Analysis and Comparison of Aviva Fund

Portfolio with its competitors

Saurav Mandhotra
Section C
62/2011

About AVIVA
• Aviva is a British multinational insurance
company
• Sixth-largest insurance company in the world
measured by net premium income and has
53 million customers across 28 countries
• Formed by a merger of two British insurance
firms, Norwich Union and CGU plc.
• Aviva name was adopted in July 2002

Objectives of the study

Comprises of 3 Parts • Analysis and Comparison of fund portfolio of Aviva with competitors • Creating a portfolio for Aviva • Calculating Value at Risk(VaR) .

Analysis and Comparison of fund portfolio of Aviva with competitors(SBI Life Insurance and ICICI Prudential Life Insurance) .

Equity:80%‐100%) • Enhancer Fund( Debt and Money Market:0%‐40%.60%-100% in Government and other Debt securities) • Growth Fund(Cash and Money Market 0%‐40%.Funds under Study • Bond Fund (0%-40%:Cash and Money Market.Equity:60%‐100%) • Dynamic P/E(Debt and Money Market :0%‐100% .Equity: 0%‐45% Government and other Debt Securities: 50%‐90%) • Index Fund(Debt Securities Incl. Money Market 0%‐20%.Equity:0%‐100% ) .Equity:30%‐85% Government and other Debt Securities:0%‐50%) • Balanced Fund (Cash and Money Market 0%‐40%.

62% ICICI 10.64% . • %age of fund Invested • Money Market:37% • Government Securities:19% • Corporate Bonds:44% Aviva Returns 4.Bond Fund • Investment objective :Progressive capital growth with relatively lower investment risks.27% SBI 9.

93 39.69 AVIVA SBI ICICI Corporate Bonds Government Securites 30% 20% 47.75 36.5 1.62 70% 60% 50% 14.69 2.Investment Pattern 100% 90% 80% 37.69 40% 57 61.38 10% 0% Money market .

65% 16. • %age of Fund Allocated: • EQUITIES GOVERNMENT CORPORATE Bond MONEY MARKET 67.Growth Fund • Investment objective: long-term cumulative capital growth while managing the risk of a relatively high exposure to equity markets.15% 13.57% .08% • Returns: -8.12 % 3.

21 -0.06 0.16 -0.02 -0.Comparison Tracking Sharpe Error Ratio Treynor Ratio Jensen Alpha Informat M^2 ion ratio Beta Returns AVIVA 6.01 0.61 -8.61% .03 -13.13 -0.48% -1.14 0.57% SBI LIFE 7.14 -0.09% ICICI PRUDE 10.03 -0.91 -0.22 0.27 -0.47 -10.39 -0.00% -3.24 -0.93% -1.

Balanced Fund • Investment objective: Long-term cumulative capital growth while controlling risk. by availing opportunities in debt and equity markets • %age of Fund Allocated • • • • Equity:32% Government Securities: 10% Money Market:13% Corporate Bonds:45% • Returns: -2.40% .

03 -0.20% -3.71 -0.40% 8.36 -0.38 -0.77% 12.07 0.07 -0.03 .14 0.30 -0.18 0.64% -1.64 -0.31 ICICI PRUDE -5.12% -1.13 0.Returns Tracking Sharpe Error Ratio Treynor Jensen Ratio Alpha Informa M^2 tion ratio Beta AVIVA -2.04 1.35% 15.11 -0.01 0.34 SBI LIFE -3.

92% .Index Fund • Investment objective :Generate returns in line with the Stock market index . Subject to exposure norms applicable under the IRDA (Investment)Regulations.NIFTY. • %age of Fund Allocated • Equities: 99% • Money Market:1% • Returns: -3.

41% HDFC BANK LTD 5.08% ITC Ltd 7.33% -13.04% ICICI Bank Ltd 6.33% 23.34 -22.73% -5.90% -30.Top 5 Equities Equities % amount of invested Return Given by the Equity Infosys Ltd 8.85% .24% Reliance Industries Ltd 7.

AGROCHEMICALS 25 AUTOMOBILES BANKING AND FINANCIAL SERVICES CONSUMER GOODS 20 ENGINEERING HOTELS 15 INFORMATION TECHNOLOGY INFRASTRUCTURE MEDIA 10 METALS & MINING OIL & GAS AND ANCILLIARIES OTHERS 5 PHARMACEUTICALS 0 1 POWER AND POWER EQUIPMENT REALTY .

