VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY

INTERNATIONAL UNIVERSITY
SCHOOL OF BUSINESS
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PORTFOLIO REPORT
Lecturer: Vo Xuan Hong
Course: Derivatives and Risk management
Semester 1 (2021 – 2022)

Group members:

Full name Student ID

1. Ngô Hạ Nhi BAFNIU19130
2. Nguyễn Vũ Lan Chi BAFNIU18292
3. Lương Thị Minh Nhi BAFNIU17018
4. Nguyễn Hoàng Lê Trang BAFNIU18151

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 CONTENTS
INVESTMENT POLICY STATEMENT...............................................................................3
I. INVESTMENT OBJECTIVE.........................................................................................3
1.1 Time Horizon:..............................................................................................................3
1.2 Return:.....................................................................................................................3
1.3 Risk Tolerances:.....................................................................................................3
II. CONSTRAINTS...............................................................................................................4
2.1. Asset Allocation:.....................................................................................................4
2.2. Monitor and Review:..............................................................................................4
2.3. Rebalancing:............................................................................................................4
FUNDAMENTAL ANALYSIS................................................................................................5
I. VALUATION APPROACH.........................................................................................5
II. MACROECONOMIC ANALYSIS..............................................................................5
III. INDUSTRY ANALYSIS............................................................................................6
3.1 Technology industry....................................................................................................6
3.2 Healthcare industry.....................................................................................................6
3.3 Food and Beverages.....................................................................................................7
3.4 Real Estate....................................................................................................................8
IV. STOCK AND OPTION ELECTION ANALYSIS..................................................9
METHODOLOGY.................................................................................................................14
EVALUATION.......................................................................................................................15
REFERENCES........................................................................................................................17

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 INVESTMENT POLICY STATEMENT
Target clients: People who age from 30 to 45
Time horizon: 4 - 6 months
Investment Objective: Capital gain
Overall risk level: Medium relative to American stock market
Asset allocation: 100% in Stock Options that listed in Nasdaq Stock Exchange
I. INVESTMENT OBJECTIVE
The objective of the investment is to focus on gaining capital appreciation of options of
stocks managed by Nasdaq Stock Exchange (NASDAQ). All the capital will be invested in
the stock options, targeting the short-term investment, aiming to earn profit to pay off short-
term needs (mortgage fee, children’s tuition fees)

1.1 Time Horizon:

Our target customers are in the age group of 30-45, who are in the process of building and
consolidating their own and their family's financial resources. So, the short-term investment to
finance for the short-term needs is raising. This is the reason for us to choose the investment
period of the portfolio is 4 - 6 months.

1.2 Return:

Capital appreciation in stock options is the main goal. Hence, the optimal portfolio return
is ranged from 15 to 20 percent per month.

1.3 Risk Tolerances:

Based on an identified target audience, we expect our investors to be in a substantially

stable financial phase. Therefore, they are willing to accept a relatively high level of risk.

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 II. CONSTRAINTS
We construct this statement of short-term investment policy to the specific needs of our
clients. Additionally, we carefully consider investor constraints to determine the optimal
strategy that meets both financial goals and risk tolerance.

2.1. Asset Allocation:

We choose to apply the top-down three-stage process to come up with the final list of stock
options selection. Then, we use option strategies to determine the positions and well as type of
options. Finally, we determine the weight of each company to allocate capital optimally.

2.2. Monitor and Review:

Investment performance will be monitored quarterly, and a summary report will be

provided to customers quarterly.

2.3. Rebalancing:

The weight of each stock options may vary depending on the market situation.

