INTERNATION UNIVERSITY
VIETNAM NATIONAL UNIVERSITY - HCMC

PORTFOLIO THEORY AND INVESTMENT ANALYSIS

PROJECT REPORT
December, 2015

Lecturer: Ms. Le Hong Nhung
Group members:
Nguyen Thi Phuc An – BAFNIU12135
Le Thi Ngoc Anh – BAFNIU13155
Hoang Bao Han – BAFNIU12108
Tran Thanh Truc – BAFNIU12038


Contents
INVESTMENT POLICY STATEMENT .................................................................................................. 2
FUNDAMENTAL ANALYSIS ................................................................................................................... 6
MACROECONOMIC ANALYSIS ........................................................................................................ 6
STOCK MARKET ANALYSIS .............................................................................................................. 8
INDUSTRIES AND COMPANIES ANALYSIS ................................................................................... 9
METHODOLOGY ..................................................................................................................................... 13
STOCK PICKING PROCESS .............................................................................................................. 13
HISTORICAL PERFORMANCE ........................................................................................................ 14
STOCKS’ WEIGHTS ............................................................................................................................ 16
PERFORMANCE EVALUATION .......................................................................................................... 17
CONCLUSION ........................................................................................................................................... 21
REFERENCE ............................................................................................................................................. 22
APPENDICES ............................................................................................................................................ 23

Word counts of main contents: 4, 708 (not including Cover page, References and Appendices)

1


INVESTMENT POLICY STATEMENT

Basic information

Fund

VND 100 billion

Asset allocation

100% stocks

Stock Exchange

Ho Chi Minh Stock Exchange (HOSE)

Criteria
Investment objective

Capital appreciation and Income generation

Risk tolerance

Moderate relative to Vietnam stock market


Expected return

20 – 25%

Target investors

College students and fresh graduates

Time horizon

1 - 3 years

Performance benchmark

VN Index

a)

INVESTMENT OBJECTIVES
The portfolio’s primary objective in the long term is to achieve capital appreciation

through changes in the market price of the stock. We also have a secondary emphasis on
earning income generated mainly by dividends. With a budget of VND 100 billion, we invested
in a diversified portfolio of Vietnamese companies’ stocks listed mainly in HOSE. The
portfolio’s aim is to bring the investors the highest rate of return within a moderate level of risk.
The characteristics of this portfolio are suitable for senior college students and fresh graduates,
whose ages range from 20 – 25 years old. When constructing the portfolio, we also take into
accounts many other factors that affect the risk and return of the portfolio.

Expected return

To meet the goal of capital appreciation, we expect to achieve the long-term return of 3035%. We will use the return of VN Index as the benchmark. However, we are aware that for a
short period of time, the stock market can be fluctuating with numerous unexpected events.

2


Thus, in the short-term, the rate of return can equal to the bank interest rate. In this case, we
choose the interest rate offered by Vietcombank (VCB) as a benchmark.

Risk tolerance
The target customers of this fund are college students and fresh graduates who are
passionate about stock investing. On the one hand, this group of investors does not have too
much financial responsibilities such as raising children or preparing for retirement period. Thus,
this group is often seen to have nothing to lose and is willing to take more risk. On the other
hand, as they do not have much experience, they are very careful in their choices and do not
want to lose it all. Combining both aspects, a moderate level of risk is suitable for them.

b)

CONSTRAINTS
Beside the investment objectives that sets limit on risk and return, there are several other

constraints that influence the investment plan such as liquidity needs, time horizon and legal and
regulatory issues.
This fund is for investors who are young and have few immediate liquidity needs. Thus,
instead of choosing only blue chip companies, we invested in some highly potential SMEs (small
and medium enterprises). The time horizon of the fund is set as medium-term investment with a
time frame from 3 to 5 years.
With regard to total return strategy, taxation is the main concern to individual investors.
The stock market in Vietnam is not very well-regulated. Transparency and information

asymmetry are still major problems facing investors. Additionally, Vietnamese investors have a
tendency to overact with rumors and decisions are made with little rational consideration.

c)

ASSET ALLOCATION
A powerful portfolio will own a selection of investment types, called asset classes, and

rotate among them periodically. Before choosing particular stocks for the portfolio, it is

