Business Question

Emerging MarketsTeam Portfolio Analysis and Recommendation
Portfolio Analysis Project Introduction
The Bluejay Global Fund is a vehicle to study many of the portfolio theories and concepts covered in class
readings and discussions. The fund is composed of eight subfunds, initially seeded with $10 million each ($80
million in total). Each starting subfund of $10 million has been equally weighted among its designated assets.
Weekly price data has been supplied for a 5 year period on all Bluejay assets and eight global reference assets
to be used for comparison purposes. In addition to the EXCEL file being provided we have uploaded the
portfolios in Bloomberg. We ask students to each create a Bloomberg Account at one of the library terminals
and familiarize her/himself with the basic functionalities. Please see for
Bloomberg commands to access the portfolio.
In addition to weekly homework assignments, during this course you will work through an investment
analysis project in your respective group. The deliverables will be discussed in class. The objective is
to expose you to some of the analyses and communications that a financial investment team would
use in the process of analyzing portfolios.
The highlight will be the final investment recommendation (Deliverable 6) where we will role play an
investment committee.
The class has been broken down into eight teams responsible for an analytical report detailing how each
subfund has performed over the given period. Please submit six reports in Weeks 3 through 8 (one report for
each of those weeks) as described below.
Portfolio Project Deliverable 1 of 6: Description of Subfund Assets (1 single-spaced page)
Due June 10th or 12th respectively, 6:00pm
Submit a report describing each asset, key characteristics and any interesting features, including, if applicable, a
description of the country/company market capitalization, credit ratings, price-to-earnings (P/E) ratios, and
liquidity indicators (if possible, check daily trading volumes; may not be possible for all assets).
Portfolio Project Deliverable 2 of 6: Returns and Volatility (charts and graphs; several pages)
Due June 17th or 19th respectively, 6:00pm
Submit a report featuring the following items:
● Graph weekly price trends per asset in price Net Asset Value (NAV), scaled to 100 for your subfund’s
●
●
●
●
individual assets and your subfund index. Use weekly price changes in percent form.
Calculate annualized volatility for each asset as well as for the subfund index.
Calculate annualized return and volatility of your individual subfund assets and subfund index.
Calculate return and volatility for the Bluejay Global Fund (total of all eight subfunds) and the 9
reference assets. Comment on assets that underperformed or outperformed.
In one paragraph, how has your subfund faired against the total Bluejay Global Fund and the other
9 major reference assets?
Portfolio Project Deliverable 3 of 6: Global/Regional/Country/Company News (1 single-spaced
Page 1
page)
Due June 24th or 26th respectiverly, 6:00pm
Submit a report featuring the following items:
● Discuss macro, regional, country, or company-specific happenings that may have affected the
performance of your subfund assets.
● Do not forget to include general market trends (e.g., interest rates, U.S. markets); regional
happenings (e.g., elections, devaluations, ratings changes); or company- and asset-specific
developments (e.g., earnings, market rally, etc.).
Portfolio Project Deliverable 4 of 6: Correlation (2 pages, 1 for matrix, 1 for commentary)
You may submit these in either portrait or landscape mode
Submit a report featuring the following items:
● Build a correlation matrix for assets in you subfund index and discuss.
● Please find correlations for your assets with the nine referenced asset classes. Please
comment on any strong positive or negative correlations.
● Take price data from all eight subfund indexes. Build a correlation matrix for the eight subfund indexes,
the Bluejay Global Fund, and the nine referenced asset classes. Please comment on any strong positive
or negative relationships.
Portfolio Project Deliverable 5 of 6: Benchmarking (1 single-spaced page)
Submit a report featuring the following items:
● Calculate and comment on your subfund’s tracking error and out- or underperformance
●
●
compared to the Bluejay Global Fund.
Calculate your subfund’s information ratio relative to the Bluejay Global Fund.
Calculate and comment on the modified Sharpe ratio of your subfund versus the Bluejay Global Fund
(that is, annualized returns/annualized volatility). Compared to the Bluejay Global Fund, has your
portfolio been better or worse on a risk-adjusted basis?
Page 2
Portfolio Project Deliverable 6 of 6: Individual Asset Recommendation (PP slides, 7 min
Presentation). We will role play an investment committee presentation.
Due July 15th or 24th respectively, 6:00pm.
