It is assumed that five years ago you read an article by French (2008)1 and the findings of the paper related to
extra cost associated with active investment motivated you to construct a passive portfolio of equities. You
then had inherited 1,000,000 cash in your local currency (i.e. £1,000,000 for UK campus students,
HK$1,000,000 for HK campus students and Qatari Riyal 1,000,000 for Qatar campus students) and you could
make such decisions as: how much to invest, in which equity(ies) and any specific criteria for selection of
equities you wanted to follow.
This year, as a student in the investment management course, you have the opportunity and time to invest
actively. Starting from teaching week 3 of semester one, you are required to invest the money you realised
from passive investment in an active manner for which you have decided to make a thorough economic
environment analysis and forecasting including a reassessment of your risk tolerance and investment
objectives. (In the case that all your investment from the passive portfolio has lost its value, you can borrow at
5% per annum interest rate but only such amount to give you a total of 1000,000 in your local currency at the
start of week 3 i.e. if in week 3 the value of your passive portfolio is above 1000,000, you won’t be allowed to
borrow additional funds). Note the following information for all new trades:
Week 3
The active trading starts in week 3 of Semester 1 and you should close and realise the value of your investment
in week 12 i.e. you have a total of 10 weeks for active trading. Similar to the passive portfolio, in this period
again, you are required to build and manage investment portfolio of equities. The following trading rules apply:
No use of futures or options, no short sales, no gearing and no exchange traded funds, no investment in bonds.
Week 3 to 12 (10 week period)
During the portfolio management period (week 3 to 12), you are required to rebalance your portfolio to achieve
your investment objectives. At the end of Week 12, you should close your portfolio and carry out the final
valuation.
Your objective (for both active and passive portfolios) is to outperform the relevant performance benchmark(s)
on a risk-adjusted basis. For UK campus students, your suggested benchmark is a portfolio with 100% invested
in FTSE 250 Equity Index (Bloomberg Ticker: MCS Index). For HK campus students, your suggested
benchmark is a portfolio with 100% invested in Hong Kong Hang Seng Index (Bloomberg Ticker: HSI Index).
For Qatar campus students, your suggested benchmark is a portfolio with 100% invested in Qatar Exchange

1 French, K. R. (2008). Presidential address: The cost of active investing. The Journal of Finance, 63(4), 1537-1573.
Assignment Brief – Newcastle Business School
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Index (Bloomberg Ticker: DSM Index). You must value your portfolio and take into account the transaction
cost which is 1% of transaction amount per trade (same for passive portfolio).
You are encouraged to use Bloomberg Financial Database but you can also use publicly available financial
database sources such as Yahoo finance and Google finance. Similarly, you can use Bloomberg portfolio
analysis tools or make analysis through calculations in MS Excel.
In your final investment report, you are required to address the following:
1. Discuss your investment philosophy. Demonstrate how your asset allocation decisions match with
your investor profiling. Forecast the market and discuss what assumptions you made in your market
forecasting analysis. Discuss how it differs from your investment five years ago.
(10 marks, 600 words)
2. Reflect upon your rebalancing strategies. In this section, you should highlight why you bought, held or
sold your shares and whether the rebalancing changed the nature of your portfolio. Your rebalancing
strategies should be supported by relevant investment theories and assets pricing models.
Additionally, you are required to identify relevant behavioural biases and explain your own
irrationalities observed during construction and management of the equity investment portfolio. This
should be strongly underpinned by academic literature.
(45 marks, 1,200 Words)
3. Evaluate your portfolio’s risk-adjusted absolute and relative performance. You should also explain the
performance difference between your portfolio and the given benchmark(s) using techniques such as
attribution analysis and tracking error. Additionally, you should link and evaluate your strategies,
including active and passive, results and risk taking decisions with your investment philosophy. Your
discussion should be supported by relevant theories and academic literature.
(45 marks, 1,200 Words)