3


important to decide on asset class mix because of its function directly influences on the
performance of the portfolio.
In the past, government bonds had the advantage of relatively stable principal value.
However, we are living in the cyber age when the high speed of information and technique helps
us a lot in any investment transaction. Therefore, investing in bonds seems less liquid than stocks
when investing for short and intermediate terms. Moreover, Vietnam inflation contains unstable
factors that would jump up in foreseeable future. Also, commodities market and derivatives are
not currently available in Vietnam. Investment in gold price and foreign currencies is forbidden
or strictly manipulated by Government. Hence, to match with the moderate adjusted risk return
we choose at the beginning, the portfolio should not include any portion of Government bonds,
gold and foreign currencies.
In contrast, equity asset like common stocks, despite the volatility of price, is considered
as high liquidity asset and generate significant return and helpful for our diversifying goal to
minimize unsystematic risk. Hence, we intend to invest in companies that do business in our
interested industries, that are believed to be feasible and whose shares are listed in a stock
exchange. Most of the stocks in our portfolio come from Ho Chi Minh Stock Exchanges
(HOSE).


d)

PORTFOLIO INVESTMENT MANAGEMENT
Management Strategies
To the belief that macro-economic factors will effect almost industries and companies in

the market, we use Top-Down Approach which includes the economy, industry and individual
company analysis to find out the good and potential companies in each industry to buy stocks.
Passive strategy is applied for this portfolio. Investors will buy stocks and keep them for
a specific period of time. The main reasons for this choice is that it is an economical but still
effective method for young people, especially for those who lack the experience. These investors
4


do not have much expertise to receive information, analyze the market and make quick decisions
to buy and sell stocks regularly as in active strategy.

Monitoring and Review
Take VN-index as the benchmark, the Investment performance will be monitored,
reported and compare to VN-index on a quarterly basis to figure out whether it outperform or
not. The investment program will be reviewed if needed to assure that it continues to achieve
your stated investment objectives and is within your tolerance for risk.

Rebalancing
Despite the historical returns, there are some inconsistences between the past and the
future. If necessary, the weight of each stock in the portfolio would be adjusted every quarter to
ensure the return and minimize the loss. If the fluctuations happen too frequently, the adjusting
basis can be narrow down to one month.


5


FUNDAMENTAL ANALYSIS
MACROECONOMIC ANALYSIS
GDP AND INFLATION
In the first 9 months of 2015, Vietnam’s macro economy has been stable despite the
downward trend of globally emerging economies. GDP has increased significantly and reached
6.81% in quarter 3 of 2015, with the average growth of 6.5%. It is estimated that GDP will
increase above 6.5% (exceeding the target of 6.2% for this year) and become the highest GDP
growth rate for the last 8 years. This growth can be attributed to in industry and construction,
especially processing and manufacturing industry. GDP growth for 9M2015 in industry and
construction sector was 9.57%, almost doubled the rate of last year’s same period (5.75%). The
Index of Industrial Production (IIP) for 9M2015 also rose 9.8%, much higher than 6.3% of last
year’s same period; in which, processing and manufacturing industry went up 10.2%.
20

4

15

3

10

2

5

1


0

0

Whole
Toàn
ngành

Processing
andtạo
CN
Chế biến chế

industry

manufacturing

Inflation
lạm phát

Basic
Inflation
lạm phát
cơ bản

Source: National Financial Supervisory Commission

Source: Stock market


Figure 2: Inflation & Basic Inflation (9/20149/2015), % CPI increase

Figure 1: IIP (9/2014-9/2015), % increase

In September 2015, inflation rate dropped to nearly 0%; however, basic inflation was still
2.4%, a stable rate for the last 7 months. August CPI fell 0.07% vs. July as a result of falling fuel
prices. Besides, housing and construction material will continue to stay on a downtrend, as the
rainy season is not over; prices for food and foodstuff as well as household goods basket are