Select one asset in your subfund that your team will recommend to buy or sell (in case of buy – cash
needs to be generated through a sell, in case of a sell – proceeds need to be invested). The
recommendation should include the following sections and should not exceed 5 pages:
● Investment Thesis: (1) Stating why this investment should perform (i.e. secular trend, or fundamental
●
●
●
●
valuation, or short term reversal, etc); (2) What is the major catalyst, and (3) What is the major risk. Should
only be one para.
Relevant background information, including asset class, country and/or company.
Valuation based on comparable assets, including potential volatility and risks—please use the Week 6
Portfolio price. Is the asset cheaper than comparable assets? If so, theorize what catalysts may boost
the asset’s price in the near future and explain why. What can go wrong?
Identification of a recent (in the past 12 months) event that had a positive or a negative impact on the
asset’s price movement. The event can be country or firm specific, or a macroeconomic event.
Feel free to use any market commentary or additional resources to support your recommendation.
Page 3
Team Portfolio Analysis and Recommendation:
Africa (Deliverable 1 of 6)
1.AU US (Common Stock）
Key Characteristics:
Issuer: AngloGold Ashanti PLC
Coupon Rate: Not applicable (Equity)
Market Issue: Common Stock
Current Price: 22.43 USD
Credit Ratings: Not Available
Liquidity:Issued/Outstanding Amount: 419.7M /
365.8M shares
Minimum Piece/Increment: Not specified
Daily Trading Volume: Px/Chg 1D (USD): 22.43 /
-0.71%
YTD Change/%: 3.74 / 20.01%
Market Cap: 9,414.5M USD
Short Interest / % of Float: 4.9M / 1.33%
Days to Cover: 3.0
Interesting Features:
AngloGold Ashanti PLC, based in the UK, mines
gold and by-products like silver. With 33,658
employees, its June 2024 stock price is $22.43 and
market cap $9.41B. In 2023, revenue was $4.58B,
projected to be $5.42B in 2024, with EPS expected to
rise from -$0.56 to $2.59. Key markets are Africa
($3.07B) and Australia ($1.08B). Major shareholders
include Public Investment Corp.
2. EZA US (ETF)
Key Characters:
Market Capitalization: $241.76 million
Expense Ratio: 0.59%
P/E Ratio: 16.87
Average Dividend Yield: 3.80%
Geographic Allocation: South Africa (91.72%)
Liquidity: High
Average Market Cap: $14,414.37 million
Median Market Cap: $9,599.22 million
Credit Ratings:ETFs typically do not have credit
ratings.
Interesting Features:
-South African Focus: Provides concentrated
exposure to South African mid and large-cap stocks.
-Strong Dividend Yield: Attractive to income-focused
investors with a yield of 3.80%.
-Risk Profile: Beta of 0.92, indicating slightly lower
volatility compared to the overall market.
3. SGBLY (Standard Bank Group-Sponsored
ADR）
Key Characteristics:
Issuer: Standard Bank Group
Industry: Banks
Market Issue: ADR
Credit Ratings: Not Available
Liquidity:Current Price: 9.915 USD (+0.56%)
52-Week High (01/02/24): 11.50 USD
52-Week Low (04/19/24): 8.69 USD
YTD Change: -1.455 USD (-12.8%)
Market Cap: 16,615.9M USD
Shares Outstanding: 1,675.8M
Interesting Features:
Standard Bank Group, based in Johannesburg, has a
market cap of $16.6 billion and 50,451 employees. In
2023, it earned $177.62 billion in revenue and $25.60
EPS. The bank focuses on South Africa and African
regions, offering banking, insurance, and asset
management services, with a 7.76% dividend yield.
4. ESKOM (Government Guaranteed Bond）
Key Characteristics:
Issuer: Eskom Holdings SOC Ltd
Coupon Rate: 2.55%
Market Issue: Domestic MTN
Current Price: 112.4047
Credit Ratings: Fitch: BBLiquidity: Issued/Outstanding Amount: ZAR
6,278,241.45 million; Min Piece/Increment: ZAR
1,000,000
Daily Trading Volume: Specific volume not provided,
generally moderate for government bonds
Interesting Features:
Inflation-Linked: The bond is inflation-linked,
providing protection against inflation as both
redemption and coupon are linked to the SACPI
(South African Consumer Price Index).
High Issuance Amount: A significant issuance size of
ZAR 6,278,241.45 million indicates strong market
acceptance and government backing.
Regulatory Framework: Governed by South African
law, ensuring adherence to local regulatory standards.
