Maoweiba89

Executive Summary

This report consists of two sections: strategic asset allocation that aims to construct a long-term investment portfolio for the foundation based on the historical return of the benchmarks and test the feasibility of momentum investing strategy by assessing good performed stocks and poor performed stocks.

In the first section, a proper Investment Policy Statement (IPS) is formulated for the foundation in reference to its objectives and constraints. Then, the performance and the correlation of each asset class are assessed with the given data of the benchmarks’ historical return. Furthermore, in order to construct long-term investment portfolio that meets the requirements specified by the foundation, Excel solver function is applied to determine the weight of each asset class in accordance with the volatility and the expected return.

In the second section, we test the feasibility of momentum investing strategy by assessing the performances of five portfolios (equal weighted and value weighted approach) in terms of comparing good stocks and poor stocks. Based on our empirical analysis, the momentum investing strategy could be applied in reality, where the stocks performed well in the past continue to perform well in the future. But all portfolios are underperformed or close to market portfolio, which raises the question whether active investing strategy is superior to passive investing strategy. Relatively lower returns with significantly higher risk and volatility; additional expenses from transaction cost, taxes and management fees; irrational financial behaviour caused higher non-systematic risk compared with passive strategy are the main potential problems for momentum investing strategy applied in practice.

Table of Content

1. Introduction 1

2. Investment Policy Statement (IPS) 1

2.1. Objectives 1

2.2. Constraints 2

3. Analysis of Asset Class Performance 2

3.1. Cumulative Return 2

3.2. Correlation of Each Asset Class 3...