6


anticipated to be stable because most retailers will keep the annual promotion unchanged in
September.
Vietnam’s economy will benefit considerably from TPP – A Free Trade Agreement
aiming to eliminate 18,000 different tariffs among 12 member countries. In the next decade,
thanks to TPP, Vietnam’s GDP is likely to grow by 11% (USD 36 million). Export is also
expected to grow by 28% since many factories will be moved to Vietnam. Reduced tariff from
the U.S and Japan will benefit Vietnam’s textile companies. Along with cheaper labor cost,
Vietnam has competitive advantage compared with China. Seafood is another industry that
benefits from TPP since tariff applicable on shrimps, squids and tuna currently at 6.4 – 7.2% will
be abolished. Moreover, due to duty-free imported products from Vietnam, TPP will attract more
foreign-invested capital into our country. VN Index has risen by 4.9%, while foreign investors
are purchasing more shares in logistics, industry, seafood and textiles groups. However, the
agricultural sector of Vietnam is expected to encounter fierce competition from foreign
corporations having advantage of scale and operation efficiency. The elimination of tariff on
imported pharmaceuticals (currently at 2.5%) also makes the market more intense. Besides, TPP
will strengthen intellectual property rights, making the accessibility to new products as well as
new drug manufacturing become limited.


MONETARY POLICY
In the year 2015, international
macroeconomic policies have a significant
impact on over the entire world and
Vietnam is not outside of this influence.
Therefore, State Bank of Vietnam (SBV)
Source: Netdania
Figure 3: Currency depreciation/devaluation
against the US dollar of TPP countries

7

tried to adjust exchange rate and interest
rates to stabilize the market. SBV adjusted


the exchange rate in two days, namely 12/08/2015 (adjust exchange rate volatility from 1% to
2%) and 19/08/2015 (devaluate 1% more and expand volatility from 2% to 3%). However,
comparing to the overall rate policies of 12 countries in the TPP, VND has devaluated
approximately 5%, which is still more advantageous in terms of exchange rate stability.
Moreover, the dollar is still taken into account despite the fact that inflation in the US is
below 2% of Fed expectations. To deal with this case, SBV tried to protect VND by two main
policies on USD and domestic interest rate.
SBV issued Decision No. 1938 / Decree-SBV dated 09/25/201 which change some
regulations for interest rate applied to the deposits of organizations (except organizations credit,
foreign bank branches) was 0%/year (old rate is 0.25% / year). On the tandem with SBV
policies, most of commercial banks compete to increase deposit rates from late September to
now approximately 0.2%/year. As a result, the spread between interest rates in VND and USD
savings up to nearly 6%/year. Meanwhile, the appreciation of the dollar against the dong last few
years is always lower than 4%/year. These two factors prove that deposit VND into banks is

more effective than foreign currencies, especially USD. The increase in US interest rates is very
important. This will make Vietnam's stock market and other areas will react negatively.
Companies in the financial sector (banks), or the company based on large credit debt (housing,
utilities, construction) will be hurt by the higher interest rate environment.

STOCK MARKET ANALYSIS
Figure 4: Supply and Demand of Vietnam Stock Market

Volume trading in stock market
(billion stickets)

Value trading on stock market (VND
thousand billion)
470

500

50,000

422

400
300

42,400

40,000
30,000

221.7


200

20,000

100

10,000

33,134
26,854

0

0
2013

2014

2015

8

2013

2014

2015

Source: HNX, HSX



According to officially statistics on 30/9/2015, the amount of margin debts of 10 leading
stock companies was VND 12,458 billion. Since these firms account for 65% market share,
using interpolation method can estimate the total outstanding margin debt of market was VND
19,166 billion.
Trading liquidity now is much more than in September, which makes the margin rate
higher; the estimated level around 15%, as VND 22,400 billion.
In 2016, VN Index will bottom around 560-570 in Dec 2015 and reach 670 in 1H16
before declining to 600 at year-end on stronger economic growth, rising FII inflow after
following TPP, potential upgrade to MSCI emerging in June 2017. However market risks remain
with rising interest rate, VND devaluation and further CNY devaluation.
Three key investment rationales: higher top-line growth due to rising trade post TPP,
FTA (port, residential property, textile), profit margin expansion due to lower input cost
(chemical, oil gas downstream), cyclical recovery due to higher economic growth (bank,
residential property, IT).


Large-caps (bank, insurance, real estate) to lead the growth. Oil gas to bottom in 2016
with a potential pick-up or turn around.



Port: Benefit from rising trade from TPP, FTA. Supply shortage expected for port in the
North in 2018 while low utilization still persist for Southern port.



