, such as Sydney Airport, list the two divisions that contribute the most revenue.

2. (i) Justify your decision to your selection of fund for part (c) International/Strategy ETF. Provide two to three reasons why you select this particular fund. Support your selection by providing relevant references.

2. Identify three potential factors that might influence the performance of the fund over the next 12 months.

Note:

• There are thousand and one events happening in the market every day and financial markets are closely integrated. The factors you have selected must have a direct impact on the fund of your choice. Otherwise one could relate the typhoon in Brisbane is set off by the flap of Butterflys wings in Brazil.

Question (ii) (10%, 400 words)

Based on the portfolio you constructed, download their monthly closing prices (from DatAnalysis or Yahoo! Finance).

Using ASX S&P200 index as the benchmark:

1. Calculate monthly excess return of your portfolio and the average monthly excess return. (2%)
2. Calculate the absolute tracking error of your portfolio over the period. (2%)
3. Discuss your observation from part 1 and 2. (3%+3%)

Question (iii) (15%, 400 words)

1. By using regression, investigate over the last 4 years, how much your investment portfolio is influenced by the return of the equity market in USA, using S&P500 as the market benchmark. (9%)
2. Using Excel Solver, for your investment portfolio, what is the best allocation across 4 funds if you wish to lower your overall return to total risk by 1%? (3%)
3. Using Excel Solver, for your investment portfolio, if you wish to maintain the cash component at 10%, what is the best allocation across 3 funds if you wish to lower your overall return to total risk by 1%? (3%)

Note:

• You can select which ever method of tracking error covered in Chapter 20 of the textbook.
• When you are trying to answer, if your portfolio is influenced by XYZ factor, you could use either correlation or regression analysis.
• Your answer to Question (iii) part 1 should not be just yes, no or I think. Provide some justifications in terms of how strong/weak the relationship is. That is your conclusion has to be justified by a quantitative measure. Making conclusions based on two lines on a graph does not meet the quantitative measure requirement. Actual investment is not just about some gut feeling.