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Global portfolio Management Project
- 1. East West Bank Employee 401(K) Ling-Lin Chiu (Grace)
- 8. Target Asset Allocation Asset Class Percentage (%) Domestic Equity 20 World exEM 20 Emerging Markets Equity 15 Private Equity 5 Real Estate 5 High Yield 5 Domestic Fixed Income 10 Absolute Return 10 Non US Fixed Income 5 Cash Equivalents 5 Total 100
- 9. Inputs: Assets-Constrained Frontier % Expected Return Standard Deviation Yield Current Holding Broad Domestic Equity 9.0 16.9 0 73 World exEM 9.0 16.6 0 27 Emerging Markets Equity 9.6 31.2 0 0 Private Equity 12.0 34.0 0 0 Real Estate 7.6 16.5 0 0 High Yield 7.0 11.5 0 0 Domestic Fixed 5.3 4.5 0 0 Absolute Return 6.5 9.7 0 0 Non US Fixed 5.2 9.6 0 0 Cash Equivalents 3.5 0.8 0 0
- 10. Individual Constraints % Min. Holding Max. Holding Cost to Increase Cost to Decrease Include Constraint Locking Broad Domestic Equity 20 60 0 0 X None World exEM 0 20 0 0 X None Emerging Markets Equity 0 10 0 0 X None Private Equity 0 10 0 0 X None Real Estate 0 10 0 0 X None High Yield 0 20 0 0 X None Domestic Fixed 0 40 0 0 X None Absolute Return 0 10 0 0 X None Non US Fixed 0 10 0 0 X None Cash Equivalents 0 100 0 0 X None
- 11. Correlations US Eq. Int’l Eq. World Ex EM Em. Eq. P.E. REIT H.Y. US Fixed Absolute Non-US F. Cash Broad Domestic Equity 1.00 0.70 0.92 0.50 0.68 0.54 0.66 0.20 0.56 -0.03 -0.12 World exEM 0.92 0.93 1.00 0.51 0.71 0.55 0.65 0.19 0.57 0.10 -0.20 Emerging Markets Equity 0.50 0.45 0.51 1.00 0.50 0.39 0.30 0.10 0.32 -0.02 -0.15 Private Equity 0.68 0.64 0.71 0.50 1.00 0.44 0.47 0.15 0.43 0.10 0.07 Real Estate 0.54 0.47 0.55 0.39 0.44 1.00 0.55 0.17 0.40 0.03 -0.06 High Yield 0.66 0.55 0.65 0.30 0.47 0.55 1.00 0.29 0.45 0.10 0.07 Domestic Fixed 0.20 0.15 0.19 0.10 0.15 0.17 0.29 1.00 0.40 0.32 0.30 Absolute Return 0.56 0.50 0.57 0.32 0.43 0.40 0.45 0.40 1.00 0.15 0.50 Non US Fixed -0.03 0.21 0.10 -0.02 0.10 0.03 0.10 0.32 0.15 1.00 -0.05 Cash Equivalents -0.12 -0.25 -0.20 -0.15 0.07 -0.06 0.07 0.30 0.50 -0.05 1.00
- 14. Unconstraint: Performance % Position 50 Current Target Vanguard 2040 Vanguard 2045 Vanguard 2050 60% US Eq./40% F.I. Domestic Equity 32.89 73 20 72 71.9 71.7 60 World exEM 41.65 27 20 14.3 14.5 14.5 0 Emerging Markets Equity 3.5 0 15 3.7 3.6 3.8 0 Private Equity 14.12 0 5 0 0 0 0 Real Estate 7.84 0 5 0 0 0 0 High Yield 0 0 5 0 0 0 0 Domestic Fixed 0 0 10 10 10 10 40 Absolute Return 0 0 10 0 0 0 0 Non US Fixed 0 0 5 0 0 0 0 Cash Equivalents 0 0 5 0 0 0 0 Expected Return 9.33 9 7.98 8.65 8.65 8.65 7.5 Standard Deviation 17.38 16.56 12.65 15.1 15.1 15.1 10.65 Sharpe Ratio 0.54 0.54 0.63 0.57 0.57 0.57 0.7
- 15. Constraint: Performance % Position 50 Current Target Vanguard 2040 Vanguard 2045 Vanguard 2050 60% US Eq./40% US F.I. Domestic Equity 20 73 20 72 71.9 71.7 60 World ex EM 20 27 20 14.3 14.5 14.5 0 Emerging Markets Equity 2.36 0 15 3.7 3.6 3.8 0 Private Equity 6.3 0 5 0 0 0 0 Real Estate 5.73 0 5 0 0 0 0 High Yield 6.01 0 5 0 0 0 0 Domestic Fixed 29.5 0 10 10 10 10 40 Absolute Return 7.08 0 10 0 0 0 0 Non US Fixed 3.02 0 5 0 0 0 0 Cash Equivalents 0 0 5 0 0 0 0 Expected Return 7.6 9 7.98 8.65 8.65 8.65 7.5 Standard Deviation 10.53 16.56 12.65 15.1 15.1 15.1 10.65 Sharpe Ratio 0.72 0.54 0.63 0.57 0.57 0.57 0.7
