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日期：2023-07-24 10:34

Fundamentals of Portfolio

Management

Introduction

Welcome to FNCE90051 Fundamentals of Portfolio Management. Portfolio Management

is the application of investment principles and philosophies to the management of

wealth. It involves matching the investment objectives of individuals and institutions

with investment decisions. Such matching requires the trade-off between risk and return

and includes security allocation and asset allocation decisions. Portfolio Management

incorporates both passive and active approaches to wealth management.

Subject Overview and Aims

The overall aim of this subject is to understand and be able to apply investment principles and

philosophies to the management of wealth. These investment principles include an

understanding of the complexity of the relationship between risk and return, the complexity of

investor behaviour, and the degree of efficiency observed in financial markets. The

understanding of these investment principles is applied in security and asset allocation

decisions.

Learning Outcomes

Learning Outcomes and Generic Skills

To view the subject objectives and the generic skills you will develop through successful

completion of this subject, please see the University Handbook:

https://handbook.unimelb.edu.au/view/2023/FNCE90051

Eligibility and Requirements

To view the eligibility and requirements, including prerequisites, corequisites, recommended

background knowledge and core participation requirements for this subject, please see the

University Handbook:

Academic Staff Contact Details

Subject Coordinator Contact Details

Email Protocol

Please note that we are only able to respond to student emails coming from a University

email address. Please do not use personal email addresses. Emails from non-University

email addresses may be filtered by the University’s spam filter, which means that we may not

receive your email. All correspondence relating to this subject will only be sent to your

University email address. Note that you must first activate your University email address

before you can send or receive emails at that address. You can activate your email account

at this link: http://accounts.unimelb.edu.au/.

While academic staff endeavour to address queries received via email, it is more appropriate

to resolve substantive questions during lectures and tutorials and/or through any online

discussion forum set up for the course, or during normal consultation hours. With this in

mind, we encourage students to attend all lectures and tutorials and to familiarise themselves

with any consultation hours offered by lecturers and tutors in this subject.

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Seminar times

All seminars will be held in the Prest Theatre - Ground Floor, FBE Building.

Date Day Time

26 June Monday 1:00 pm to 4:00 pm

27 June Tuesday 1:00 pm to 4:00 pm

28 June Wednesday 1:00 pm to 4:00 pm

29 June Thursday 1:00 pm to 4:00 pm

3 July Monday 1:00 pm to 4:00 pm

4 July Tuesday 1:00 pm to 4:00 pm

5 July Wednesday 1:00 pm to 4:00 pm

6 July Thursday 1:00 pm to 4:00 pm

10 July Monday 1:00 pm to 4:00 pm

11 July Tuesday 1:00 pm to 4:00 pm

12 July Wednesday 1:00 pm to 4:00 pm

13 July Thursday 1:00 pm to 4:00 pm

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Topics

Lecture Slides and Excel Files

All lecture slides and Excel files are on the LMS Canvas site for this subject.

Recorded Lectures

Audio and video recordings of lectures delivered in this subject will be made available for

review. These recordings allow you to revise lectures during the semester, or to review them

in preparation for the end of semester exam.

Recordings are not a substitute for attendance; rather they are designed for revision. On

rare occasions, the recordings can fail to take place due to technical reasons. In such cases,

a substitute recording will be made available if possible.

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Private Tutoring Services

The Faculty has become increasingly concerned about the existence of a number of private

tutoring services operating in Melbourne that heavily target University of Melbourne students

enrolled in FBE subjects.

Students are urged to show caution and exercise their judgement if they are considering

using any of these services, and to please take note of the following:

Any claim by any of these businesses that they have a “special” or “collaborative” or

“partnership” style relationship with the University or Faculty is false and misleading.

Any claim by a private tutoring service that they are in possession of, or can supply you with,

forthcoming University exam or assignment questions or “insider” or “exclusive” information

is also false and misleading.

The University has no relationship whatsoever with any of these services and takes these

claims very seriously as they threaten to damage the University’s reputation and undermine

its independence.

