+1 862 207 3288 The stock track
Unit 1: Buildup of investment portfolio of $1,000,000.00
Purchase (broad index) ETFs, bond, stock, commodity, and currencies to construct a portfolio that is consistent with the following asset allocation guideline (at market value). The passive and active portfolios should be established with approximately the same holdings and weights (i.e., same trades and same returns during the first Unit). The passive portfolio should not need to be adjusted during the remainder of the term.
• Stock: Trade at least ten individual stocks, of which at least two are from a foreign exchange and two additional securities are ADRS trading on a U.S. exchange.
• Fixed income: use a combination of Treasury Bonds and fixed income ETFs. Please limit the amount invested in only one ETF or ETN to $100,000.
• Commodities: can be purchased in the cash market (corn, wheat, gold, silver, and major currencies) or using an ETF;
• Real estate: exposure must be obtained using an ETF on a broad real estate index.
Asset Class Target Minimum Maximum
U.S. Large Cap. Stocks 40% 30% 50%
U.S. Small Cap. Stocks 20% 10% 30%
Non-U.S. Stocks 10% 0% 20%
Fixed Income 20% 15% 25%
Real Estate 3% 0% 10%
Commodities including currencies 3% 0% 10%
Cash and equivalents 4% 0% 10%
Unit 2: Stops, shorting and buying on margin
• For the active portfolio, establish at least three stop loss orders for the ETFs in the existing portfolio (e.g., set the stop price at about 10% or more below the current price).
• Establish a margin account by borrowing funds
Unit 3: Rebalancing and buying mutual funds, levered ETF and an ultra-short ETF
• Replace (i.e., sell) 20% of the large cap ETFs by purchasing an index mutual fund, and sell 20% of the small cap ETF by buying an actively managed small cap mutual fund(s).
• Increase the systematic risk of U.S. securities by selling regular broad index ETF and purchasing levered ETF.
• Reduce exposure to international equities by purchasing an Ultra-Short ETF like those from ProShares (e.g., Ultrashort MSCI Japan with ticker of EWV).
Unit 4: Develop an asset allocation with considerations of following factors
• Given where we are in the business cycle, would you be under or overweight bonds?
• What will be your allocation to domestic equity, domestic small cap equities, and international developed and emerging markets equities?
• Will emerging markets stocks exhibit more correlation with the US market this year?
• Invest for a diversified portfolio, instead of a series of trades with no rhyme or reason.
Unit 5: Based on expectations of interest rates, establish positions in bond with considerations of following factors
• What impact will interest rate cuts have on the economy, and the broader markets?
• What is your view on inflation? Are there any plays to be made in interest rate futures, TIPS, etc.?
• What investments are benefiting from low or high inflation
• What sectors would benefit from lower interest rates? Which would suffer from higher interest rates?
Unit 6: Midterm Exam. No required trades, but can trade to rebalance.
Unit 7: Continue Bond Section in Unit 5 with considerations of the following factors:
• What is your best estimate on the future course of interest rate spreads-widening or narrowing?
• Would you be favoring long duration or short duration bonds right now?
• Do you forecast higher default rates by corporate issuers?
Unit 8: Stock Valuation.
• How will you identify undervalued stocks?
• What financial ratios will you use to screen stocks?
• Consider using relative valuation and discounted cash flow valuation models.
• Are you looking for growth oriented companies with superior earnings growth?
• How will emerging legislation (financial markets reform, health care reform, government fiscal stimulus programs) affect your view of market, sector, security performance going forward?
Unit 9: Macro Economy and Stock Performance
• What projections do you have for the world economy?
• Will the current commodity cycle continue its rate of growth?
• What is your view on the dollar?
• What factors could see a long position begin to rally relative to other currencies?
• Do you have an overall investment theme?
Unit 10: Option returns versus stock returns
• Purchase three individual stocks by selling the appropriate ETF(s).
• For each stock, purchase an out-of-the-money call.
• For each stock, purchase an in-the-money call.
This is not an option strategy; however, I will want comments in the final report on the impact of buying an option compared to buying the individual stock (keep track of the returns on the stock (include dividends) and call options).
Unit 11: Rebalance the portfolio to be within the asset allocation guidelines after closing all derivative positions and short positions (volume may be an issue for closing some of these positions—try several times during the Unit for low volume issues).
Presentation
A 10-minute PowerPoint presentation is required. The presentation will summarize each student’s trading over the 12 Units with slides that describe (or outline) the following:
• Worst trade
• Best trade
• Most important insight/lesson gained from Stock-Trak
Final Report
The final Stock-Trak report will include a discussion and analysis of the fund’s performance by comparing the active portfolio to the passive portfolio (and/or a major index). A summary of the individual stock trades and their performance is required.
1. A description of the company, its products and services, recent events that are relevant to the valuation of the company, and recent trends in sales and earnings.
2. An analysis of current macro-economic and that are relevant to the company. You might consider discussing current monetary policy, interest rates, inflation, business cycle conditions, and any other macroeconomic subject that is relevant to value of the company you choose.
3. An analysis of stock market conditions including recent returns on stock market indexes and average valuation ratios such as P/E ratios of stock market indexes.
4. An analysis of the industry, i.e., degree of competition, growth of industry-wide sales, profitability of competitors, life cycle stage of the industry, Porter’s five factors, and P/E ratios of competing companies.
5. A complete analysis of the company’s financial statements for a minimum of the most recent three years of available data including a comparison of the company’s ratios to most recent year’s peer company average ratios. Complete the ratio calculations yourself. Do not copy them from another source.
6. A pro forma income statement analysis that includes a forecast of revenue for the coming year, major cost and expense categories, earnings, earnings per share, and dividends. Rely on your own forecast. Do not copy them from another source.
7. A detailed analyses of bond valuation in the portfolio and the interest rate risk vs. bond valuation.
8. A valuation of the stock or a range of values that would provide a basis for an investment decision. Include the assumptions you make and your calculation steps. You may calculate the stock’s required return from an SML or APT equation.
9. A valuation of the option/future and how risk management strategies are applied in the portfolio.
10. The presentation will summarize each student’s trading over the 11 Units describing the worst trade, Best trade, and most important insight/lesson gained from Stock-Trak.
