Investment Analysis and Portfolio Management

MAF 715_ Investment Analysis and Portfolio Management

To get full grades, please ensure you show your workings. For theory questions, copying verbatim from the slides will not qualify.

Question 1                                        (12 marks)

Jeff, a client of yours, is an investor with an average risk aversion. He is considering buying shares of EmiratesNBD PJSC to add to his portfolio. Jeff, though, is unable to build a view on what could be expected price movement in the next 3 to 6 months. You have advised him to use Technical Analysis as a tool to build expectations of future price movements, He is not aware of this equity analytical tool.

i.    Please explain to him the rationale underlying technical analysis        (2 marks)

ii.    By way of example, explain 3 technical analysis tools which are used noting their rationale and the interpretation.                            (4 marks)

iii.    Take the price data of the company allocated to you for the last 3 years (you can get this from DFM website under listed companies section). Copy the data on to excel and calculate the 20 day, 100 day and 200 day moving averages. Plot the price and the moving averages on a graph. Not analyze the same and list out your interpretation of trends, momentum, resistance and support levels etc. for your company’s share price.                                             (6 marks)

Question 2                                         (12 marks)

Jack is not convinced about the utility of technical analysis and would prefer you to use the fundamental analysis as a tool for building expectations of future price.

For your company, evaluate its latest available level of net profit and EPS. To build expectations of future price using Top Down method of Fundamental analysis,

a.    Describe briefly the steps/process you will follow to undertake a top down analysis
(2 marks)

b.    Using cursory/preliminary data from desktop research on economy,, industry etc. build your expectation of growth in your company’s net profit in the next 12 months.

You answer to question 2 should comprise of your expectations at each step of the top down analysis process culminating onto what you believe would be the percentage growth in the net profit of your company.

Please note that your approach to the analysis and gathering appropriate data, however preliminary, and your logic and justifications of using all the above to finally come down to a growth percentage is more important than the final growth percentage. You may make appropriate assumptions wherever required.                (10 marks)

Question 3                                         (12 marks)

Looking at the risk averse appetite of Jack, you suggest considering creating a portfolio that would track the DFM index.

a.    Considering his investment amount of AED 200,000, please explain to Jack the best method of replicating the index to ensure that the portfolio performance can be tracked to the DFM Index.                                      (2 marks)

b.    At the end of 12 months, you are now sitting with Jack to evaluate the performance of his portfolio versus the DFM Index. You have collected the following data of fortnightly returns of the portfolio and the DFM Index. Calculate, both the fortnightly and annual Tracking Error and explain its interpretation to Jack.
(4 marks)
Period    Portfolio return (%)    DFM Index Returns (%)
IH Jan    0.9    0.8
2H Jan    0.3    0.4
1H Feb    0.2    -0.6
2H Feb    -0.8    -0.8
1H Mar    0.4    0.3
1H Apr    -0.3    -0.2
2H Apr    0.45    0.4
1H May    0.4    0.4
2H May    -0.25    -0.3
1H Jun    0.2    0.2
2H Jun    0.8    0.8
1H Jul    0.85    0.9
2H Jul    0.7    1.0
1H Aug    -0.5    -0.7
2H Aug    -0.4    -0.2
1H Sep    0.3    0.5
2H Sep    0.6    0.3
1H Oct    0.0    0.0
2H Oct    0.4    0.4
1H Nov    -0.3    -0.2
2H Nov    -0.5    -0.5
1H Dec    -0.3    -0.2
2H Dec    0.1    0.0