- 20. Large Cap Funds 0.80 0.98 -1.18 0.45 -1.17 IR 12.10% 15.64% 5-yr 8.68% 9.23% 3-yr Yes 11.81% 16.02% 1-yr 83.50% Russell 1000 Growth FKCGX Franklin Flex Cap 12.10% 15.87% 5-yr 8.68% 11.99% 3-yr Yes 11.81% 10.88% 1-yr 84% Russell 1000 Growth RGAEX American Funds Growth 13.43% 12.69% 5-yr 9.08% 8.49% 3-yr Yes 5.77% 5.39% 1-yr 99.50% Russell 1000 VFINX Vanguard Index 500 13.43% 14.75% 5-yr 9.08% 10.18% 3-yr Yes 5.77% 4.97% 1-yr 89.40% Russell 1000 NYVTX Davis NY Venture Fund A 14.63% 11.85% 5-yr 9.32% 8.24% 3-yr Yes -0.17% 3.90% 1-yr 94% Russell 1000 Value RWMEX Washington Mutual Investors Fund Classifi- cation Bmk Return Return Year R 2 Benchmark Ticker Mutual Fund Name
- 21. US Large Cap-Davis NY Venture A
- 26. Mid-Cap Funds Yes Yes Yes Classif cation 1.07 -0.66 -0.32 IR 17.90% 24.25% 5-yr 11.39% 17.70% 3-yr 11.43% 11.88% 1-yr 81% Russell MidCap Growth THIGX Thornburg Core Growth 18.21% 17.24% 5-yr 11.09% 11.12% 3-yr 5.60% 6.02% 1-yr 98.40% Russell MidCap VIMSX Vanguard Mid-Cap Index Fund-Inv 17.92% 16.89% 5-yr 10.11% 10.64% 3-yr -1.42% 3.34% 1-yr 90.70% Russell MidCap Value GSMCX Goldman Sachs Mid Cap Value Fund INS BmkReturn Return Year R2 Benchmark Ticker Mutual Fund Name
- 27. US Mid Cap-Thornburg Core Growth Fund
- 29. Small-Cap Funds Yes Yes Yes Classif cation 0.01 0.41 -0.34 IR 16.50% 26.32% 5-yr 8.11% 11.73% 3-yr 7.05% 3.24% 1-yr 81.10% Russell 2000 G RYVPX Royce Value Plus 16.25% 17.01% 5-yr 6.80% 7.89% 3-yr -1.57% 1.15% 1-yr 98.90% Russell 2000 NAESX Vanguard Small Cap 15.80% 14.11% 5-yr 5.27% 8.20% 3-yr -9.77% 2.36% 1-yr 93.80% Russell 2000V RYTRX Royce Total Return BmkReturn Return Year R2 Benchmark Ticker Mutual Fund Name
- 30. Vanguard Small Cap Index Fund Total Net Assets: $13.6 B # of Stocks: 1725 Median Market Cap: $1.6 B Expense Ratio: 0.23%
- 31. Vanguard Small Cap Index Fund
- 33. Balanced and Int’l Funds Yes Yes Yes Classif cation 0.21 -0.69 0.85 IR 22.08% 22.75% 5-yr 17.32% 20.58% 3-yr 11.63% 18.87% 1-yr 91.50% MSCI EAFE REREX America Fund Euro Pacific Growth 4.42% 5-yr 4.56% 3-yr 6.96% 1-yr Lehman Aggregate 14.63% 9.54% 5-yr 9.32% 6.62% 3-yr -0.17% 4.98% 1-yr 87.90% Russell 1000 Value MSFRX MFS Total Return 4.06% 5.05% 5-yr 4.32% 5.03% 3-yr 7.40% 8.81% 1-yr 92.20% Lehman Brothers Gov/Credit Intermediate PTRAX PIMCO Total Return Fund Admin BmkReturn Return Year R2 Benchmark Ticker Mutual Fund Name
- 34. US Fixed Income-PIMCO Total Return
- 36. Int’l Equity– American Fund EuroPacific Growth
- 38. Int’l Equity– American Fund EuroPacific Growth 0.67% 22.08% 22.75% 5 year 3.26% 17.32% 20.58% 3 year 7.24% 11.63% 18.87% 1 year ALPHA EAFE Fund Return