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 FUNDAMENTAL ANALYSIS
I. VALUATION APPROACH
The top-down technique is utilized in our portfolio for three main analyses. Firstly,
Macroeconomic analysis includes present and future economic patterns, the effects of fiscal,
monetary policy and epidemic on the economy. Secondly, Industry analysis determines which
industries are likely to thrive or suffer in the market in order to make the best investment
option. Finally, Stock selection analysis does deeper research in particular firms to find strong
stocks in each field to add to the portfolio.
II. MACROECONOMIC ANALYSIS
It is said that not only has the world economy emerged from the shadow of recession, but
it has recovered quicker than projected and restored its growth momentum, despite the
difficult developments of the COVID-19 outbreak, the energy crisis, and the present
economic situation. The international economy's recovery and expansion are mostly due to
the leading engines of the United States, Europe, and China.
According to the Organization for Economic Cooperation and Development (OECD),
United States may increase by 6% this year. According to JPMorgan, the vaccination efforts
being encouraged to assist most nations reopen are progressively opening bottlenecks in the
supply chain and consumption, so helping to restore growth on a wide scale.
The consumer confidence index surveyed by the University of Michigan (USA) improved
to 88.3, demonstrating the gradual reopening of the world's largest economy and the readiness
to spend on food and vacation. Americans are on the rise as COVID-19 immunizations have
become more widely available. According to experts, the reopening of many enterprises, the
federal stimulus package, and the rate of job creation will help preserve stable US economic
development. Thus, after increasing at annual rates of 3.4 percent and 4.3 percent in the third
and fourth quarters of 2020, respectively, and 6.4 percent in the first quarter of 2021, the US
economy may be regarded to be on the cusp of a full recovery. This suggests that by the
fourth quarter of 2021, the US economy will have fully recovered to pre-COVID-19 output
levels.
The economic rebound and corporate profits help to propel the stock market to new highs.
In 2021, the S&P 500 index rose 26.89%. The Dow Jones and Nasdaq also experienced a
three-year winning streak, with gains of 18.73 percent and 21.39 percent, respectively.
Despite the extraordinarily aggressive COVID-19 pandemic, with the Delta version and then
the Omicron variant producing huge outbreaks throughout the year, US stock market had

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another strong year. Stocks are predicted to go up in 2022, following the strong increase in
2020 and 2021. According to chief investment officer at UBS Global Wealth Management,
Global economic growth is expected to be positive in the first half of 2022, monetary policy
remains supportive even with monetary easing measures emergency cuts. There is a positive
view on stocks and corporate profits are expected to grow 10% next year.
III. INDUSTRY ANALYSIS

3.1 Technology industry

Companies are redoubling their attempts to alter their businesses in the face of increased
demands and limits. Because of this, software will be the star performer in the US technology
market prognosis for 2021–2022. Software purchases will expand at the quickest rate, about
10% in 2021 and slightly more than 11% in 2022. Additionally, expenditures on consulting
and outsourced services in the technology sector will expand. Economic recovery will allow
CIOs and their business partners to raise their project spending, which will result in an
increase in demand for technology consulting and system integration (SI) services. As a
result, the US technology industry will increase at a 7.4% annual rate in 2021 and at a 6.7%
annual rate in 2022.

Source: Forrester
3.2 Healthcare industry
According to Statista, the U.S spent 18% of GDP on health expenditure in 2020. Based on
Deloitte’s Healthcare Outlook Report, US’s spending per capital is projected to rise to 12,703
USD. Healthcare industry is one of the biggest and most complex sector in the U.S.
Healthcare sector in US includes Health insurance, Healthcare marketing, Pharmaceuticals,
Healthcare tech, and Health administration. Thanks to strong medical systems and

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development, the U.S healthcare industry
has been flourishing a lot in combination of
the excellent medical education systems.
With the digital transformation, the aging of
U.S population, and the Baby Boomer
generation's increasing senescence, the
concern of communicable diseases such as
COVID-19 epidemic and non-
communicable diseases such as cancer,
diabetes, and so on, healthcare demand has
a likelihood to increase.

Figure 1: U.S. national health expenditure as

percent of GDP from 1960 to 2020 (source:
Statista)

III.3 Food and Beverages

After the large dip in all industries during the pandemic, F&B firms have exceptionally
good performance in the last 12 months. Market sentiment has been promoted by a large
increase in interest for natural, healthy natural products that offer significantly higher margin
opportunities, especially within the beverages, ingredients/flavor and baked/snack segments.
Moreover, F&B is a cyclical and defensive industry that tends to remain stable and sideway
compared to the market fluctuations. Therefore, this is a considerable option to maintain the
suitable level of risk of the portfolio during the COVID pandemic.

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III.4 Real Estate

There has bene a whirlwind for the housing market. Specifically, home sales would
increase another 6.6% along with 2.9% increase in home prices on top of 2021 and a gradual
expansion in mortgage rates which make affordability a top obstacle for home buyers.
Moreover, incomes has risen by 3.3% and the workplace flexibility has improved during the
pandemic which motivates home buyers to expand their demand. The financial crisis also
increased inflation that encourages investors to seek for other investment including real estate.
Therefore, we expect a downside trend for this sector after the real estate buble (increased by

30% in a year).

