PORTFOLIO-GROUP-5- Report

INTERNATIONAL UNIVERSITY SCHOOL OF BUSINESS ADMINISTRATION Portfolio Theory and Investment Analysis Assignment Lecturer Le Hong Nhung Submitted date January 5th, 2021 Group members Đoàn Minh Tuyền – B[.]

INTERNATIONAL UNIVERSITY

SCHOOL OF BUSINESS ADMINISTRATION

Portfolio Theory and Investment Analysis

Table of Contents

INVESTMENT POLICY STATEMENT 3

Investment Objectives 3

Constraints 4

Asset Allocation 5

Portfolio Investment Management 6

MACROECONOMIC ANALYSIS 9

GDP and Inflation 9

INDUSTRIES AND COMPANIES ANALYSIS 11

Food And Beverages (Icb: 3500) 11

Real Estate Investment Service (Icb: 8630) 13

Construction & Material (Icb: 2350) 14

Health Care (Icb: 4570) 15

Industrial Goods & Service (Icb: 2700) 16

Utilities (Icb: 7570) 17

Travel & Leisure (Icb: 5750) 17

Retail (Icb: 5370) 18

Mining (Icb: 1700) 18

Personal & Household Goods (Icb: 3700) 19

METHODOLOGY 20

Stock Picking Process 20

Historical Performance Evaluation 25

Stocks’s Weights 27

PERFORMANCE EVALUATION 29

Treynor Ratio 29

Sharpe Ratio 30

Jensen Measure 31

Fama Measure 32

CONCLUSION 34

REFERENCES 35

Word Count: 4989 (except: Cover page, Table of Contents, Table of Data, Annotations &

Reference)

INVESTMENT POLICY STATEMENT

Investment objective Capital appreciation and Income generation

Risk tolerance Moderate relative to Vietnam stock market

Expected return 0.15% per day

Target investors Third-year college students and fresh graduates

Performance benchmark VN Index

INVESTMENT OBJECTIVES

The portfolio's primary objective is to achieve capital appreciation through changes in the stock market price We also have a secondary emphasis on earning income generated mainly by dividends With a 200 billion VND budget, we invested in a diversified portfolio of Vietnamese companies' stocks primarily listed in HOSE The portfolio aims to bring the investors the highest rate of return within a moderate level of risk This portfolio is suitable for third-year college students and fresh graduates, whose ages range from 20 to 25 When constructing the portfolio,

we also consider many other factors that affect the portfolio's risk and return (years, rate of return, asset allocation, taxes, …)

• Expected return

Short-term investment occurs in one year, which provides us enough information about the market to determine when stock prices have the lowest and highest values Moreover, we also consider the stock's trading volume’s stability over some time to avoid unexpected risks

To meet the goal of significant capital appreciation and income generation, we expect to achieve the expected return of 0.15 - 0.20% We will use the VN Index return as the benchmark, and profit each time is our target We also take the necessary risks to achieve our profits quicker In a short time, we are aware of the various unexpected changes in the stock market daily Domestic and international socio-economic situations heavily influence short-term stock prices Thus, in the short-term, the rate of return can equal the bank interest rate

• Risk Tolerance

The target customers of the portfolio are third-year college students and fresh graduates passionate about stock investing This group of investors is often seen as willing to take less risk because they do not have financial responsibilities, such as raising children or preparing for retirement If the investment is correct, profits are returned quickly and time saving On the other hand, they will stop investing in undervalued stocks and seek more potential ones A moderate level of risk is suitable for them

CONSTRAINTS

Some constraints that affect portfolios are liquidity needs, time horizon, legal and regulatory issues Investors who are from 20-25 years old have few immediate liquidities needs Instead of choosing blue chip companies, we invested in some high potential companies Before the intense outbreak of the Covid-19 epidemic worldwide, they were flooding the financial market

and withdraw from the market However, surprisingly, stocks in the pharmaceutical & medical sector grew, bringing attractive profit opportunities for short-term investors

We sort stocks with good growth momentum by looking for information such as the most significant price volatility compared to the previous day, last week, or last month; signal bottom phase breakout; the highest profit growth rate over the same period; the highest amount of money; price fluctuation criteria of the whole group/industry, etc This type of investor's buying strategy often uses indicators from the chart, hoping to buy at the right time when they firmly believe that the uptrend is happening To have a suitable selling plan, investors use technical indicators to identify potential reversal and downtrend For example, an indicator of a downward trend is by comparing the investor’s portfolio with a compatible stock market index or analyzing whether the cause of the growth has ended or not

The stock market in Vietnam is not very well-regulated Additionally, Vietnamese investors tend to overreact to rumors, and they made decisions with little to nonrational consideration

ASSET ALLOCATION

Vietnam inflation contains unstable factors that would jump up in the foreseeable future Also, the commodities market and derivatives are not currently available in Vietnam The government forbids investing in the gold price and foreign currencies