Residential real estate: share price correlates more with EPS growth rather than cash
flow. Decline in 9M profit (-40%) with high dilution due to new share issue (+25%).

Profit growth expected low in 2016 and strong only in 2017 when most of property sold
today can be handed over.

INDUSTRIES AND COMPANIES ANALYSIS
This year, some of the most outstanding and promising industries include food
producing, construction, real estate, logistics, basic materials and mining ...
9


Food and beverages are basic necessities and the demand remains stable regardless of the
economic condition. Thus, food industry are able to maintain steady growth rates and it is safe to
invest in this industry. For the first nine months of 2015, food industry enjoyed a slight increase
of 6.1%. Within the industry, milk, confectionery and fishery are the fastest growing sectors.
However, it is noticeable that consumption growth was quite modest compared to inventory
growth. Specifically, Food Production & Processing Index increased by only 7.7% while the
inventory increased sharply by 16.4% since the end of last year.
Logistics stocks are also attractive to investors. From 1999-2014, container cargo volume
has been increasing steadily over the years, with the average of 17.43% per year. Goods quantity
transported through sea port continued to increase with 204 million tons of goods thanks to the
signing of the FTAs, attracting FDI and the recovery of the economy. Infrastructure is being
completed with the construction of Hanoi - Hai Phong Highway, so vehicles can travel straight to
Hai Phong’s ports, the travel time will halved. Good business performance, especially the stocks
in Hai Phong area such as VSC, HAH, DVP.
Real estate market is showing signs of recovery with increased consumption especially in
Ho Chi Minh City. In first quarter of 2015, the number of apartments sold rose 40% on a
quarterly basis, the highest increase since 2011. In the first two quarters, the number of
successful transaction in real estate market in Hanoi and HCMC increase 150% yoy and 180%
yoy, respectively.
Following the recovery of the real estate market, construction industry also enjoys higher
demand. By the year 2020, 33.6 million m2 of housing is needed to support 4.2 million people.

Additionally, the Housing Law 2014 which allows foreigners to buy houses in Vietnam will
create a huge demand for luxury housing segment. Industrial construction is expected to
manufacturing and processing industry, which accounts for 76.2% of total FDI in Vietnam, due
to the increasing needs on building industrial and civil infrastructure.

10


Moreover, when more houses and buildings are built, the production of construction
materials and fixtures will be boosted as well. Price of building material products remained
stable in 6 months, while cost of goods sold of building material manufacturers was affected by
mixed factors. The regulation of transport load made delivery more costly. However, the decline
of oil and gas price helped firms in the industry somehow sustain. Besides, along with the oil
price decrease, the price of derived products from crude oil, which are also the inputs of many
building material sub-industries dropped.
Power industry is regarded as the strong and potential industry influencing national
economy due to electricity demand growing to serve the process of industrialization modernization of the country. Since 6M2015, the production targets and business power
outperformed to the targets. To be more specific, the production of electricity system reached
13.9 billion kWh month 6M2015 increases of 13% over the same period last year.
Vietnam ranks 10th among the countries that are most attractive for software outsourcing
with respect to cost, risk, and operation condition. Information system service is growing again
after a difficult stage as domestic companies, especially banks, are paying more attention to their
information system and are willing to pay to improve the system’s quality. Broadband
telecommunications is being invested to improve infrastructure in order to creating competitive
advantage.
GDP growth together with free trade agreements push retail sales and thus benefit related
industries such as packaging. Outputs in various goods manufacturing industries, especially
among seafood, textiles are expected to rise, leading to strong growth in demand for packaging
items. Not just the outputs, but the inputs also provide many advantages for the packaging
industry. Specifically, the price of printing paper (made from waste paper) reduced because of

the reducing demand for industrial paper storage of China as Chinese economy is in the stage of
growth slowed. As for the group of plastic packaging, the decline in prices of raw plastic

11


materials (ABS, PP, HDPE, LDPE ...)results from the sharp decline in oil prices. This situation is
likely to be maintained throughout the year.
Retail trade industry, in particular, automobile retail trade, is quite attractive. Total
automobile output of Vietnam in 2014 was 41,500 units (1.4% increase from 2013). The average
growth rate of Vietnam automobile industry is around 20% per year. It could be attributed to
economic recovery and governmental policies encouraging domestic consumption. Moreover,
Vietnam is a country with extremely low rate of automobiles possession (only 4%), so this will
be a potential market for automobile retail industry in the future.
In the context of steady economic growth and increasing domestic consumption, some
general manufacturing industries such as textile and battery have certain prospects. Additionally,
irradiation industry, though new, is attracting intention from the investors.