5. KENNIT(Sovereign Bond)
Key Characteristics:
Coupon Rate: 6.75%
Maturity Date: June 24, 2024
Market Capitalization: Not applicable
Current Price: 99.948 (as of the latest data)
Credit Ratings: Standard & Poor’s: B & Fitch: B &
Bloomberg Composite: B
Liquidity: Moderate
Daily Trading Volume: Specific volumes not
provided, but sovereign bonds generally have
moderate liquidity.
Interesting Features:
-High Yield: The 6.75% coupon rate is attractive,
offering a higher yield compared to many other
sovereign bonds.
-Credit Rating: Rated B by major credit agencies,
indicating a higher risk but potentially higher return.
-Tax Information: Subject to various tax regulations,
including Tefra rules.
1
Portfolio Project Deliverable 2 of 6: Africa
1.
Graph 5 years weekly price trends per asset in price Net Asset Value (NAV), scaled to 100 for your
subfund’s individual assets and your sub fund index. Use weekly price changes in percent form.
Please see details in Excel Q1 sheet.
2.
Calculate annualized volatility for each asset as well as for the sub fund index.
Please see details in Excel Q2 sheet.
3.
Calculate the annualized return and volatility of your individual sub fund assets and sub fund
index.
Please see detailed calculations in Excel Q3 sheet.
AU US
EZA US
EZA US
AU US Equity Equity
5
(06/23-05/24)
4
(06/22-05/23)
3
(06/21-05/22)
2
(06/20-05/21)
1
(06/19-05/20)
Annualized Volatility
ESKOM 2.55
SGBLY US
05/02/28
SGBLY US
EI888832
Equity
Corp
KENINT 6 ⅞
06/24/24
EK338900
Corp
Index
52.71%
27.53%
34.86%
12.72%
6.60%
28.58%
52.59%
31.16%
36.98%
41.09%
19.73%
31.76%
47.46%
25.85%
34.36%
16.15%
7.53%
25.62%
47.15%
30.84%
56.04%
16.74%
6.96%
31.17%
72.37%
42.54%
56.66%
36.48%
16.48%
43.20%
AU US
EZA US
AU US Equity EZA US
Annualized Return
ESKOM 2.55 KENINT 6 ⅞
SGBLY US
05/02/28
06/24/24
SGBLY US
EI888832
EK338900
Index
2
Equity
5
(06/23-05/24)
4
(06/22-05/23)
3
(06/21-05/22)
2
(06/20-05/21)
1
(06/19-05/20)
4.
Equity
Corp
Corp
3.07%
8.21%
23.54%
4.90%
8.92%
10.60%
31.78%
-21.67%
-28.09%
37.31%
-2.86%
-9.82%
-25.07%
-9.79%
11.63%
-0.14%
-15.17%
-8.22%
-3.22%
58.15%
68.50%
-28.15%
15.40%
32.46%
68.10%
-36.00%
-56.14%
27.32%
-7.26%
-23.14%
Calculate return and volatility for the Bluejay Global Fund (total of all eight sub funds) and the 9
reference assets. Comment on assets that underperformed or outperformed.
Please see detailed calculations in Excel Q4 BJ weekly return and BJ & AR Volatility & Return sheet.