First, we adequately manage our finances by dividing our income into life funds With investment funds, we will continue dividing them into smaller investments The higher the level

of risk, the lower the money rate should be

Short-term investment accounts always have more stocks than long-term accounts to ensure that the entire portfolio will not be significantly affected when a stock plunge

Daily directory monitoring Check the indices regularly to see if stocks show signs of reversal Simultaneously, we must also pay attention to the business, the whole industry, or the market's macro information, maintaining a proper cash holding ratio from time to time

To match the average adjusted risk-return that we choose initially, the portfolio should not include any portion of government bonds, gold, and foreign currencies Therefore, we intend to invest in companies that do business in our interested industries that we believe to be feasible, and whose listed shares on a stock exchange Most of the stocks in our portfolio come from Ho Chi Minh Stock Exchanges (HOSE)

PORTFOLIO INVESTMENT MANAGEMENT

Management Strategies

The stock market, especially in the short-term, always has unusual fluctuations that fall outside experts' forecasts Each investor has different investment methods and processes; each investor depending on their point of view or strengths may have different focus or priorities for each stage: asset allocation, investment strategy, and stock selection

It is believed that factors of the economy such as growth, inflation, unemployment, interest rates, investors' general psychological factors can affect whether the stock market has short-term or cyclical increases and decreases There is a trend that when the market goes up, the majority of stocks tend to rise together, and when the market falls, the majority

economy, industry, and individual company analysis, to determine potential companies in each sector to buy stocks

We can apply the active strategy to this portfolio In contrast to a passive strategy,

an active strategy always focuses on economic indicators, financial indicators, and different tools to predict market forecasts and stock prices, which help buy actively selling stocks for higher profits than just buying and holding stocks However, these investors do not have the expertise to make quick and regular stock trading decisions and analyze the markets During that time, we will minimize our portfolio, look for undervalued stocks, and buy & sell stocks actively

Monitoring and Review

A portfolio has been developed, and it needs to be tracked and reviewed Portfolios also need to be considered for adjustments if there are any changes in the stock price or the underlying factors Take VN-index as the benchmark, and the investment performance will

be monitored, reported, and compared to the VN-index every quarter as to whether it outperforms or not The portfolio's account must be assessed in terms of, for example, whether the investor has met their goals) The investor will want to know whether the return requirement has been achieved and how profitable the portfolio is against any established benchmarks Performance analysis may suggest that investors review their goals and make some changes to the IPS

Rebalancing

When the proportion of stocks is different from the intended level due to market

adjusted if the investor's needs or circumstances have changed If necessary, the investors would adjust each stock's weight in the portfolio every quarter to ensure the return and minimize the loss If the fluctuations happen too frequently, the adjusting basis can be narrowed down to one month

MACROECONOMIC ANALYSIS

GDP AND INFLATION

In 2019, the Vietnamese economy showed a strong foundation and high resilience due to increased domestic demand and export-oriented manufacturing 2019 is the second consecutive year that economy has achieved and exceeded all 12/12 of the National Assembly (N.A)'s targets and growth has reached over 7% since 2011 The macroeconomy has become more and more stable, and the economy's significant balances have been improved GDP's growth rate is estimated

at 6.8%, and inflation is below 3%

In 2019, many resources were also mobilized for development investment The total investment capital for the development of the whole society in 2019 is estimated at 33.8% of GDP, promoting the private economic sector's driving role The investment proportion increased to more than 45% of GDP In agriculture, forestry and fishery increased by 1.62%; industry and construction rose 7.92%, while service rose 8.09% From the perspective of using GDP in the fourth quarter of 2019, final consumption increased by 7.29% over the same period last year; asset accumulation increased by 8.28%; exports of goods and services rose 5.05%; imports of goods and services rose 6.71% The year 2019 recorded a healthy development of the domestic economic sector in the export sector with a growth rate of 17.7%, much higher than the growth rate of the foreign-invested sector (4,2%)

The average inflation in the first nine months of the year at the lowest level in the past three years is a bright spot in managing and the management of the State Bank's monetary policy Core inflation has also been more stable as the indirect impact of the electricity price hike in March

faded The average CPI increased by 2.5% YoY in the first nine months, the lowest level in the past three years While quarterly, the CPI tended to decrease, with CPI in the third quarter increasing by 2.23%, relatively lower than the increase in the previous quarters (the growth of about 2.6% in the first and second quarters) Core inflation has cooled down, with an average of 1.88% in 9 months In the last three months of the year, the CPI will not have many strong fluctuations, and the average inflation for the whole year 2019 is forecasted to be 2.6%, while the average core inflation is 1.9% YoY