- 39. Mutual Funds Selected Y Y Y Y Y Y Classification Fund Name Asset Class IR Exp. Ratio (%) PIMCO Total Return Fund Domestic Fixed Income 0.85 0.68 American Funds Growth Domestic Equity-Large Cap Growth 0.98 0.68 Davis NY Venture Fund A Domestic Equity-Large Cap 0.80 0.85 Thromburg Core Growth Domestic Equity-Mid Cap 1.07 1.10 Vanguard Small Cap Index Domestic Equity-Small Cap 0.41 0.23 American Funds EuroPacific Growth Int'l Equity 0.21 0.87 Total: 6 Mutual Funds
- 42. Recommendations (2) 27% 19% 19% 35% 0% 0% Weighted Asset Class Current Funds Domestic Fixed Income N/A Domestic Equity- Large Cap Growth N/A Domestic Equity- Large Cap Vanguard Index 500 Domestic Equity- Mid Cap Vanguard Mid- Cap Index Domestic Equity- Small Cap Vanguard Small Cap Index Int'l Equity American Fund Euro Pacific American Funds EuroPacific Growth Vanguard Small Cap Index Thromburg Core Growth Davis NY Venture Fund A American Funds Growth PIMCO Total Return Fund Recommended Fund Name 18% 20% 20% 16% 16% 10% Weighted
- 43. Improved Performance 0.54 2.06 Sharpe Ratio 9% 17.75% 16.56% 8.63% Expected Return Standard Deviation % Current Recommended
- 46. Q&A
Hinweis der Redaktion
- - Now, I will show our recommendations and how our recommendation improve the client’s portfolio performance. - First of all, according our asset allocation analysis, we found that Vanguard 2045 is the most appropriate portfolio for this clients based on her age, risk-tolerance, and requirement to diversification. - Thus, we allocate these 6 mutual funds selected through style analysis to form a portfolio with similar assets classes allocation of Vanguard 2045. - By diversifying asset classes to US domestic fixed income and expand the categories of US domestic equity, we could help this client improve the performance of current portfolio.
- - This table shows the client’s current asset allocation and holding products. Now, we diversify the US large cap equity to large cap and large cap growth and also change the Vanguard Index 500 to our two recommended funds. As for the US mid cap equity, we maintain the similar weight but change the fund to Thromburg Core Growth. We do not change a lot in the weigh of US small cap equity, and keep holding the same fund. However, the weight of International equity is too high, causing high risk in the current portfolio. Thus, we take 10% off from the international equity and add this 10% to US Fixed Income. At last, we allocate only 18% in international equity. After our adjustment, guess what??
- The expected return increases about 9% The standard deviation reduce 8% As for the sharpe ratio, how amazing!! it grows dramatically from 0.54 to 2.06. Those data show that our recommendation indeed improve the client’s current performance obviously.
- To conclude, by adopting our recommendation, the client’s portfolio performance not only outperforms the current performance but also beats the target, Vanguard 2040, Vanguard 2045, Vanguard 2050, and 60%US Eq./40% US F.I. That’s our presentation. Thank you for you attention!