12 -0.87% 13.15% -0.03 -0.20 0.06 .99% 1.19 1.20 -0.75% -1.99 SBI LIFE -14.64 ICICI PRUDE -10.04 0.89% -1.40 0.86 -0.92% 2.03 -0.07 1.02 0.36 -0.35 0.23 0.Returns Tracking Sharpe Error Ratio Treynor Jensen Ratio Alpha Informati M^2 on ratio Beta AVIVA -3.

01% 5.95 Media 14.84 0.47% 6.58% 8.80% 3.41% 9.54 INFORMATION TECHNOLOGY 4.03 50% 11.98% 0.51 ICICI AVIVA 0% SBI BANKING AND FINANCIAL SERVICES Auto & Ancilliary .83 20% Cement 22.66% 30% FMCG 27.92 5.33% 3.03 20.47 2.84% POWER AND POWER EQUIPMENT Infrastructure 11.16% 10% 11.98% 1.99 4.98% 6.70% 0.51% 6.55% Axis Title 80% 11.87% 2.91% 1.07% 25.04% 60% 12.71% 3.64% 6.83% 0.92% 7.18% 70% 4.39 5.13 13.Pattern of Equity Investment Others Telecom 100% 90% 1.93% 2.07% 40% Pharmaceuticals Oil & Gas Metals 4.

24% .Enhancer Fund • Investment objective: Long-term cumulative capital growth while managing the risk of exposure to equity markets. • %age of Fund Allocated • Equities: 96% • Money Market: 4% • Return : -5.

05 1.24% 3.21 0.03 0.55 0.74% -12.52% ICICI PRUDE 3.24 -0.59 -0.96 --0.95 -0.70 0.20 0.03 0.01 -0.42% -1.18% 11.33 -0.04 .04 SBI LIFE -11.90% -1.33 -0.AVIVA Returns Tracking Sharpe Error Ratio Treynor Jensen Ratio Alpha Informati M^2 on ratio Beta -5.14 -0.

Creating an Efficient Frontier for Aviva Fund Investment .

Theory and Model used • Markowitz portfolio theory also know as Modern portfolio theory • Black and Litterman’s Solution to the Optimization Problem • Global Minimum Variance Portfolio .

e. and lesser risk than any other with the same or greater return. the set of portfolios with expected return greater than any other with the same or lesser risk. .Markowitz Portfolio Theory • Inputs: – The expected return for each asset – The standard deviation of each asset (a measure of risk) – The correlation matrix between these assets • Output: – The efficient frontier. i.

05 (1.76% -1.1% 5.90 4.68 10.36% 1.5% 2.85% -0.2 10.0003 -0.0% commodity.0077 0.8 13.37% 5.47% 8% 7.61% 11.86 11.29% in Bullion.00% 6.00% 100% 32.53% in currency and 0% in fixed income Efficient Frontier Nifty Commodity Series1 Bullion Currency Fixed income .2% 1.8% 1.01506 12.55 6.7% 2.00% 14.65% 1.0% 60% 19.86% 0.04) 0.5% 3.00% 0% 14.2 15.000241 Bullion -0.43% 9.43% 0.0% 10% 12.08 7.3 14.23% 12.0% 12.17E-05 Fixed income 0.7 8.37% 3.16% 8.00% 5.38) (1.81% 8.30% 1.84% 5.72% 1.45% 2.77% -1.00% 30% 12.0% 0.0077 0.84% 5.54% 2.2 20.78% 10.54% 2.27% Experime 15% 20% 12% 17% 36% Po 20% 17% 22% 0% 20% 29% Volatility 20% 53% 18% 0% 100% 100% Expected Return Mean 10.3 4.7% 2.002994 Risk Free rate Mean Variance Volatility Variance Volatility Port 1 7.630% 12.0005 0.0% 40% 14.0% 15.30% 1.07% 1.841% 24.76% -1.8 28.90% -0.0 23.70% VarVariance 0.50% 0.0% 12.0002 0.193% 0.01% 0.47% 8.00% 8.29 8.2 3.0 5.0011 4E-05 0.070% 1.2% 0.2% 1.63% 12.84% Sigma Mean Sharpe Combination ratio of portfolio % of portfolio12.00158 -0.0035 -0.0035 0.66% 7.17% 6.4 10.14% 0.9% 1.000498 Commodity 0.0031 0.8% 1.08% 0.00081 0.0% 0.00299 8.82% 0.00112 0.00% 90% 29.19% 7.27% 7.02% 2.15% 0.5% 3.62% 1.87 7.01075 0.00% 13.86% 12.00307 0.23% 2.0031 0.7% 2.00032 0.78% 10.49 9.4 18.5% 2.00% 70% 22.01075 0.00% 80% 25.7% 1.24) (0.79% -1.43% 1.17E-05 Currency -0.68 6.1% 5.47 Optimum Capital Allocation which is 17% Nifty.7 50% 16.82% Mean Sigma sharpe ratio 25.82% -0.5% 3.E® Nifty Commodity Bullion CurrencyFixed income Nifty 0.54% 10.69% 13.00% 16.01% 1.30%Covar Matrix 24.79% 0.5 0.8 20% 12.000528 Volatility 2.51 5.81% 2.92% 4.62 4.9% 1.5% Series1 2.916% 4.00029 0.76% 10.

