BAFI1045 Equity Investment and Portfolio Management

You will be given funds to invest in the share market. You are required to construct two

$1,000,000 equity investment portfolios:

1. A passive portfolio replicating the return and risk of the index
2. An active portfolio that has the aim of outperforming the index

You will then prepare a report in which you explain your investment strategy for constructing a passive and active portfolio and then evaluate the investment performance of each in terms of absolute and relative return, risk and attribution effects to explain the differences in performance of each portfolio.

This assessment simulates the tasks that portfolio managers would undertake in a real-world investment company. For the passive portfolio, your task will be to replicate, as closely as possible, the risk and return characteristics of the benchmark index. For your active portfolio, your task will be to selectstocks and sectors from the list of stocks given to you, with the aim of achieving a higher return than the index.

Your task is not necessarily to produce a positive return. If the markets fall in value, then your passive portfolio should fall in value by a similar degree. Your active portfolio should aim to outperform the index’s return: if the index falls, your portfolio should decline by a lesser amount; if the index rises, your portfolio should rise by a greater amount. Note that there is no requirement to outperform the index for this assignment.

Your submission should fulfil the following minimum requirements.

For the Passive Portfolio

• calculate the number of shares required for your passive portfolio to replicate the composition of the benchmark index (sti index 22 September)

For the Active Portfolio

• assess all ten companies and sectors from the stocks shared with you
• analyse the outlook for each company’s industry
• analyse the macroeconomic environment at the global (tariff, federal reserve) and domestic level (
• identify the firms and sectors that you consider will outperform relative to the index and build your active portfolio to reflect your predictions
• analyse and comment on three financial ratios for each company over the previous five years. The ratios used should demonstrate profitability, asset efficiency and debt servicing capacity. The ratios should be relevant to each company and may not be the same for all your companies.

è the macro and micro analysis must be supported with relevant charts, tables and graphs demonstrating both the past and any forecasts that can be sourced

Evaluate your findings and select five companies for your active portfolio

• after assessing all ten companies, select five from the list to be included in your active portfolio
• describe the reasons for your selections (around 5 bullet points for each stock)
• describe the reasons for your four omissions (around 5 bullet points for each stock)
• assign portfolio weights for each of your companies and discuss why you have chosen the weights in comparison to the weight of each stock in the index
• calculate the number of shares required for eachcompany to create a portfolio with the initial weights you have selected for your active portfolio

è why are some companies overweight in your portfolio, and why are others underweight?

è what do these active weights mean for your portfolio’s potential performance relative to the

index?

Build your portfolios

• create the two portfolios in LSEG Workspace, ensuring that all dates and numbers of shares are correct. It is important to follow the instructions provided for creating these portfolios in Workspace.

• when using LSEG Workspace
  • use the web version available at https://workspace.refinitiv.com/web
  • ensure you have set the currency to Singapore dollars for all statistics

Portfolio Creation Dates: Passive and Active

• Monday, 22nd September 2025

Portfolio Names in Workspace

• Passive:  Replication           (e.g. s3254663 Replication)
  • Active:      <Student Number> Active                  (e.g. s3254663 Active)

Benchmark Index

• Straits Times Index (STI)

Portfolio evaluation period for both portfolios

• Start Date: Monday, 22nd September 2025
  • End Date: Friday, 10th October 2025

Observe your portfolios’ performance over the analysis period

• as the share prices change daily over the evaluation period, you will be able to watch how the returns on the index, your active portfolio and your passive portfolio react

Report Summary should discuss the following minimum points

• discuss your two portfolios’ investment objectives and stock selection strategies

• what was the total return of the active portfolio, your passive portfolio and the benchmark index over the analysis period?

For each portfolio

• explain the investment objectives of the portfolio

• show the portfolio creation in LSEG Workspace as of the creation date (set the As of Date to First Holdings Date), demonstrating the correct security weights in each portfolio

• explain the reasoning for your stock selection and weighting relative to the index and how this will contribute to the investment objectives

• report your results for each portfolio relative to the benchmark index

• describe any major market events that contributed to the return performance of the benchmark or your portfolios, if applicable

• provide comments on the Total Return/Risk and Active Return/Risk of your portfolios

• discuss the sector and security active weights in both your portfolios

• provide a detailed attribution analysis of the active returns on each portfolio with reference to the allocation and selection effects using analysis from the Brinson Single Currency attribution template

• have you achieved (or not) the objectives for each of your passive and active portfolios?