It is also not appropriate for students to provide course materials (including University

curricula, reading materials, exam and assignment questions and answers) to operators of

these businesses for the purposes of allowing them to conduct commercial tutoring

activities. Doing so may amount to misconduct and will be taken seriously. Those materials

contain intellectual property owned or controlled by the University.

We encourage you to bring to the attention of Faculty staff any behaviour or activity that is

not aligned with University expectations or policy as outlined above.

Assessment

Assessment Overview

Your assessment for this subject comprises the following:

Assessment Task Individual or

Group

Due Weighting

3000-Word Major Project Individual 23 July 2023 30%

End-of-Semester

Examination

n/a To Be Advised 70%

Major Project

Part A

The file PortfolioManagementAssignment1.xlsx placed on the Learning Management System

subject page provides daily share price data and dividend data from 31 December 2014 to 31

December 2019 for 30 of the largest, by market capitalization, companies listed on the ASX.

Daily values of the All-Ordinaries Accumulation Index are also provided in that file. Note that for

this exercise the yield on Australian Government 10-year bonds is set at approximately 5 per

cent per annum (which may be used as a proxy for the risk-free rate of interest) and the equity

risk premium is 4 per cent per annum.

Each student will be allocated a portfolio comprising seven of these companies. Students whose

student number ends in 1 or 2 will be allocated companies 1, 3, 5, 7, 9, 11 and 14. Students

whose student number ends in 3 or 4 will be allocated companies 2, 4, 6, 8, 10, 12 and 15.

Students whose student number ends in 5 or 6 will be allocated companies 15, 17, 19, 21, 23, 1

and 4. Students whose student number ends in 7 or 8 will be allocated companies 16, 18, 20, 22,

2, 4 and 7. Students whose student number ends in 9 or 0 will be allocated companies 3, 5, 10,

12, 17, 19 and 1.

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For your portfolio of companies and using the file PortfolioManagement4_8.xlsx as a template,

show the efficient frontier of all efficient portfolios (with and without short selling), and the capital

allocation line. For this analysis, expected returns are calculated using the Capital Asset Pricing

Model. Also, document the security market line for your portfolio of companies.

(4 marks)

Part B

This question uses monthly returns observed on US shares from 1926 to 2022 and specifically

uses data from Professor Ken French’s website -

http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

You have been asked to assess the performance of a fund that invests in companies with very

small market capitalizations and very high book-to-market ratios. The file

PortfolioManagementAssignment2.xlsx placed on the Learning Management System subject

page provides the monthly returns to this portfolio for the period July 1926 to December 2022

inclusive. It also provides monthly excess returns (return on a market portfolio less the return on

a risk-free asset), monthly returns on a portfolio of small market capitalization companies less

returns on a portfolio of big market capitalization companies (the so-called SMB portfolio),

monthly returns on a portfolio of companies with high book-to-market ratios less returns on a

portfolio of companies with low book-to-market ratios (the so-called HML portfolio), and monthly

returns on a risk-free asset.

The period for you to examine is the sixty-year period beginning in 1939 plus the truncated value

of the number provided by the last two digits of your student number divided by four. So, if the

last two digits of your student number are 00, then TRUNC (0/4) = 0 and your sixty-year period is

from 1939 to 1998 inclusive. If the last two digits of your student number are 15, then TRUNC

(15/4) = 3 and your sixty-year period is from 1942 to 2001 inclusive. If the last two digits of your

student number are 99, then TRUNC (99/4) = 24 and your sixty-year period is from 1963 to 2022

inclusive. [This method is just a way of dividing the class into 25 groups].

For your period of sixty years, use regression analysis to determine and examine whether or not

the portfolio of companies with very small market capitalizations and very high book-to-market

ratios has outperformed when benchmarked against the Capital Asset Pricing Model, and also

whether it has outperformed when benchmarked against the Fama-French three factors.

(3 marks)

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Part C

PortfolioManagementAssignment3.xlsx placed on the Learning Management System subject

page provides end-of-month prices (adjusted for dividends) for eighty-one Australian listed

companies from December 2001 to December 2015 and monthly returns from January 2002 to

December 2015. It also provides the market capitalisation and the book-to-market ratio of each

of these companies at the end of each year from 2002 to 2015.

