Download Risk Tolerance and Asset Allocation

FINA 3904 Project 2
Ryan Revia
B.a.
Blackboard Version: 38 (mid-range moderately aggressive)
Text Book version: 79 (low end of aggressive)
Although the textbook places me at the low end of aggressive investing, I believe
that the Risk Tolerance survey was more indicative of my overall risk tolerance,
placing me in the middle of the moderately aggressive category. After evaluating
each result, I have determined that my overall risk tolerance is moderately
aggressive, but leaning towards an aggressive risk tolerance.
B.b.
Asset Allocation: Moderately Aggressive
Leaning Towards Aggressive
Corp. Bonds 12%
Govt. Bonds 5%
Cash 6%
Stock 77%
B.c.1.
Percent
1
20.07%
Ticker
Symbol
RPMGX
2
15.08%
POAGX
Stock Fund
Mid/Growth
3
10.19%
VMCIX
Stock Fund
Mid/Blend
4
8.01%
FHKCX
Large/Growth
5
10%
VBK
International
Stock Fund
ETF
Small/Growth
6
8%
SLY
ETF
Small/Blend
7
6%
PID
International ETF
Large/Blend
=
8
77.35%
9.01%
9
3.01%
=
10
12.02%
5%
11
=
5%
5.63%
100%
B.c.2.
Asset Type
Style Box Cell
Stock Fund
Mid/Growth
Total Common Stock
STWTX
Long-Term
Corporate Bond
Low/Extensive
DEEIX
Mid/Moderate
Corporate Bond
Total Corporate Bonds
PYGNX
Intermediate
Government Bond
Total Government Bonds
Cash
High/Moderate
Stock/Fund/ETF
Name
T. Rowe Price MidCap Growth
PRIMECAP Odyssey
Aggressive Growth
Vanguard Mid Cap
Index 1
Fidelity China Region
Vanguard Small Cap
Growth ETF
SPDR S&P 600 Small
Cap Growth ETF
PowerShares Intl Div
Achiev ETF
Schroder Broad TaxAware Value Bond
Inv
Delaware Extended
Duration Bond Inst
Payden GNMA
T-Bills (Cash)
Total
The asset allocation chart provided by Morningstar.com confirms the consistency of my
allocation goals as determined by my moderately aggressive to aggressive leaning risk
toleration. Although there is slight variation in percentage values due to fees and certain
funds carrying excess cash, the portfolio matches the projected allocation within a
percent, allowing for the correct diversification of assets as based on the aforementioned
risk tolerance results.
B.d. Largest Equity Fund Allocation
1. Fund Ticker Symbol & Name: RPMGX T. Rowe Price Mid-Cap Growth
2. Morningstar Style Box: Mid-Cap Growth
3. Morningstar Analyst’s Rating: Gold
4. NAV, Date of NAV, and Shares Purchased: $81.31 as of 11/20/2014, 1,234 shares
purchased
5. Number & Type of Securities within the Fund: The fund has 133 (long) stock holdings
across the cyclical, sensitive, and defensive sectors.
