Free Finance Report Sample

Marketwatch Portfolio Game

On February 18, 2015, we constructed a fund consisting mainly of stocks from the healthcare industry. In constructing the fund we wanted to mimic the T. Rowe Price Health Sciences Fund. We have seen a significant momentum in this benchmark fund. However, due to the diversification concerns, we included some other stocks from different sectors such as technology and industrials. The choosing criterion for these stocks as well as the ones in the index was based on the 1-year estimate as explained in detail later.
Our investment goal was to beat the S&P500 returns over the 53 days period. Our goal was accomplished where we had overall returns of (9.7% annualized) while the S&P had overall returns of (-6% annualized). Our trading strategy was based on following the healthcare industry closely, and picking stocks that were most attractive to us, and analysts on different news agencies.
With our portfolio, during the holding period, we have been able to beat S&P 500, by more than 15 percent. Additionally, we do consider this performance as a huge success in that our overall holding period return was almost 1.4 percent as of April 13, 2015, annualized to 9.7 percent.
We planned to use the following performance metrics: Sharpe Ratio, Alpha, and Treynor’s ratio. Our Sharpe ratio was (0.79), alpha of (.157) and our Treynor’s ratio was (.1213)
The next section will cover the fundamentals associated with the fund. Then, the performance of the fund will be evaluated in details by using several performance metrics. Finally, in the conclusion section, we will summarize the investment related characteristics, and lay out a list of what we have learned and what we should have done.
4. The Fund: Describe in detail your investment strategy and why you chose this particular strategy for your fund.
Our strategy was based on market and analysts speculation toward the market. Our fund manager, Ariel, have showed interest and growth in the healthcare industry. Eventually, we tracked our benchmark, T. Rowe Price Health Sciences Fund closely and researched the stocks that were most appealing using public resources and research tools from major investment banks, including Credit Suisse and Deutsche Bank. After thorough research on the stocks we have narrowed we made some limit orders and market orders to capture them at an attractive price. Due to diversification concerns, we have followed some tech stocks to balance our intensive healthcare stocks. The major holdings of the fund are Pharmacyclics (21.8 %), Google (12.56 %), Valeant Pharmaceuticals International (11%), and Alexion Pharmaceuticals (8.16 percent).
The major winners are Pharmacyclics (8% holding period return), Akorn (10% holding period return) and Valeant Pharmaceuticals International (3.11% holding period return). The major losers are Google (-2.96 % holding period), Old Dominion Freight Line (-9.07% holding period).
As we were bullish on the market during the trading period, all gains and losses were from long positions. We have not made any short sell during our trading period. Regarding the types of order our fund manager, Ariel, made were market orders, limit orders, stop loss orders.
5. Performance Evaluation
As discussed in the previous sections, our portfolio was successful in beating the market returns by an enticing 15%. However, in order to evaluate our performance and to determine the return on risk adjusted basis, we used four technical ratios of Modern Portfolio Theory(MPT), i.e. Beta, Sharpe Ratio, Treynor Ratio and Alpha Ratio, and the same are discussed below:
Beta Factor: As for Beta, this multiple indicates the volatility of the stock in relation to the swing in the market returns. Referring to the calculations, we found that the portfolio expressed beta multiple of 0.80, i.e. the returns were less volatile than the market index. Therefore, earning an annualized return of 9.7%, and that too with low volatility than the market, validates our optimum stock selection.
Sharpe Ratio: Another performance measurement multiple that calculates risk-adjusted for the portfolio. In other words, the ratio indicates return earned in excess of risk free rate per unit of total risk, i.e. standard deviation. Referring to the calculations, we found that our portfolio expressed a Sharpe ratio of 0.79, which indeed is a sustainable return on per unit of total risk.
Treynor Ratio: Also known as ‘’Reward -to-volatility multiple’’ This ratio is a modified version of Sharpe Ratio and provides information on risk adjusted return per unit of systematic risk. Referring to the calculations, we found that our portfolio has Treynor ratio of 0.19, which when compared to the Sharpe Ratio of 0.79 indicates that our portfolio has been compensated majorly for the unsystematic risk.
Alpha Ratio: This performance measurement ratio is also calculated on risk-adjusted basis, and indicates the excess return earned in relative to the benchmark index. Here, the alpha ratio of 15.69% indicates that our portfolio earned this much percentage higher than the S&P500 index, validating the sustainable performance of our portfolio.

Conclusion

At the conclusion of this report, we can assert that our stock selection in the healthcare sector proved profitable for us and even in the short investing period of merely 53 days, our portfolio earned annualized return of 9.7% beating S&P 500 index which earned -6% during the same period. Although, we did included some technology stocks to add diversification to our portfolio like Google but eventually the tech-stock proved to be biggest loses with return of -2.96%, while our bullish impulse on healthcare industry stocks proved profitable and even at the lower than market volatility factor of 0.80, our portfolio earned 15.69% higher return than S&P 500 Index. However, this does not mean that diversification is bad, because eventually the diversification will be able to lower the overall risk in our portfolio because by including non-correlated stocks in the portfolio the portfolio risk is less than the weighted risk of the individual securities.
At the end, we are ecstatic that we are concluding this paper with a positive return generated for our portfolio where our research-backed stocks fueled the returns for us. However, we do understand that we will need to re-allocate the portfolio weights and decide appropriate exit time from some stocks to maintain the positive return outlook of our portfolio.