Volatility
Year
5
(06/23-05/24)
4
(06/22-05/23)
3
(06/21-05/22)
2
(06/20-05/21)
1
(06/19-05/20)
Emergin Emergin Emergin
g
g
g
Emergin Markets Markets Markets
US
g
Sovereig Corpora Local
Bonds(F Global Market n
te
Currenc NYMex WTI
US
XNAX Stocks( Stocks( Bond(JP Bonds(C y
Oil(CL1
Stocks(S US
MXWO MXEF MB US EMB US Bonds(L COMB
&P 500) Equity ) Index)
Index)
Equity) Equity) EMB)
Comdty)
Gold
ComEx(
GOLDS
Comdty)
BLUE
FXNAX
JPMB
CEMB LEMB
JAY
SPX
US
MXWO MXEF US
US
US
CL1 COMB
GOLDS
Fund
Index
Equity Index
Index
Equity Equity Equity Comdty
Comdty
12.957
% 12.360% 6.343% 12.403% 14.608% 8.478% 4.281% 7.300%
26.360% 14.160%
18.652
% 20.750% 7.332% 19.648% 16.897% 12.135% 7.545% 9.341%
43.455% 14.343%
15.046
% 16.119% 4.889% 14.694% 16.622% 9.668% 6.541% 11.742%
42.575% 13.506%
17.911
% 17.112% 2.851% 16.792% 18.716% 6.032% 3.452% 7.962%
36.375% 15.649%
29.750
% 29.022% 6.716% 28.330% 23.565% 20.456% 14.980% 17.151%
76.425% 18.224%
3
Return
Year
5
(06/23-05/24)
4
(06/22-05/23)
3
(06/21-05/22)
2
(06/20-05/21)
1
(06/19-05/20)
Emergin Emergin Emergin
g
g
g
Emergin Markets Markets Markets
US
g
Sovereig Corpora Local
NYMex
Bonds(F Global Market n
te
Currenc WTI
US
XNAX Stocks( Stocks( Bond(JP Bonds(C y
Oil(CL1
Stocks(S US
MXWO MXEF MB US EMB US Bonds(L COMB
&P 500) Equity ) Index)
Index)
Equity) Equity) EMB)
Comdty)
BLUE
FXNAX
JPMB
CEMB LEMB CL1
JAY
SPX
US
MXWO MXEF US
US
US
COMB
Fund Index
Equity Index
Index
Equity Equity Equity Comdty
8.057% 25.492% -0.978% 21.827% 7.822% 1.592% 3.333% -1.448%
-12.391
% 1.135% -6.152% 0.904% -6.740% -6.401% -3.962% 3.362%
-13.420
-23.340 -17.745 -14.553 -19.819
% -1.091% -9.627% -5.931%
%
%
%
%
33.282
% 38.097% -3.446% 38.709% 46.265% 5.850% 5.042% 8.744%
-14.808
% 5.950% 6.485% 0.987% -7.647% -3.510% -0.619% -8.785%
Gold
ComEx(GOL
DS Comdty)
GOLDS
Comdty
5.945%
19.567%
-36.847%
5.003%
73.507%
-2.629%
86.870%
10.027%
-34.266%
29.042%
Analysis of Asset Performance:
Based on the average return and volatility calculations for the Bluejay Global Fund and the 9 reference
assets over a 5-year period, here are the results:
Bluejay Fund: Average Return: 1.8434%, Average Volatility: 19.837%
Outperforming Assets
These assets had a higher average return than the Bluejay Fund:
US Stocks (S&P 500)
●
●
Average Return: 12.3802%
Average Volatility: 19.2048%
Global Stocks (MXWO Index)
●
●
Average Return: 11.2816%
Average Volatility: 18.3734%
Emerging Market Stocks (MXEF Index)
●
●
Average Return: 3.209%
Average Volatility: 17.9876%
NYMex WTI Oil (CL1 COMB Comdty)
●
Average Return: 19.0418%
4
●
Average Volatility: 45.038%
Gold (GOLDS Comdty)
●
●
Average Return: 12.202%
Average Volatility: 15.1764%
Underperforming Assets
These assets had a lower average return than the Bluejay Fund:
US Bonds (FXNAX US Equity)
●
●
Average Return: -1.0736%
Average Volatility: 6.9534%
Emerging Markets Sovereign Bonds (JPMB US Equity)
●
●
Average Return: -3.5732%
Average Volatility: 11.3574%
Emerging Markets Corporate Bonds (CEMB US Equity)
●
●
Average Return: -2.0318%
Average Volatility: 7.3598%
Emerging Markets Local Bonds (LEMB US Equity)
●
●
Average Return: -4.934%
Average Volatility: 10.6992%
Summary:
Outperformers: US Stocks (S&P 500), Global Stocks, Emerging Market Stocks, NYMex WTI Oil, and
Gold. These assets not only had higher average returns but also demonstrated varying levels of volatility,
with NYMex WTI Oil being the most volatile.
Underperformers: US Bonds, Emerging Markets Sovereign Bonds, Corporate Bonds, and Local Bonds.
These assets had lower average returns and generally lower volatilities compared to the Bluejay Fund.
This analysis indicates that while some assets like US Stocks and Gold provided robust returns with
relatively moderate volatility, others like NYMex WTI Oil offered high returns but with significantly higher
risk. Conversely, bond-related assets generally underperformed in terms of returns but provided lower
volatility, aligning with typical risk-return profiles for fixed-income securities.
5.
In one paragraph, how has your sub fund faired against the total Bluejay Global Fund and the
other 9 major reference assets?
Please see details in the Q5 sheet in excel.