-Cyclical Sector:
Basic Materials- 2.78%
Consumer Cyclical- 12.26%
Financial Services- 7.11%
Real Estate-1.02%
-Sensitive Sector:
Communication Services- 1.06%
Energy- 6.85%
Industrials- 26.82%
Technology-16.69%
-Defensive Sector:
Consumer Defensive- 4.11%
Healthcare- 20.59%
Utilities- 0.71%
6. Morningstar Stewardship Grade: A
7. Asset Allocation among Asset Categories:
8. Morningstar Rating:
a) 3 year= Four Stars
b) 5 year= Four Stars
c) 10 year= Five Stars
d) Overall= Five Stars
9. Morningstar Risk Rating:
a) 3 year= Below Average
b) 5 year= Below Average
c) 10 year= Average
d) Overall= Average
10. Morningstar Return Rating:
a) 3 year=Above Average
b) 5 year= Above Average
c) 10 year= High
d) Overall= High
11. Load Percent: Not Applicable
a) Initial: N/A
b) Deferred: N/A
c) Redemption: N/A
12. 12b-1 Fee Percent: 0.00%
13. Net Expense Ratio: 0.78%
14. Turnover Percent: 26%
15. Trailing Total Return & Rank:
a) 1 year= 17.47%, #30
b) 3 year= 21.04%, #26
c) 5 year= 18.28%, #16
d) 10 year=11.33%, #7
e) 15 year= 9.96%, #19
16. 3-Year MPTS:
a) Alpha= 3.49
b) Beta= 0.86
c) Sharpe Ratio= 1.65
d) Sortino Ratio= 3.33
17. RPMGX
B.e. Largest Corporate Bond Fund
1. Fund Ticker Symbol & Name: STWTX Schroder Broad Tax-Aware Value Bond Inv
2. Morningstar Style Box: Mid/Extensive
3. Morningstar Analyst’s Rating: Not Available
4. NAV, Date of NAV, and Shares Purchased: $11.03 as of 11/20/2014, 4,079 shares
purchased
5. Number & Type of Securities within the Fund: The fund has 151 (long) bond holdings
across several sectors:
-Government- 6.34%
-Corporate- 5.46%
-Securitized- 1.18%
-Municipal- 85.26%
-Cash & Equivalents- 1.76%
6. Morningstar Stewardship Grade: Not Applicable
7. Asset Allocation among Asset Categories:
8. Morningstar Rating:
a) 3 year=Five Stars
b) 5 year= N/A
c) 10 year= N/A
d) Overall= Five Stars
9. Morningstar Risk Rating:
a) 3 year=Average
b) 5 year= N/A
c) 10 year= N/A
d) Overall=Average
10. Morningstar Return Rating:
a) 3 year= High
b) 5 year= N/A
c) 10 year= N/A
d) Overall=High
11. Load Percent: Not Applicable
a) Initial: N/A
b) Deferred: N/A
c) Redemption: N/A
12. 12b-1 Fee Percent: N/A
13. Net Expense Ratio: 0.46%
14. Turnover Percent: 8%
15. Trailing Total Return & Rank:
a) 1 year= 14.00%, N/A
b) 3 year= 7.58, N/A
c) 5 year= N/A
d) 10 year= N/A
e) 15 year= N/A
16. 3-Year MPTS:
a) Alpha= -1.22
b) Beta= 1.87
c) Sharpe Ratio= 1.06
d) Sortino Ratio= 1.82
17. STWTX
B.f.a Within Category Discussion
By using a mid/small cap portfolio style, I established a moderately aggressive portfolio
with a high concentration of stocks (at 77.35%), then modestly investing in high duration
corporate bonds (12.02%) and government bonds (5%), while leaving 5.63% of my
portfolio in cash. Within stock funds, I focused primarily in the small-mid growth sector,
while diversifying my holdings with a lesser allocation of small and large blend funds.
Furthermore, I used primarily growth ETFs like VBK to leverage an existing long
position in the Vanguard USD index, allowing me to maximize indirect derivative
securities. Although the portfolio concentrated on small-mid cap, and thus higher risk,
companies, the funds were also screened to maximize the best ratings in categories like
expenses & fees, analyst ratings, and alpha, or return above expected return. In addition,
the highest allocation in Bonds occurred in the extensive interest rate sensitivity to midrange credit quality. This was due to the higher duration bonds that I targeted, which
while increasing the potential gains, also leads to greater interest rate risk. The bonds
additionally were screened to minimize fees & expenses, while still meeting risk
tolerance specifications in lower credit quality ratings like BBB.
B.f.b. International Diversification
The portfolio was screened additionally to disperse smaller portions of the allocation into
more aggressive or developing regions like Asia, while maintaining stability with 83.04%
of the portfolio’s investments in North America. In addition, the use of an international
derivative allows additional leverage, while also imposing the required risk of the
portfolio goals. Furthermore, investments in relatively stable European assets helps to
diversify the risk of the overall portfolio.