S&P 500 Real Estate

IV. STOCK AND OPTION ELECTION ANALYSIS

From the above industrial analysis, our portfolio includes FOUR share:
 Real Estate: Newmark Group Inc (NMRK)
 Technology: Cognizant Technology Solutions Corp Class A (CTSH)
 Health Care: Vertex Pharmaceuticals Inc (VRTX)
 F&B: PepsiCo Inc (PEP)

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 We carefully considered the performance of these shares by analyzing their historical data
as below:

● ROA and ROE (12 months) should be at least equal to the average of industry.
● PE and PB are lower than the average industry.
TABLE 1: Financial ratios
Shares Name ROA % ROE % P/E P/B

Real Estate -244.67 1.81 33.2 3.6

NMRK 15.7 61.9 6.1 2.79
Technology 3.7 15.2 32.9 11.6
CTSH 10.4 16.6 24.8 4.0
Health Care -128.6 -196.7 40.3 6.45
VRTX 18.2 24.6 26.6 6.0
F&B 8.2 33.2 37.66 15.2
PEP 9.0 56.8 28.98 9.6
Source: Investing.com
We also followed the technical analysis to analyze the future trends of these shares.
 NMRK: The trend on Dec 10 was downtrend after reaching the peak.

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 CTSH: The MACD line cut up which indicated the upside pattern.

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  VRTX: The trend on Dec 10 was upside. The MACD line cut up and
enhancement in volume indicated the future uptrend.

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  PEP: The share price was upside on Dec 10. However, we still consider the
whole F&B to be sideway according to industry analysis.

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After combining both fundamental analysis and technical analysis, we have the portfolio:
TABLE 2: Portfolio
No. of Strike
Options Expectation Strategy Position Premium
option Price
Bear Call Long 1 20 0.1
NMRK Downtrend
Spread Short 1 17.5 0.26
Bull Put Long 1 82.5 2.9
CTSH Uptrend
Spread Short 1 87.5 6.0
Bull Call Long 1 220 5.0
VRTX Uptrend
Spread Short 1 230 3.0
Long Call Long 1 165 3.8
PEP Sideway Butterfly Short 2 170 1.5
Spread Long 1 175 0.9

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 METHODOLOGY

With a $100.000.000 budget, we use the option strategies such as: bear call spread, bull put
spread, bull call spread and long call butterfly spread to determine the position as well as type
of options. To calculate the weight of each stock options, we assess the company's potential
and risk.

NMRK (10%): Recently, the real estate industry is vigorously increase which would cause
the real estate bubble in the future. We expect the real estate industry would be downtrend, so
we put 10% of the budget to NXGN. And to limit the risk, we choose bear call spread.

CTSH (20%): the digital transformation of the whole industry would boost the technology
industry higher, and to limit the risk, we choose bull put spread. And we allocate 20% of the
budget in CTSH because the industry would be affected if the outbreak comebacks.

VRTX (40%): We strongly the health care industry would be uptrend thanks to the
increase in Covid-19 vaccine consumptions, so we accept the risk to earn massively, we
choose bull call spread. We choose 40% because we assure the industry would go as we
expect.

SBUX (30%): F&B is the defensive industry that has stable growth, so we strongly believe
SBUX would have sideway, and to limit the risk, we choose long call butterfly spread. We
use 30% budget for it to gain abnormal return.

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EVALUATION

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 With the initial capital equaling to $100,000,000 and mentioned strategies including bull
call, bull put, bear call, and long call butterfly spread , we gained $26,232,106, approximately
26.2321% within 17 trading days (from 10/12/2021 to 27/12/2021).
Total initial capital: $100,000,000
Return on our portfolio: 26.2321%
Return on market (NASDAQ composite index): 1.5397%
The good news of our portfolio is that the return of our portfolio unexpectedly reach
26.2321% in comparison with market return represented by NASDAQ composite index
(1.5397%). Despite the economic crisis and Omicron variant announcement, our portfolio
performance is over the client’s expectation. Hence, it can be undeniable that we put all our
effort in this investment, combined with our luck.

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 REFERENCES

1. https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/
articles/technology-industry-outlook.html
2. https://www.forrester.com/blogs/forecasting-in-uncertainty-us-tech-market-outlook-
improves-to-7-4-growth-in-2021/
3. http://consosukien.vn/kinh-te-my-tren-duong-phuc-hoi-hoan-toan-sau-dai-dich-covid-
19.htm
4. https://www.investing.com/

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