Notably, the AU US subfund has demonstrated significant volatility, particularly in the fifth year, compared
to the more stable Bluejay Fund and reference assets. However, it also showcased strong returns in the fifth
5
year, indicating higher risk and higher reward. On the other hand, EZA US and SGBLY US subfunds
displayed less consistent returns, with SGBLY US showing a particularly poor performance with a negative
average return over the years. The performance of bonds such as ESKOM 2.55% and KENINT 6% showed
less volatility but mixed returns, aligning with typical bond behavior. The volatility and returns of the
subfunds vary significantly, with certain subfunds showing high volatility, such as AU US and SGBLY US,
and others like ESKOM 2.55 05/02/28 showing more stability. In terms of returns, the subfunds also exhibit
a wide range, with some subfunds like EZA US and SGBLY US performing poorly, particularly in the later
years, while others like AU US and ESKOM 2.55 05/02/28 display strong performance in certain years.
Compared to the Bluejay Global Fund, which shows moderate average returns and volatility, and the
reference assets, which include high performers like US Stocks (S&P 500) and Gold, as well as
underperformers like US Bonds (FXNAX US Equity) and Emerging Market Bonds, the subfunds
demonstrate a mixed performance. Some subfunds align closely with the high-performing reference assets,
while others fall behind, indicating a diverse risk-return profile across the portfolio. Overall, while some
subfunds have outperformed in certain years, they generally exhibit higher volatility and less consistent
returns compared to the Bluejay Fund and the selected reference assets.
6
Portfolio Project Deliverable 3 of 6:
4. ESKOM (Government Guaranteed Bond)
1. AU US (Common stock)
●
●
●
●
General Market Trends:
○ Interest Rates: Lower interest rates
increase gold’s attractiveness as a
non-yielding asset.
Regional Happenings:
○ South African Regulations: Stricter
mining regulations could increase
operational costs.
○ Labor Strikes: Frequent strikes can
disrupt production.
Company-Specific Developments:
○ Earnings Reports: Improved
earnings and cost reductions boost
investor confidence.
○ Expansion Projects: New mining
projects and technological upgrades
enhance productivity.
●
●
General Market Trends:
○ Inflation: As an inflation-linked
bond, payouts increase with higher
inflation.
○ Interest Rates: Global and local
rates influence bond attractiveness.
Regional Happenings:
○ Economic Stability: South Africa’s
fiscal policies and economic health
are crucial.
Company-Specific Developments:
○ Operational Efficiency: Eskom’s
debt management and efficiency
improvements are vital.
○ Energy Policies: South African
energy policies and Eskom’s role
impact financial health.
5. KENNIT (Sovereign Bond)
2. EZA US (ETF)
●
●
●
●
General Market Trends:
○ Global Market Sentiment:
Impacted by emerging market
performance and global economic
trends.
Regional Happenings:
○ Economic Policies: South Africa’s
economic reforms aimed at growth
and unemployment reduction.
○ Political Stability: Elections and
policy changes can create market
volatility.
Asset-Specific Developments:
○ Sector Performance: Key sectors
like financials and materials drive
ETF returns.
3. SGBLY US (Standard Bank Group-Sponsored
ADR)
●
●
General Market Trends Impacting All Assets:
●
●
●
●
General Market Trends:
○ Interest Rates: Changes impact
bank profitability through net
interest margins.
Regional Happenings:
○ Economic Growth: Tied to
economic health in South Africa
and other African regions.
Company-Specific Developments:
○ Earnings: Strong earnings and
stable dividends (7.76%) increase
confidence.
General Market Trends:
○ Interest Rates: Attractive in
low-rate environments, appealing
to yield-seeking investors.
○ Inflation Expectations: Affect the
real return on sovereign bonds.
Regional Happenings:
○ Credit Ratings: Changes by
agencies like S&P or Fitch impact
bond attractiveness.
○ Political Stability: Ensures
continued investor confidence in
government bonds.
Company-Specific Developments:
○ Debt Management: Effective
management ensures timely interest
payments.
●
●
●
Interest Rates: Central bank policies
globally impact borrowing costs, affecting
equities and bonds.
U.S. Markets: Performance influences
global investor sentiment, impacting African
markets.
Inflation: Affects the cost of capital and real
returns, influencing bond markets and
commodity prices.
Geopolitical Events: Trade tensions,
conflicts, and pandemics create market
uncertainty, impacting all asset classes.
7