Investment Portfolio Management Assignment
Prepare a report in which you can explain your investment strategy for
constructing a passive and an active portfolio and then evaluate the investment performance
BAFI1042 Investment
Portfolio Management Assignment (30%)
Assessment Task 2: Portfolio Management Assignment
Marks/Weighting: 30 marks, accounting for 30% of the total grade for this course
Word Limit: Maximum 3,500 words
Submission Instructions: The assignment will be submitted via Canvas, Turnitin
Rubric/Marking criteria: A marking rubric is provided on Canvas.
The assessment is submitted as an individual assignment
You will be given funds to invest in the share market. You are required to construct two
$1,000,000 equity investment portfolios:
1. A passive portfolio replicating the return of the index
2. An active portfolio to achieve your investment objective of outperforming the index
You will then prepare a report in which you can explain your investment strategy for
constructing a passive and an active portfolio and then evaluate the investment performance
of each in terms of absolute and relative return, risk and attribution effects to explain the
differences in performance of each portfolio. You will be given an equally weighted index of
ten companies selected from companies listed on the Australian Stock Exchange.
This assessment replicates the tasks that would be undertaken by portfolio managers in a
real-world investment company. For the passive portfolio, your task will be to replicate, as
closely as possible, the risk and return characteristics of the benchmark index. For your
active portfolio, your task will be to select stocks and sectors, which will result in your
portfolio, achieving a higher return than the index.
Your task is not necessarily to produce a positive return. If the markets fall in value, then
your passive portfolio should fall in value by a similar degree. Your active portfolio should
aim to outperform the return on the index: if the index falls your portfolio should fall by a
lesser amount; if the index rises then your portfolio should rise by a higher amount.
` BAFI 1042 Investment Page 2 of 5
RMIT Classification: Trusted
The final submission should fulfil the following minimum requirements
For Passive portfolio
• calculate the numbers of shares required for your passive portfolio to replicate the
composition of the index
For Active portfolio
Assess all ten companies and sectors from the index
• analyse the outlook for each company’s industry
• analyse the macroeconomic environment at the global and domestic level
• identify the firms and sectors which you consider will outperform relative to the
index and build your active portfolio to reflect your predictions
• analyse and comment on financial ratios of each company over the previous five
years. Examples of ratios that can be used-
• Return on Equity
• Net Profit Margin
• Earnings Growth
Evaluate your findings and select six companies for your active portfolio
• after assessing the ten companies, select six to be included in your active portfolio
• describe in the reasons for your selections (around 5 bullet points for each stock)
• also, describe the reasons why you have not chosen the other four firms (around 5
bullet points for each stock)
• assign portfolio weights for each of your companies and discuss why you have
chosen the weights in comparison to the weight of each stock in the index
• calculate the number of shares required for each company to create a portfolio with
the initial weights you have selected for your active portfolio
why are some companies overweight in your portfolio, and why are others
underweight?
what do these active weights mean for your portfolio’s potential performance
relative to the index?
` BAFI 1042 Investment Page 3 of 5
RMIT Classification: Trusted
Build your portfolios
• create these two portfolios in Refinitiv Eikon, ensuring that all dates and numbers
of shares are correct
Portfolio Creation Dates
Passive
• Start Date: May 10, 2021, Monday
Active
• Start Date: May 24, 2021, Monday
Benchmark Portfolio
• BAFI 1042 Sem 1 2021
Portfolio Analysis period for both portfolios
• Start Date: May 24, 2021
• End Date: June 4, 2021
Observe your portfolios’ performances over two weeks
• as the share prices change over the evaluation period, you will be able to watch
how the returns on the index, your active portfolio and your passive portfolio react
Report Summary should include the following minimum points
• discuss your investment goals and stock selection strategies
For each portfolio
• explain the reasoning for your stock selection and weighting relative to the index
• provide comments on total return/risk and active return/risk of your portfolios
• discuss the sectors and securities’ active weights in your portfolio
• report your results for each portfolio
• analyse the active return of your portfolios with reference to the allocation and
selection effects
• What was the overall performance of the active portfolio, your passive portfolio and
the benchmark index?
• describe any major market events which contributed to the return performance of
the benchmark or of your portfolios
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RMIT Classification: Trusted
• have you achieved (or not achieved) the goal for your passive/active portfolio
Finally, which of the two portfolios will you recommend and why?
Data for your report from Eikon
Eikon calculates the portfolio statistics you will require for your report. The information you
will need can be found as listed below.
Information Eikon Location
Total and Active Return Balanced Summary – Contribution
Contribution to Return Equity Summary – Performance/Contribution
Contribution to Portfolio Weight Equity Summary – Allocation
Allocation and Selection Effects Brinson Single Currency
Contribution to Total Risk Ex-ante Multi-factor Risk – Portfolio Summary
Contribution to Active Risk Ex-ante Multi-factor Risk – Active Summary
Performance Ratios (Sharpe, Treynor) Return Statistics
The index constituents, which each have a 10% weighting, are as follows:
Code Company Sector
NAB.AX National Australia Bank Financials
FMG.AX Fortescue Metals Group Materials
SHL.AX Sonic Health Care Health Care
ALL.AX Aristocrat Leisure Consumer Discretionary
SCG.AX Scentre Group Real Estate
S32.AX South 32 Materials
GMG.AX Goodman Group Real Estate
SYD.AX Sydney Airport Industrials
COL.AX Coles Group Consumer Staples
AGL.AX AGL Energy Utilities
` BAFI 1042 Investment Page 5 of 5
RMIT Classification: Trusted
References and Citations
Use proper citations and references and include a list of references you use in your report.
Failure to do so will result in a lower grade. RMIT provides a web site which explains the
use of the Harvard reference system.
Please consult it here: https://www.lib.rmit.edu.au/easy-cite/
Some useful resources for this assignment include
Reilly, Frank K., Keith C. Brown and Sanford Leeds, Investment Analysis and Portfolio
Management (11th Edition), Thomson South-Western, 2019.
You should also conduct your own analysis using the companies’ web sites, annual reports,
Refinitiv Eikon, IBISWorld and any other sources you consider to be relevant for your report.
The more resources you use for your research, the better your analysis will be.
Assignment submission procedure
All assignments must be submitted online through the course Canvas Turnitin for a
plagiarism check. They must be accompanied by an assignment cover sheet.
An Important Note on Plagiarism
What is Plagiarism?
Plagiarism is the presentation of the work, ideas or creation of another person without
appropriate referencing, as though it is one’s own. Plagiarism can occur in oral and written
presentations and is never acceptable. The use of another person’s work or ideas must be
acknowledged. Failure to do so may result in charges of academic misconduct, which carry
a range of penalties, including cancellation of results and exclusion from the course.
Students are advised to read and understand the University’s policy on plagiarism
