For this assignment, you will be asked to create an investment portfolio based on the criteria listed below. You’ll need to log into your Morningstar account and use their tools to research mutual funds to build a portfolio that will consist of 60% stocks and 40% bonds. Once you have finished the assignment, you will upload the Portfolio Snapshot to the FPA Externship under Week 1 Assignments. Be sure to keep a list of the holdings in your portfolio! Below is the criteria that you’ll need to build your portfolio based on. It’s important to note that this is not investment advice nor is not necessarily the same investment decisions that the financial planners in this Externship make. This is only for the purposes of this Externship.
Each financial planner will have different targets and nuances based on their investment philosophy, client situation and options available to them. Criteria for building your 60% stock and 40% bond portfolio:
1. For the equity style box and the fixed income style box, fit your holdings based on the boxes shown below.
2. For the stock portion of your portfolio, roughly 1/3 of the positions should be international and 2/3 of the positions should be based in the United States.
3. For the international portion of your portfolio, roughly 10-15% should be in emerging markets and the remaining should be in international stock.
4. For the US stock portion, roughly 50% should be in large cap, 30% should be in mid-cap and 20% should be in smallcap. Within each of the large cap, mid-can and small-cap, they should tilt towards values as shown in the Morningstar Equity Style Box.
5. For the bond portion of the portfolio, the majority of the bond holdings should have a BBB rating or higher and the maturity should be less than 5 years.
6. Compare the Portfolio Returns with the Benchmark Returns and have at least two time periods where the Portfolio Returns were greater than the Benchmark Returns.
7. Compare the Risk and Return Statistics, specifically the Standard Deviation and ensure the Standard Deviation is within .25 of the benchmark.
8. Review the MPT Statistics and confirm there is not a negative Alpha, Beta is over 1.0 and the R-Square is between 75 and 95.
9. Review their Average Gross Expense Ratio and ensure it is below .60 bps for the entire portfolio.
10. Review the Credit Quality Breakdown and confirm bonds are at a BBB or higher rating.
11. Review the Interest Rate Risk and confirm that the duration and maturity do not go beyond 5-6 years?