On the contrary, the negative factor is that public service prices can continue to be increased, including BOT fees and health care prices An increase of about 5% (as drafted) will increase the overall CPI by about 0.2% With the above conditions, the average inflation for the whole year 2019 will be at 2.6%, while the average core inflation is 1.9%

The results of 2019 are the premise for Vietnam's economy in 2020 to aim for higher goals and more robust growth In 2020, Vietnam will continue to stabilize the macro-economy, setting

a GDP growth target of about 6.8%; total export turnover increased by about 7%

INDUSTRIES AND COMPANIES ANALYSIS

FOOD AND BEVERAGES (ICB: 3500)

Food and Drink are necessities, and demand remains stable regardless of economic conditions Therefore, it is possible to maintain steady and safe growth when investing in this industry

The F&B industry is forecast to continue to maintain healthy growth momentum until

2020, with an average increase of 10.9% per year thanks to improved income The trend of consuming higher value products will dominate consumer tastes The demand for clean food and healthy drinks will see positive changes in all segments with a shift to high-value food in the future, promising substantial growth opportunities for healthy food and beverage companies

In 2020, the F&B industry in Vietnam was strongly affected by Decree 100/2019 (a greatly affected group of alcoholic beverages) and the Covid-19 pandemic Covid-19 has exposed many weaknesses of the F&B industry, typically issues related to logistics, distribution, and human resource management The impact of Covid-19 for product groups in the industry is also significantly different

Before the pandemic, the F&B industry was stable Some food industries have increased their operating capacity to meet market demand However, on the contrary, the beverage group's production capacity currently only operates at less than 80% during the pandemic Most F&B needs do not change very much Depending on the quality, there will be different price competition

Vietnam has the potential to become one of the leading markets for F&B in the region The increasingly young population (estimated at over 50% of the Vietnamese population under 30 years old), the improved income levels, and the popularity of processed food allow for higher demand in this sector While consumers are continually changing their interests, the abundance of agricultural products - raw materials supplied for food and beverage processing activities - enables businesses in the industry to diversify their product categories to meet demand

All F&B accepted for sale in the market must pass a food safety certification to ensure consumers' health There are three emerging trends in the period from 2019 to 2020 The first is the explosion of natural and environmentally friendly products The second is the belief in real values about the product Third, the rise of custom nutrition products is designed specifically for each individuals' needs and preferences through social media

Despite the impact of Covid-19, many businesses have built and applied modern technological processes in production activities and managed very steadily during the crisis Except for factory workers who are forced to work in shifts, all other enterprise activities can be controlled and monitored remotely through software, applications or more

Demand for the F&B industry often does not fluctuate significantly, even when the economy has many changes The opportunities for the growth of F&B brands in Vietnam, however, are enormous due to the active presence of foreign enterprises in the Vietnamese market, which opens up many opportunities for investment and production cooperation in industrial zones, creating jobs for workers, transferring technology, and allows products to become diversified and convenient At the same time, pushing competitiveness will stimulate domestic firms to adapt to innovation to blend in with common trade

REAL ESTATE INVESTMENT SERVICE (ICB: 8630)

Real estate is the industry group with the largest number of members on the stock exchange The transactions of stocks in this group also have a clear differentiation Recently, deposit and lending rates have declined, suggesting that commercial banks are having trouble with no borrowers When interest rates drop sharply, investment in real estate becomes a more profitable option: it engenders profits from leasing business or from the difference in the real estate’s value

as its price is expected to increase over time A bright spot in the Vietnamese market is industrial real estate Currently, large-scale investment in industrial real estate in Vietnam is building large industrial zones, closed logistics chains, warehouses, etc

As for real estate stocks, on the whole market, the market capitalization value is accounting for about 23% This is one of the critical sectors that greatly influence the movement of the VN–Index Covid-19 has caused many implications for the world In particular, the epidemic made the global economy seriously recession; half of the jobs were affected, production and business were stagnant, and it broke the value chain That background has involved the stock market in general and the real estate stocks in particular

In 2019, real estate stocks' liquidity often accounted for more than 20% of the whole market's total trading value, showing this stock group's attractiveness to domestic and international investors Although the stock market in 2019 is not favorable with many unpredictable fluctuations, in general, real estate stocks were still relatively optimistic

In 2020, the Covid-19 pandemic presented a common challenge to the economy and real estate market Most real estate businesses face difficulties when projects are still congested, causing the supply to decrease The market is entirely due to the hesitant psychology of investors

The market challenges were immediately reflected in real estate companies' results when revenue

in the first six months of 2020 decreased by 26%, and profit decreased by 13% over the same period In which 20 enterprises reported losses, 35 enterprises reduced their earnings However, after the epidemic was well controlled, the real estate market has moved back to launch activities The rapid development and maturation of the economy, capital market, and real estate market will overcome the pandemic crisis According to a report of CBRE, the consumption rate of both Hanoi and Ho Chi Minh City is always stable Consumption is still high, exceeding supply

