Global Asset Allocation and Stock Selection Assignment

1
Global Asset Allocation and Stock
SelectionAssignment 1

• Comparison of Investment Styles along Tactical
  Trading Strategies

Gold Asset ManagementArtima SuraphongchaiGenzo
KimuraAndrew (Jing) LiuJoseph SunStefan Prawitz
2
AGENDA

• Methodology Overview

• Forecasting Model

• Strategy Evaluation

• Key Take-Aways

3
Methodology Overview 3 Investment Styles
4
Each Investment Style Evaluated Across 6
Tactical Trading Strategies
5
Country-based Forecasting Model
(3)
(4)
(5)
(2)
(1)
(1)
(6)

• Note
• P/E ratio of US equities
• P/E ratio of UK equities
• Change in spread of 10-year German Bunds over
  10-year US Treasuries
• Dividend Yield of Japanese equities
• Price-Book Ratio of Japanese equities
• UK term structure

6
Sector-based Forecasting Model
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Historical Efficiency Frontier (Strategic View)
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Predicted Efficiency Frontier (Tactical View)
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Investment Style Comparison (Return)
MSCI World Return
0.0071
10
Investment Style Comparison (Standard Deviation)
MSCI World Std Dev
0.0424
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Investment Style Comparison (Sharpe Ratio)
MSCI World Sharpe Ratio
0.1672
12
Two way comparisonRanking System for
Combination Evaluation (I)
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Two way comparison Ranking System for
Combination Evaluation (II)
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Key Take-Aways

• Investment Style Comparison
• Overall score shows Mixed Strategy is the best
• Plot of efficiency frontier favors country-only
  strategy
• Poor sector returns probably due to high
  inter-correlation
• Tactical trading Strategy Comparison
• Overall score shows 1b Long-or-Cash (Filter
  Rule) is the best
• Little difference between 2-Long and Long-Short
  trading strategies
• Buy Hold strategy has the lowest performance
  (But still beat MSCI World)
• Best combinations is to have Combined asset
  classes and implement Long-Cash (with Filter)
  trading strategy

15
Global Asset Allocation and Stock
SelectionAssignment 1

• Any Questions?

Gold Asset ManagementArtima SuraphongchaiGenzo
KimuraAndrew (Jing) LiuJoseph SunStefan Prawitz
16
Regression SummarySolid Adj-R2 and High
Predicting Power
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GARCH model (Expected variance)
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Investment Style Comparison Table
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Strategy Comparison (Maximum Return)
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Strategy Comparison (Minimum Return)
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Global Industry Classification (GICS)

• Note
• 10 Sectors (Other 6 sectors are Energy,
  Industrial, Consumer Staples, Consumer
  Discretionary, IT and Telecom)
• 24 Industry Groups
• 62 Industries
• 132 Sub-industries

Source MSCI website