Possible Benchmarking Approach for the Fund Portfolio - Coursework Example

A Reflection of the Trading Stocks & Other Options Prepared by (Students’ Name) University Name Professor’s Name Date In conducting this trade, I had set my mind to achieve long-term objectives for my portfolio. I had made sure that the trading strategy would help me achieve such goals and objectives as; A long-term capital growth for the portfolio that would vehemently consists of only stocks options and government-traded bonds listed within the Australian Stock Exchange platform A strategy that would foster a relatively stable form of income for the existing investors for at least a period of 10 to 15 years. A strategy that would make sure that investments made would definitely bring lots of overall returns for all portfolio holders with ZRT Systems. The portfolio management adopted a position trading strategy that basically involved the purchasing and holding of stock options as opposed to engage in active trading. I must say that this strategy worked for the better since the overall returns for these portfolios increased over time and, also helped in checking for the possibility of high volatile stocks. In fact, I can certainly indicate that the trading strategy was fundamental in the attainment of a long-term strategy of the fund portfolio that related to improving on their immediate level of income and a stable rate of returns for these trading options. I also engaged lots of information from Australian Financial Review to come up with a set of stock options that indicated a possible positive future outlook. While this was important, I feel that I should have engaged more extensive research to ascertain other types of listed stocks that would have gathered enough returns either or a short-term or long-term period. I focused the fund portfolio on a position strategy that did not involve any room for short-term returns. I feel I would have readjusted the portfolio to reflect the possibility of amassing returns even on a short period. In the process of continued trading process and readjustments, I adopted the features and characteristics of a modern portfolio, which is emphatically focused on redeveloping an existing portfolio so that it only focuses on selling or readjusting assets classes that have a low covariance value. This decision is solely focused on reducing the level of risks involved with engaging such portfolios in a long-term trading model. In this regards, major improvements would have made to include a different set of strategies that would have ensured that while some stocks are readjusted another set of classes are re-introduced. I should have adopted the asset allocation strategy, which is entirely focused on a diversification model that seeks to add a set of multiple levels of assets that are different in their nature. To effectively widen the portfolio scope of investments, this model would have ensured that a high degree of assets from different trading platforms other than the Australian Stock Exchange have all been incorporated. Recent findings indicate that such Asia-based trading platform like the Hong Kong Stock Exchange has continued to show lots of improvements in comparison to most benchmarking platforms across the globe. Thus, I feel that it would have been proper having such stock options and other government-traded bonds well represented in the portfolio at hand. The portfolio extensively adopted the mechanisms brought about by rebalancing aspect. While it is true that rebalancing would sometimes help alleviate the level of risks associated with trading a portfolio, it is not the only known-effective approach and that there is room for using a complementary approach in these improvements. The fact that the improvements made were not focused on re-introducing a new set of classes but rather focused on rebalancing their existing position is thus, in it a weakness. Sometimes the capacity to invest in high risk stocks and bonds can results to high returns. It is not effective to be risk averse for most times, as there comes times when market prices of shares increased tremendously as a result of positive external influences. Possible Benchmarking Approach for the Fund Portfolio It is important to note that an efficient and effective investment performance mechanism cannot be measured without the use of benchmark. A good or rather benchmark should be unambiguous, investable, proper and can vehemently reflect on the present investment opinions and specify the route to be taken in an advanced stage (Ibbotson & Kaplan, 2000). Of great importance to note, it should be noted that specific indexes provide a favourable measure of performance for particular markets over a given period without showing any possibility of biasness or even unnecessary attention. In most cases, a policy portfolio that belongs to a single-class of asset can be measured using a wide range of properly- aligned benchmarking approaches and processes. In practical terms, an investment that is made up of only a single class of asset will relatively assigned to a single asset manager that would thereafter be allowed a mandate-specific benchmark in order to ascertain their overall performance mechanism (Ibbotson & Kaplan, 2000). These mandates would mostly be considered to be narrower in comparison to the asset class like in the case of large-cap growth or even small-cap values within the overall equity space. A responsibility that is considered to be far much narrower than a given sub asset class benchmark poses a risk related to benchmark misfit. It is important to realise that a benchmark misfit is any given investment decision that could result to uncompensated risk levels (Ibbotson & Kaplan, 2000). Given that as a fund manager, I am not receiving any additional return for uncompensated risk assumed, it is important that the existing benchmark misfits are properly measured and checked over a period of time. In my case, the fund portfolio adopted single benchmarking framework that relates to the S&P/ASX 200 Index, which is in fact, appropriate and relevant to the market for which the portfolio was focused upon; Australian Stock Exchange. It provides a reflection of what is happening to more than 200 public-listed companies in the ASX and further represents about 80% of the overall market face. However, in my earlier reflection, I indicated that the portfolio would have been further improved by adopting a distinct asset allocation strategy that extends the portfolio scope to a wider audience including stocks being traded in Asia-Pacific stock exchange platforms as well as in the United States of America and London. For this case, the benchmarking process would then adopt a variety of well-known benchmark tools like the Dow Jones US Total Stock Market Index; Russell 500 Index as well as S&P 500 Index, which are all focused on providing coverage for possible gaps that might appear in the markets as a whole. As a fund portfolio manager, I am expected to show exceptional knowledge on the proper adoption of benchmarking process. This is certainly because the use of improper or even depending on a limited set of benchmark could possibly result to misleading information that is availed to all stakeholders involved in the entire investment process. Risk-Adjustment Measurement In many cases, many types of investors would normally look for above-market returns in the process of analysing exchange traded funds (ETFs) or for other set of investments. However, the degree of risk being assumed is considered to be even far much more crucial when compared to gross returns. The purpose of coming up with a risk adjusted return is meant for the purpose of measuring the level of returns an investment will likely avail in relation the level of risks that are attributed with it (Kuepper, 2015). In our case, I think it will foster a favourable environment for which to make a comparison of between high-risk and low-risk returns investments. The notable thing about computing risk-adjusted return lies in the fact that investors would be able to make clearer decisions on whether or not they are enjoying higher possible gains with minimal level of uncertainties involved and hence the returns on the investments made. For this case, the most popular risk adjustment measurement; Sharpe Ratio, would be adopted. This is the most commonly adopted measure of risk-adjusted return that seeks to represents the average surpasses of risk-free rates per each unit of risks involved; either volatile or total risks. In essence, the computation of this ratio ensures to measure the level standard deviations of returns as a fundamental proxy to overall portfolio risk and weights returns that are focused on these deviations (Kuepper, 2015). This measure however; might not be effective and accurate especially in the cases where returns are not distributed normally. References List Ibbotson, R, G. & Kaplan, P, D. 2000. “Does Asset Allocation Policy Explain 40, 90, or 100 Per-cent of Performance?” Financial Analysts Journal. Accessed from http://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/AssetAllocationExplain.pdf Kuepper, J. 2015. ‘How to Measure Risk-adjusted returns’. Portfolio Management. Accessed from http://etfdb.com/portfolio-management/how-to-measure-risk-adjusted-returns/ Read More