• you should embed screenshots of your portfolio analysis from the seven relevant LSEG Workspace template screens in the main body of your report for eachsection. Screenshots must be readable and clear
• screenshots alone are not sufficient for your analysis. You must find reasons for the results that have been achieved by analysing the effects of differences in security weights between your portfolio and the benchmark, and discuss them clearly and in detail

è you must use the charts and analysis tools provided in Workspace to analyse your

portfolios’ performance relative to the benchmark

In your analysis, you should avoid making vague or overly simplistic comments that lack depth or detail. The discussion should delve into the underlying reasons, implications, or mechanisms that influence portfolio performance in relation to the benchmark index’s return and risk. Your active portfolio’s return differs from the benchmark due to the different weights assigned to each stock and sector compared to the benchmark. All your analyses should refer to these weight differences as they are the drivers of relative return and risk in your portfolio.

Your final report should take the viewpoint of a portfolio manager, explaining the portfolio return to an investor client. Your client will want a thorough explanation of the returns and risks associated with their portfolio. Points will be awarded where the main assertions and conclusions are supported by relevant data and/or referencing, and there is evidence of thorough research.

Finally, which of the two portfolios will you recommend for investment and why?

Refer not only to portfolio return but also to risk and employ the relevant return-for-risk ratios –

Sharpe and Treynor – that would support your conclusion for each portfolio.

Data for your report from Workspace

Workspace calculates the portfolio statistics and provides charts you will require for your report. The information you will need can be found in Workspace, as listed below.

è you must show these seven templates for each portfolio and give a thorough explanation of their relevance to your discussion.

Crop your screenshots to show only the section inside the red box. The rest just takes up space on your report.

You will need to select five stocks for your active portfolio from the following ten stocks that are constituents of the STI Index:

Jardine owns DFI but DFI is still a standalone Take at least 1 from each industry

SGX, Keppel, DFI, Sembcorp, Wilmar

Dividend yield (SGX best dividend), potential market gains

Won’t choose Genting because of gambling (ESG) Thai beverage is restrictive, only focus on beer

Suggested layout of your report

Executive Summary

Introduction – investment goals and objectives for each portfolio Passive Portfolio Management

• Passive Portfolio Shares Calculation Active Portfolio Management
  • A Quick Glance at the global and domestic economy (macroeconomic analysis)
  • A snapshot of the relevant sectors that we are comparing in the portfolios
  • Justification of company selection in active portfolio
  • Company Outlook
  • Company Performance (including Financial Ratio Analysis)
  • Reasons for stock selection (or omission) and weight allocation in the portfolio
  • Active Portfolio Shares Calculation

Workspace Screenshot of Portfolios Created (showing student number and portfolio name) Active and Passive Portfolio Summary

Evaluation of the Portfolios’ Performance (compared to the benchmark) Portfolio Weights

Total Return and Benchmark-relative Return Total Risk and Active Risk

Tracking Error Attribution Effects

Allocation and Selection Effect explained in detail Information/Sharpe/Treynor ratios Recommendation and the final investment decision Conclusion

Accounting Assignment Answers: Experts Answer on Above Portfolio Management Questions

Introduction

This report performs a comparative analysis of a passive portfolio and an active portfolio whereby the passive portfolio replicates the Straits Times Index (STI). The data is collected from 22nd September to 10th October 2025 and analysed for risk, return, and risk adjusted performance. The goal of passive portfolio is to match the risk and return of the STI index and passive portfolio is aimed at outperforming the STI index.

Pacific portfolio management

The strategy of passive portfolio management is to replicate STI index weights using $1000000 as total capital. The rationale is to achieve minimum tracking error and the number of shares are calculated proportionally to STI weights using closing prices. The expected outcome is a proper matching of portfolio return with that of STI overall performance.

Active portfolio management

Macroeconomic analysis: The global outlook remains moderate and the domestic outlook is also stable as Singapore’s manufacturing sector, financials and industrial sector shows resilience across regional volatility. The key drivers include the prices of commodities, interest rates stability and regional trade demand.
Sector analysis: The demand for consumer goods is steady, and the financials show high dividend yield and strong capital structure.
Company analysis and selection:
Companies selected for the active portfolio: For the active portfolio, companies selected are Singapore exchange, Keppel Ltd, Sembcorp industries, Wilmar international and DFI retail group. These companies are selected because they show positive EPS trends, and solid profitability ratios, debt to equity ratio is lower than the industry average, strong dividend potential, and ESG aligned business model.
Omitted companies: The omitted companies are Genting Singapore, because of high ESG risk, Thai Beverage for regulatory restrictions, Singtel for heavy competition, and Jardine Matheson for declining ROE. 

Want a Full Worked Out Answer with References?

Check Samples of Assignment on Accounting Subject Written by Experts

The post Active vs Passive Portfolio Management Report | STI Index appeared first on Assignment Help Singapore.