Form two equally weighted portfolios. The first portfolio (HML) to be formed is long the N

companies with the highest book-to-market ratios and short the N companies with the lowest

book-to-market ratios. The second portfolio (SMB) to be formed is long the N companies with the

smallest market capitalisation and short the N companies with the largest market capitalisation.

N is equal to 5 plus the truncated value of the number provided by the last two digits of your

student number divided by five. So, if the last two digits of your student number are 00, then

TRUNC (0/5) = 0 and the portfolios have 5 long positions and 5 short positions. If the last two

digits of your student number are 19, then TRUNC (19/5) = 3 and the portfolios have 8 long

positions and 8 short positions. If the last two digits of your student number are 99, then TRUNC

(99/5) = 24 and the portfolios have 24 long positions and 24 short positions.

What is the return performance of the each of these portfolios over the period January 2003 to

December 2015? If your brief was to establish a long-only value fund of N shares (within the

investible universe of the 81 companies), what shares would be held in January 2016? If your

brief was to establish a long-only fund of smaller companies (within the investible universe of the

81 companies), what shares would be held in January 2016?

(3 marks)

Part D

You have been asked to provide advice to an investor who is about to retire. She has $A5 million

that she will invest in Australian equities. She has heard of momentum investing and is

considering investing some or all of the $5 million by way of a momentum strategy. The funds

not invested in a momentum strategy will be invested in a diversified portfolio.

1. Provide her with a brief summary of the central explanations that have been proposed for

momentum.

2. Use the data in PortfolioManagementAssignment3.xlsx to assess the Australian evidence of

so-called crash risk of a momentum strategy.

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3. Use the data in PortfolioManagementAssignment4.xlsx to assess the US evidence of so-

called crash risk of a momentum strategy.

4. With respect to the US evidence, to what extent are these risks more or less severe for a long-

only portfolio?

5. Advise the investor whether she should invest some or all of her equity portfolio in a

momentum strategy.

6. What are some of the impediments that she might face in investing some or all of her equity

portfolio in a momentum strategy?

7. If she invests part of her equity portfolio in a momentum strategy, what measures should she

use to assess the performance of her momentum portfolio?

8. If she invests all of her equity portfolio in a momentum strategy, what measures should she

use to assess the performance of her portfolio?

References

Daniel, K. and T.J. Moskowitz, (2016), ‘Momentum Crashes’, Journal of Financial Economics,

Vol. 122, No. 2, November, pp. 221-247.

Moskowitz, T., (2010), ‘Momentum Investing: Finally Accessible to Individual Investors’,

Investments and Wealth Monitor, July / August, pp. 22-26.

(20 marks)

Parts A, B and C require the presentation of results and very few works are required. The

majority of the words should be allocated to Part D. The word limit for the assignment is 3000

words.

Assignment Submission

Assignment submission is via the LMS Assignment Submission link for all written

assignments. Please refer to the Turnitin section of the LMS website for detailed submission

instructions if needed. Please note that you are required to keep a copy of your assignment

after it has been submitted as you must be able to produce a copy of your assignment at the

request of teaching staff at any time after the submission due date.

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Submission of Late Assignments within this Subject

Special Consideration assists students who have been significantly affected by illness or

other serious circumstances during the semester. The following website contains detailed

information relating to who can apply for Special Consideration and the process for making

an application:

http://students.unimelb.edu.au/admin/special

Assignment Extension

Requests for an assignment extension should be submitted here:

http://go.unimelb.edu.au/yh9n.

Before completing this form, please read the Assignment Extension Policy, which can be

found at: Assessment and Results Policy (MPF1326) : Policy : The University of Melbourne

(unimelb.edu.au)

Subject Resources

Prescribed References

Z. Bodie, A. Kane and A.J. Marcus, (2021), Investments, 12th edition, McGraw-Hill / Irwin.

Supplementary Readings

A list of supplementary readings has been placed on the LMS site. These readings are not

required for the subject but provide further reference for those pursuing careers in portfolio

management.

Academic Integrity

Academic Honesty

The University maintains high academic standards in its courses and subjects and expects

students to conduct themselves in a manner which is fair, honest and consistent with the

principles of academic integrity, particularly when undertaking assessment and research.

