FIN 461: Portfolio Management and Analysis

Textbook Information

  • ISBN: 9781118364024, Managing Investment Portfolios: Dynamic Process, by John L. Maginn (Editor), Donald L. Tuttle (Editor), Dennis W. McLeavey (Editor), Jerald E. Pinto (Editor), eBook.  You may find used copies of this text but the publisher has stopped printing this book so it is only available as an e-Book.

     

    **This textbook will also be readily available through the Penn State Libraries E-Book program at no cost to the student. Students do not need to purchase a physical copy of the book. Instructions for accessing the E-Book will be provided in the course.

Published Remarks

  • None

Hardware Requirements

  • None

Software Requirements

  • None

Proctored Exams

  • None

Course Description

Investment policy and process, modern portfolio theory, portfolio construction, and portfolio performance measurement and evaluation. FIN 461 Portfolio Management and Analysis (3) The course provides a mix between theories and applications of portfolio management. The content is divided into five sections: (1) implications of the efficient market hypothesis and behavior finance in portfolio management, (2) investment policy and process, (3) diversification and modern portfolio theory, (4) portfolio performance measurement and evaluation and (5) bond portfolio management. After completing the course, students are expected to (1) demonstrate the importance of portfolio management under the efficient market hypothesis and behavior finance, (2) write an investment policy statement, (3) create an optimal portfolio, (4) manage bond and equity portfolios, and (5) measure and evaluate portfolio performance.

Course Description

The course is designed to expand your knowledge of the broad field of financial and investment analysis.  We will examine the basic tools of asset valuation and inputs for portfolio management.  Security Analysis requires a thorough understanding of financial statement analysis, quantitative techniques, and economics. Course Prerequisites: FIN 301, FIN 420

Learning Objectives

By the end of the course, the students will be able to:

  • Create an investment policy statement (IPS).
  • Recommend a strategic asset allocation consistent with IPS.
  • Select investment a well diversified portfolio.
  • Analyze equity, debt and alternative assets.
  • Apply those principles to the management of your own (fictitious) $100,000 investment portfolio.

Assignments

Assignments include steps in the Investment Challenge (see more info below), several Excel exercises, and participation.

Investment Challenge

The investment challenge is your opportunity to see if you have what it takes to be a “player” on Wall Street. You will apply the principles of investments to a “real-life” investment situation, buying stocks to create your own portfolio. This team assignment requires the development of an investment strategy and is designed to introduce you to investing in equities by establishing an active equity portfolio. 

Your performance will be compared to other individuals and the S&P 500. There is no right answer for this assignment; each of you will define your own return objectives and risk tolerance and describe your strategy. Everyone will have $100,000 to invest in at least ten common stocks and ETFs over the course of the game. 

The game is designed to be a learning experience.  Students will be required to relate investment theory covered in the course and discuss it in their performance memos.   Your grade will depend on the quality (not quantity) of your performance reports and not your actual performance of your portfolio.  First Memo and Midpoint Performance reports should be no more than one page of text, plus tables and attachments if desired. 

In addition to having fun we will apply theory to practice.  You will learn valuable insights that can be applied in your personal and corporate investments.  Many of you probably already are making important decisions regarding the allocation of your IRA, 401k or other retirement accounts.  Hopefully lessons learned in this game will allow you to make more informed decisions. Instructions for each step are located in the assignment sheets.

Step 1. Create your initial Equity Portfolio (50 points)

Step 2. Create Active Portfolio Memo (50 points)

Step 3. Create your IPS (50 points)

Step 4. Midpoint Evaluation Memo (50 points)

Step 5. Final Performance Report (50 points) Written Report

In this final report you will assess the performance of your investment strategies based on criteria discussed in Chapter 12.  Specifically you should address the following areas in your final report.

  • Justify the importance of performance evaluation
  • Demonstrate the analysis of portfolio returns into components due to the market, to style, and to active management
  • Identify and discuss the properties of a valid benchmark
  • Distinguish between macro and micro performance attribution
  • List and discuss the inputs that are necessary for a macro performance attribution
  • Demonstrate the incremental-return and incremental-value contributions to the ending value of the fund at the following attribution levels: net contributions, risk-free asset, asset category, benchmarks, investment managers, and allocation tactics
  • Demonstrate a performance attribution analysis, given data on the portfolio’s and benchmark’s sector weights and returns, and evaluate the impacts from pure sector allocation, within-sector allocation, and allocation/selection interaction
  • Compute, compare, and contrast the following risk-adjusted performance appraisal measures in their ex post forms: ex post alpha, Treynor measure, Sharpe ratio, and M2
  • Distinguish between the information ratio and the Sharpe ratio
  • Evaluate the risk-adjusted performance of one or more portfolios