Vietnam's stock market is also expected to be upgraded in the next few years Effective from January 1, 2021, the revised Securities Law will facilitate the market for corporate bonds and investment capital, private development, including real estate investment Real estate is an area that attracts colossal investment capital, with each project from hundreds to thousands of billion VND also strongly affected, both in the general business market, as well as next to capital sources, especially in the segment of real estate resorts, commercial centers, retail premises, offices for rent Many people focus on investing in real estate because of its potential

CONSTRUCTION & MATERIAL (ICB: 2350)

As more houses and structures are built, the production of construction and materials will also be enhanced Recently, the construction industry stocks, including steel, asphalt, construction stone, and cement, increased enormously due to the direct benefit from the government boosting

of public investment

The asphalt industry can benefit significantly from the accelerated disbursement of the government in infrastructure projects Also, low oil prices in 2020 will bring higher profit margins

South expressway projects, equivalent to about 6.2% of current construction steel demand Thereby, it will reduce competition pressure in the industry, especially when the whole industry's capacity is expected to increase by about 15% this year

Although the building materials industry in recent years has achieved a certain amount of progress, the production of construction materials in Vietnam is not sustainable, which also reveals shortcomings that need to be overcome, such as the scale is too small and scattered, which mean the investment efficiency is not high; so investing for developing some types of construction materials is not practical; the environmental restoration after the exploitation of minerals as construction materials has not been focused; production technology of building materials in some fields is backward compared with current level in the region and the world; technical human resources trained in the field of construction material production are still weak, not commensurate with the increasingly high development requirements of the industry

HEALTH CARE (ICB: 4570)

Healthcare will be an area of interest to investors The health care industry is growing significantly A significant driver of this growth is the aging population's demographic trend in many parts of the world As individuals age, they are more likely to need health care products and services Not to mention recently, when the COVID-19 epidemic broke out, making this group have potential if you invest in it Recently, the impact of acute pneumonia caused by the new strain

of coronavirus has significantly affected the stock market In particular, the demand for medical items such as masks and hand sanitizer increased Recently, many insurance companies also pay compensation to customers who are infected with the coronavirus That was when healthcare stocks grew splendidly

Pharmaceutical stocks are considered a group of high safety stocks because of their unique products related to health In particular, in the complicated situation of the Covid-19 epidemic, many pharmaceutical stocks will benefit, thereby creating a breakthrough With the pharmaceutical industry, all kinds of antibiotics or drugs to treat corona are special treatment, and almost all Vietnamese pharmaceutical companies cannot supply them Only the medical supplies industry and medical facilities have surged out However, this group is not listed in the current stock market Therefore, the drug group to increase prices is mainly speculative and short-term

INDUSTRIAL GOODS & SERVICE (ICB: 2700)

With the excellent control of Covid-19, industrial production in October 2020 continued to maintain a higher growth momentum than the previous month to serve the demand for industrial products in the peak months at the end of the year, brought positive contributions to the economic recovery process when the epidemic was under control, although lower than the 10.8% increase in October 2019 but higher than the growth rate of August and September 2020 (6.1% and 3.2% respectively) This is a bright spot showing a substantial recovery of processing and manufacturing activities, opening up hope that the industry will recover quickly and grow again Covid-19 is under strict control while the Trade Agreements take effect, especially the EVFTA Simultaneously, administrative procedures are reformed to create a legal opening for the business environment, which will be a significant driving force in developing the business community's activities, including enterprises in the Industrial Goods & Service

UTILITIES (ICB: 7570)

The utility industry collects companies that provide basic amenities such as electricity, water, natural gas, waste services, and dams And even though utilities are profitable, they are still part of the public landscape, so they are very tightly controlled Investors often view the utility industry as long-term holdings and use them for cultivating a fixed stream of income for their portfolios

The utility industry often gives investors steady and steady dividends, with fluctuations in price relatively lower than the general stock market For these reasons, the utility industry often performs well during periods of recession In contrast, utility stocks are often unpopular in the market during periods of economic growth

TRAVEL & LEISURE (ICB: 5750)

The trajectory of the COVID-19 pandemic tends to be quite volatile, causing the Travel and Leisure industry to be seriously affected Semi-annual financial statements of Travel and Leisure services listed on the stock exchange showed a decline rapidly in this industry group Although companies in this sector have resumed their businesses after this period, there are still specific difficulties compared to last year; for example, the fixed costs such as maintenance, land rental costs, and employees' wages still have to be paid in full

However, the Travel and Leisure stocks' liquidity is still relatively high and is appealing to investors Some stocks even have increased market prices due to the expectation of the government’s supportive policies and a history of high dividend payments Although the tourism service industry is greatly affected by the drop in tourist arrivals in two major markets, China and