Asset Allocation: Index Funds

Satisfactory Essays
Q1. Calculating Inputs
We chose assets from the 1990s, which was one of the most prolific decades in market history thanks in large part to the tech bubble. We chose to calculate average returns as 12x the monthly average return. This annualizes our return, which provides a better representation of returns by including more data points to perform analysis. The arithmetic calculation provides an impartial estimate of future return because it is always more than the geometric. All assets classes reported positive returns from 1990 through 1999, while the S&P 500 index had the highest annual average return of 17.7%. The Russell 2000 had the second highest annual return with a standard deviation of 14.1% & 17.2%. Treasuries and bond returns were a poor performer relative to the other assets which were in-line with our group’s anticipations. However, the MSCI Index reported a lower return than the treasuries and bonds along with the second greatest standard deviation. Events such as, Russia’s sovereign debt default in 1998, which ultimately brought down LTCM likely increased the risk profile of the MSCI. Not surprisingly bonds and MSCI Index returned the lowest correlations when paired with other assets classes. This is primarily reflected in lower returns during decade and higher risk from emerging markets in the case of MSCI Index.

U.S. 30 Day TBill TR Russell 2000 TR S&P 500 TR LB LT TR MSCI EAFE TR
Mean 0.4% 1.2% 1.5% 0.7% 0.7% Annual 4.8% 14.1% 17.7% 8.6% 8.6%
Std. Dev 0.1% 5.0% 3.9% 2.1% 4.9% Annual 0.4% 17.2% 13.4% 7.4% 17.1%

Correlation Russell S&P 500 LT Bond EAFE
Russell 1.000
S&P 500 0.780 1.000
LT Bond 0.191 0.413 1.000
EAFE 0.441 0.539 0.174 1.000

Q2. Optimal Asset Allocation
a) For each portfolio return highlighted in yellow in the spreadsheet ‘Efficient Frontier’, calculate the minimum unconstrained portfolio standard deviation. Port Mean Sum of Weights Return Port wgts.
Target Port Mean St. Dev

You May Also Find These Documents Helpful

  • Best Essays

    Fund Allocation

    • 2645 Words
    • 11 Pages

    Running Head: FUND ALLOCATION Fund Allocation Grand Canyon University ED533 May 12, 2010 The finance systems for public schools throughout the United States are different from state to state. This is due to the property tax rate setup by the local school districts, local officials, and directly by the citizens in a certain area. Depending on the location and area of the schools and their districts, funding can be abundant or scarce in numbers. This means that if the school is located within…

    • 2645 Words
    • 11 Pages
    Best Essays
  • Good Essays

    Asset Allocation and Retirement: Do You Need to Make a Change? Many investors who are approaching retirement are wondering if they will need to change their asset allocation when they are no longer collecting a paycheck. The information available from the popular press and many advisors is to generally guide retirees to change their allocation to one that is more conservative. This is usually interpreted to mean that the investor should lighten up on stocks and put more of their investments into…

    • 713 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    taxes - Target rate of return: 5%+inflation - Change allocation policy when capital markets change or if there are new investment opportunities, law changes, or risk aversion changes. - Investment committee: 3 board members and 3 non board members - New asset allocation policy: o Reduction in exposure to of the investment portfolio to domestic public equity (31% to 20%) o Increase in allocation to absolute-return strategies (hedge funds-make profit whether market goes up or down) (10%-20%)…

    • 410 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    R e s e a r c h July 30, 2002 Asset Valuation & Allocation Models Dr. Edward Yardeni (212) 778-2646 ed_yardeni@prusec.com Amalia F. Quintana (212) 778-3201 mali_quintana@prusec.com - Introduction I. Fed’s Stock Valuation Model How can we judge whether stock prices are too high, too low, or just right? The purpose of this weekly report is to track a stock valuation model that attempts to answer this question. While the model is very simple, it has been quite accurate and can also be used…

    • 6943 Words
    • 28 Pages
    Powerful Essays
  • Powerful Essays

    Note on Pe Asset Allocation

    • 6708 Words
    • 27 Pages

    Note on Private Equity Asset Allocation Over the past 20 years, managers of institutional capital have increasingly allocated more funds to private equity. During that time period, private equity has been an asset class with relatively high returns compared to public stock market indices. However, the recent economic downturn has made it clear that this asset class also has significant risks. This note describes the characteristics and challenges of private equity as an asset class. The table below…

    • 6708 Words
    • 27 Pages
    Powerful Essays
  • Good Essays

    Asset and General Fund

    • 2029 Words
    • 9 Pages

    Alabama State University College of Business Administration ACT 532 Advanced Fund Accounting Exam III November 20, 2012 1) Governments must report nonspendable fund balance in a governmental fund 's balance sheet for A) Inventory. B) Prepaid assets. C) Land. D) All of the above. E) Items A and B only. Answer: 2) The following benefits are examples of other postemployment benefits (OPEB) except for A) Health care insurance. B) Pension benefits. C) Vision insurance. D) Life insurance…

    • 2029 Words
    • 9 Pages
    Good Essays
  • Powerful Essays

    Using EXCEL for Asset Allocation and Performing Market Efficiency Studies 1. Introduction There are several features in EXCEL that are very useful for asset allocation and performing market efficiency studies. These features used in conjunction with live or historical data allows one to apply the sophisticated techniques discussed in this class in practical situations. This write-up will introduce students to the various mathematical and statistical functions available in EXCEL and explain…

    • 1954 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Etfs vs Index Funds

    • 748 Words
    • 3 Pages

    How are ETFs different from index funds? Comment on their popularity and the future of EFTs. The ETF's have the following advantages over a index funds: 1. Support the same types of orders as stock, like: limited, best price, stop-loss, etc. 2. Can be purchased at any time through out the trading session, while the index funds net asset value only mark the end of each session. 3. The consequence of points 1 and 2 is that at the time of purchase will know exactly the price you will pay…

    • 748 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Group 2 Questions for Individual Asset Allocation Exercise: 1. Allocate your fictional $1,000,000 among the following three asset categories: Asset U.S. Equities U.S. 30-Year Treasury Bonds Cash Total Allocation 45% 35% 20% 100% Justify your allocation based on your outlook for systematic risk in the U.S. economy over the next year. Based on GDP, there is an expected growth in rates for the following quarter, though it may…

    • 525 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    HNWI Asset Allocation in Argentina 2014 Published on 04th April 2014 Summary This report provides the latest asset allocations of Argentina HNWIs across 13 asset classes. The report also includes projections of the volume, wealth and asset allocations of Argentina HNWIs to 2018 and a comprehensive and robust background of the local economy. Scope Independent market sizing of Argentina HNWIs across five wealth bands HNWI volume and wealth trends from 2009 to 2013 HNWI volume and wealth forecasts…

    • 396 Words
    • 2 Pages
    Satisfactory Essays