12


METHODOLOGY
STOCK PICKING PROCESS
From the above macroeconomic and the industry analysis, the stocks of 30 potential
companies were identified. We choose the stocks according to both historical performance and
future prospects. 30 companies is a good number that allows us to diversify our portfolio and
reduce unsystematic risk to the lowest level as possible. A company chosen must satisfy most the
following requirements.



Not subject to a warning, controlled, suspended from trading within the previous 1 year
in HOSE



Medium to large sized stocks (Vietnam context)



ROA and ROE in 2014 should be higher or at least equal to that of the industry



Net income showed a constant growth in the last 4 consecutive years



Current ratio should be at least 1 and Long-term debt should not exceed working capital



However, those requirements are flexible for some companies that are new-listed or
possessing high growth potentiality.

Table 1: Major financial ratios and information of chosen companies in 2014
Long-term
Debt

Working
Capital


1.75
1.30

729,219

1,615,209

9

1.39

19,243,205

4,631,571

25
31
27
32
11
20
30
11

2.34
1.75
1.23
2.85
1.38

0.69
5.84
2.44

133
1,008
71,304
516,639

77,740
761,966
584,924
10,069,047

59,143
90,839
1,791,384

-22,024
401,793
1,682,848

Share Names

ROA (%)

ROE (%) Current Ratio

A
1


Food and Beverage
HVG

10
4

17
14

2

MSN

4

3
4
5
6
B
7
8
9

NAF
VCF
VHC
VNM
Logistics

CLL
DVP
GMD

14
20
13
25
5
15
24
7

13


10
11
12
C
13
14
15
16
D
17
18
19
E
20

21
F
22
23
24
G
25
26
H
27
I
28
J
29
K
30

SKG
TCL
VSC
Real Estate
DXG
LHG
NLG
VIC
Building materials and
fixtures
KSB
MSR
NNC

Power
NT2
CHP
Construction
DQC
FCN
REE
Manufacturing
PAC
STK
Retail Trade
SVC
Information technology
FPT
Packaging
DHC
Irradiation
APC

33
13
19
3
12
2
3
5

34
21

24
6
25
4
6
16

15.20
1.26
1.78
1.85
1.74
1.80
2.3
1.42

2

6

1.13

13
0
35
20
13
6
1
14

7
14
6
6
9
4
3
8
10
9
11
9
11

21
0
48
32
45
16
5
27
18
19
12
15
18
11
9
17

24
16
18
20
15

2.34
0.77
3.40
2.56
1.37
0.95
1.16
2.39
1.37
1.91
1.47
1.18
2.23
1.31
0.88
1.50
1.41
1.49
1.19
1.53
1.62

N/A
109,203

9,560

157,212
60,048
210,699

122,862
389,510
462,561
38,596,873

713,508
356,392
1,915,239
10,271,807

187,542
10,941,615
205

196,969
-613,309
191,647

5,860,253
1,445,223

884,858
-23,518


82,469
368,917
513,843

895,402
379,737
1415493

4,123
362,601

131,086
255,883

697,939

-119,091

1,330,182

7,709,264

N/A

30,833

22,491

16,893


HISTORICAL PERFORMANCE
After identifying 30 companies in 11 industries, we collected data of their historical prices from
7/9/2015 to 12/11/2015. To evaluate their historical performance, we then calculate the Mean Return,
Standard Deviation and Variance for each stock chosen.