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Plagiarism and Collusion

Plagiarism (failure to cite your sources correctly and completely) and collusion (unauthorised

collaboration with another person to prepare an assessment task) are considered academic

misconduct and attract severe penalties. More information is available on the University’s

Academic Integrity website via http://go.unimelb.edu.au/rha6.

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Referencing

Each source used for a written piece of assessment must be referenced. This is to

acknowledge that your material is not based entirely on your own ideas, but is based, in

part, on the ideas, information, and evidence of others.

You will be required to use the APA system or Harvard System of referencing. The library

has prepared a website to help students correctly

reference: http://www.library.unimelb.edu.au/recite

It is important that all material you present for assessment is referenced correctly. Material

that has not been referenced correctly may be considered to be plagiarised, and as such

may be penalised. We will also look for evidence that material included in the bibliography of

your assessment has been used.

Further referencing resources:

Academic Skills Unit

https://services.unimelb.edu.au/academicskills/undergrads/top_resources

Library: http://library.unimelb.edu.au/cite

University Services

Stop 1: Connecting students and services

Stop 1 provides you with a range of support services throughout your university degree,

from help with enrolment, administration, and wellbeing to advice on building your skills and

experiences.

Stop 1 (unimelb.edu.au)

Service Finder

The University of Melbourne offers one of the most comprehensive student support

networks in Australia. Use this site to locate a wide range of services.

https://services.unimelb.edu.au/finder

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Academic Skills

Academic Skills offers a range of workshops and resources to help you with study skills

including researching, writing and referencing, presentation skills and preparing for exams.

Visit their website via http://services.unimelb.edu.au/academicskills.

Student Counselling

Students attend counselling to talk about personal, emotional, or mental health issues which

might be affecting their study and life. The University’s Counselling and Psychological

Services (CAPS) provides free, confidential, short-term professional counselling to currently

enrolled students and staff.

Student Equity and Disability Support

Student Equity and Disability Support provides services for students who need ongoing

support with their studies. They understand that adjustments to learning and assessment

are sometimes required to allow all students to reach their full potential. Learn more about

the services provided, how to find support and how to register for assistance.

UoM Library Services

As well as holding an extensive collection of books, ebooks, digital media and periodicals,

library staff provide research guidance and support for

students. http://library.unimelb.edu.au/

These Business and Economics Library Guides have been designed specifically for Faculty

of Business and Economics staff and

students. http://unimelb.libguides.com/sb.php?subject_id=80310

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Policy

Alternative Exam Arrangements (AEA)

Alternative Exam Arrangements (AEAs) are study adjustments granted to students who require

changes to the scheduled conditions or format of an exam. For an overview of AEAs, visit:

https://students.unimelb.edu.au/your-course/manage-your-course/exams-assessments-and-

results/exams/alternative-exam-arrangements

Assessment and Results Policy

The University’s assessment policy provides a framework for the design, delivery, and

implementation of assessment of students in award and non-award courses and subjects.

Assessment is designed to contribute to high quality learning by students, and to allow for quality

assurance and the maintenance of high academic standards. The University of Melbourne

Assessment and Results Policy can be found here: https://policy.unimelb.edu.au/MPF1326/

Exam Policy

The University requires that you are available for the entire examination period. Please see the

University's Principal Dates via https://www.unimelb.edu.au/dates for the full annual calendar.

Supplementary exams will not be provided in cases of absence during the examination period

unless the absence is due to serious illness or other serious circumstances and a Special

Consideration application is submitted and approved.

Information on Calculators in Examinations

Effective from 1 January 2017, the approved calculator for all subjects is the Casio FX82 (any

suffix). No equivalent models of calculators will be permitted in exams. You are required to

purchase your own calculator and are responsible for ensuring your calculator is in good working

order with fresh batteries.

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Special Consideration

As a student, you may experience extraordinary or unusual circumstances, or ongoing

circumstances that adversely affect your academic performance. The University has policies in

place to support students who are experiencing academic disadvantage. For more information,

visit http://students.unimelb.edu.au/admin/special.