The assignment uses the monthly total return performance of unlisted property funds, shares, A-REITs, bonds and cash over 2011-2022.

The assignment uses the monthly total return performance of unlisted property funds, shares, A-REITs, bonds and cash over 2011-2022.

Step 1: Download the excel file "Assessment 2 Total Returns".

Step 2: Perform analysis using the data based on the questions below.

Step 3: Export analysis results (in tabulated form) into Microsoft Word and write comments for relevant questions. Please make sure tables are properly formatted.

Overview

You are required to assess the investment attributes of the Australian property market and mainstream asset classes by using the monthly total returns of unlisted property funds (including unlisted sub-sector funds), shares, A-REITs, bonds and cash.

Note: All numeric answers must have at least 2 decimal points and 2 significant figures.

Use the geometric mean, not the arithmetic mean in calculating the average return.

Perform analysis for all relevant variables, unless the assets / series are specified.

1. Using the total returns, calculate the total return index for all investment assets using a base value of 1,000 with a starting date of December 2010

2. Based on the total return index, graph the performance trends of unlisted property funds, shares, A-REITs and bonds over Dec 2010 - Dec 2022. Based on the graph, comment on the following:

How have these investment assets performed over time?

Why do unlisted property funds exhibit fewer fluctuations compared to shares and A-REITs?

Why do A-REITs exhibit a comparable performance trend with shares?

3. Based on the total return index, graph the performance trends of office, retail and industrial funds over Dec 2010 - Dec 2022. Based on the graph, comment on the following:

How have these sub-sector funds performed during the pandemic?

Why do these sub-sector funds exhibit unique performance trend over time?

4. Using the total returns of investment assets, calculate the average monthly returns and monthly risk over Jan 2011 - Dec 2022.

5. Based on the analysis in Question 4, calculate the average annual return and annual risk for each of these investment assets. Comment and compare the performance of these investment assets.

6. Construct the inter-asset correlation matrix for all variables using the Jan 2011 - Dec 2022 data.

7. Based on the analysis in Question 6, explain in-detail on the inter-asset correlations concerning portfolio diversification for the following scenarios:

the feasibility of inter-property diversification through different property investment vehicles

identify the combinations from the three unlisted sub-sector funds that offer (1) the best and (2) the worst diversification benefits

if an investor has a conventional portfolio of shares and bonds, does the inclusion of either A-REITs or unlisted property funds enhance diversification benefits?

8. Based on the analysis in Question 6, discuss the inflation-hedging characteristics of unlisted property funds, A-REITs, shares and bonds.

9. Based on the analysis in Question 5:

Construct the risk-return diagram for these investments.

Calculate the risk-to-return ratio and return-to-risk ratio for these investments.

Calculate the Sharpe ratio for these investments. Use Cash as the risk-free investment.

Comment and compare the Sharpe ratio performance between unlisted property funds, A-REITs, shares and bonds

10. Using the monthly returns over Jan 2011 - Dec 2022, calculate the beta value and Treynor ratio for each of office, retail and industrial funds; use unlisted property funds as the market benchmark and cash as the risk-free investment. Discuss the results for these three sub-sector funds in the context of return sensitivity, relative risk and risk-adjusted performance.

11. Using the monthly returns over Jan 2016 - Dec 2022, calculate the beta value and Treynor ratio for A-REITs; use shares as the market benchmark and cash as the risk-free investment; Discuss the result in the context of return sensitivity, relative risk and risk-adjusted performance.

12. Using the monthly returns over Jan 2018 - Dec 2022, calculate the tracking error and information ratio for each of office, retail and industrial funds; use unlisted property funds as the market benchmark; discuss the results for these three sub-sector funds in the context of performance replication and efficiency.

13. Using the monthly returns over Jan 2015 - Dec 2022, calculate the tracking error and information ratio for A-REITs; use shares as the market benchmark; discuss the result in the context of performance replication and efficiency.

Note: For Questions 14 to 17, use total returns over Jan 2011 - Dec 2022.

14. Calculate the portfolio annual return and annual risk for the following portfolios comprising office, retail and industrial funds:

half of the total allocation into oice and the balance is equally allocated into retail and industrial

43% each into oice and industrial, and the balance is allocated into retail

An institutional investor has an existing portfolio composition of 60% shares and 40% bonds. The investor is looking to diversify its investment into a 4-asset portfolio comprising shares, bonds, A-REITs and unlisted property funds.

15. Calculate the annual return and annual risk based on the existing portfolio composition

16. Recommend and assess the performance of a 4-asset portfolio composition comprising shares, bonds, A-REITs and unlisted property funds that can outperform the existing composition in Question 15 in both annual return and annual risk. Explain the reason behind this allocation recommendation.

17. An institutional investor requires a property asset class allocation that is liquid and transparent and has allocated 40% to the property asset class. Recommend and assess the annual return and annual risk of a 4-asset portfolio composition comprising shares, bonds, A-REITs and unlisted property funds that fulfills this requirement. Explain the reason behind this allocation recommendation.

Formatting & Submission Guideline

The main report should strictly be a maximum of 15 pages in length and 750 words (only comments are counted ex. numbers, tables and figures).

Key figures / answers must be included in the main report. Simply indicating 'refer to the Excel file' is not sufficient and will be marked as "wrong answer".

All numeric answers must have at least 2 decimal points and 2 significant figures.

The submitted Excel spreadsheet must be a working spreadsheet containing the formula and cell-references. 50% penalty applies.

Use Times New Roman with 12 points font size and 1.15 spacing. Paragraph must be justified.

The report must be presented with a quality that conforms to the formatting requirements, and professional / industry and academic standards