Black Litterman Model .

56 0.6% 1.00% 0.0000 0.51 1.70 itc 0.0002 0.20 1.54 1.adjusted Optimized benchmar factor factor with benchmark k with no opinions portfolio opinion Variance Co-variance Matrix Hdfc Hdfc 0.0002 0.88% 14.958% 2.88% 14.33 0.0002 Infosys 0.05 0.0005 0.0005 sbi 0.0000 0.00% 0.0000 0.945 93.878% 2.91% 919.037% Expexted b-return2.291 182.0006 0.059% 1.02 itc Infosys Reliance inds 0.9% 2.00 0.52% 19.0004 itc 0.0000 0.05% 10.77 0.1% 1.0006 icici 0.0002 0.034% 0.01 0.050% 0.Anticipated Return Risk Free Rate 2% 1% Reliance Hdfc icici sbi itc Infosys inds 119.0004 0.039% 0.44% 28.776 13.26 0.00 0.44% 28.23 0.0% Hdfc Hdfc 1.445% 2.0011 0.0011 0.05% 10.52% 19.03 0.0000 0.0004 0.05% 10.02 Infosys Reliance inds 0.88% 14.53 0.008% 0.39 0.20% 13.0004 0.0000 0.0000 Reliance inds 0.96 sbi 0.0002 0.27 1.0002 0.20% 13.00% 0.8% 1.0007 0.763% 0.0000 0.00% 0.0006 sbi 0.04 icici 0.722 124.0000 0.0005 0.20% 13.29 0.753 265.01 0.35 Infosys 0.795 132.Wtih n.00 0.4% 2.00% 0.031% 0.44% 28.0004 icici 0.282 Return portfolio Wtihout n.0011 itc 0.00 icici 0.554% 13.053% 1.0% 2.0004 Expexted b-return 0.0000 0.00 0.91% 13.01 sbi 0.00% 0.0002 0.0006 0.52% 19.0008 0.45 1.91% .03 0.0002 0.

VaR(Value at Risk) of Funds .

00% Index Fund return Growth Fund Return Balance Fund Return Protector Fund return Enhancer Fund Return Bond Fund Return 0 20 40 60 80 100 120 140 160 180 200 .50% 4.VaR(Historical Method) 8.00% 3.50% 2.50% -1.00% -0.50% 5.00% 5.50% 7.00% 6.50% 0.50% 1.00% 0.50% 3.50% 6.00% 2.00% 1.00% 7.00% 4.

30% 11.00% 0.00% 3.23% Volatility 23.24% 6.97% Initial Investment(A ssumption) 100 100 100 100 100 100 Cut-off 80 80 80 80 80 80 Probability that the portfolio will be less than cut off 4.45% 14.` Index Fund return Growth Fund Return Balance Fund Return Protector Fund return Enhancer Fund Return Bond Fund Return Mean (Yearly) 19.14% 1.68% 1.90% 6.79% 19.64% 7.52% 0.27% 7.00% .40% 0.39% 14.64% 1.

VaR(Using Monte-Carlo Simulation) Monte Carlo Simulation 25.00 5.00 20.00 0.00 15.00 10.00 Mar-09 Jun-09 Oct-09 Jan-10 Apr-10 Jul-10 Nov-10 Feb-11 May-11 Sep-11 Index Fund return Growth Fund Return Balance Fund Return Protector Fund return Enhancer Fund Return Bond Fund Return Dec-11 Mar-12 Jun-12 .

Thank You .

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