Table 2: Historical performance of chosen companies
Stock Name
A
1
2

Mean of
daily return

Standard
deviation

Coefficient of
variance

Beta

-0.01%
-0.12%

2.00%
0.92%

-277.31
-7.71


1.411
0.229

Food and Beverage

HVG
MSN

14


3
4
5
6

NAF
VCF
VHC
VNM

B

Logistics

7
8
9
10

11
12

CLL
DVP
GMD
SKG
TCL
VSC

C

Real Estate

13
14
15
16

DXG
LHG
NLG
VIC

D

Building materials
and fixtures

17

18
19

KSB
MSR
NNC

E

Power

20
21

NT2
CHP

F

Construction

22
23
24
G
25
26
H
27


DQC
FCN
REE
Manufacturing
PAC
STK
Retail Trade
SVC
Information
Technology
FPT
Packaging
DHC
Medical Equipment
APC

I
28
J
29
K
30

0.54%
-0.09%
-0.09%
0.66%

2.10%
2.18%

1.41%
1.68%

3.87
-25.60
-14.93
2.56

0.279
0.534
1.074
0.809

0.33%
0.51%
0.37%
0.64%
0.38%
0.60%

2.62%
2.46%
1.97%
2.31%
2.18%
1.86%

7.93
4.81
5.40

3.61
5.79
3.08

0.720
1.159
1.094
0.039
0.445
0.724

0.34%
0.38%
0.17%
0.11%

1.93%
2.99%
1.28%
1.22%

5.66
7.88
7.38
11.09

1.480
2.112
0.816
1.014


0.46%
-0.25%
0.21%

1.63%
2.97%
1.81%

3.55
-11.67
8.48

0.404
0.003
-0.171

0.33%
0.40%

1.72%
1.63%

5.29
4.09

0.378
0.573

0.63%

0.18%
0.04%

2.57%
1.22%
1.07%

4.09
6.70
27.56

1.447
0.807
0.862

0.48%
0.39%

2.15%
2.40%

4.52
6.22

1.266
0.164

1.05%

3.24%


3.09

0.057

0.42%

1.50%

3.57

0.983

0.41%

1.45%

3.50

0.705

0.16%

2.00%

12.70

0.665

15



STOCKS’ WEIGHTS
By using Solver analysis, we came up with the following stocks in our portfolio to
achieve target return while having minimum variance. Eventually, 14 out of 30 stocks would be
invested to get an optimal portfolio.

No.

Share
Names

Weights
(W)

Value (VND)

Closing price
(VND 20/11/2015)

Share volume

1

VSC

7.735%

7,735,323,480


76,500

101,115

2

KSB

5.324%

5,324,262,556

35,800

148,722

3

SVC

11.977%

11,976,693,260

33,100

361,834

4


TCL

6.324%

6,324,010,363

31,700

199,496

5

CLL

3.137%

3,136,561,889

27,700

113,233

6

DHC

6.009%

6,009,052,754


28,800

208,648

7

NAF

25.787%

25,787,373,286

31,900

808,382

8

MSN

3.932%

3,931,632,047

72,500

54,229

9


VCF

2.974%

2,974,066,431

152,000

19,566

10

VNM

5.927%

5,927,065,744

131,000

45,245

11

MSR

4.132%

4,132,198,101


12,200

338,705

12

STK

2.262%

2,261,659,571

33,000

68,535

13

NT2

5.863%

5,863,176,701

27,300

214,768

14


SKG

8.617%

8,616,923,818

89,500

96,278

Total

1.00

100,000,000,000

16


PERFORMANCE EVALUATION
We are supposed to evaluate our portfolio performance after starting the investment for a
month - from November 24th to December 18th, 2015. Generally, our portfolio exhibits better
performance than market when VN-Index is used as the benchmark. The portfolio average daily
return is 0.07% whereas market average daily return is just -0.28%. On the other hand, our
portfolio standard deviation is 0.93%, less than 1.03% standard deviation of the market. Thus,
our portfolio has earned higher return while maintaining lower risk than the market.

Treynor ratio
Treynor ratio measures portfolio’s risk premium per unit of systematic risk. It assumes
that our portfolio has been completely diversified, the only concern is systematic risk

(represented by beta) since all unsystematic risk has been eliminated. It is expected that the
portfolio’s T-ratio should be higher than that of the market.
TREYNOR MEASURE
𝑻=

(𝑹𝒑𝒐𝒓𝒕 − 𝑹𝑭𝑹)
𝜷𝒑𝒐𝒓𝒕

0.0008

(𝑹𝒎 − 𝑹𝑭𝑹)
𝜷𝒎

-0.0030

T-Tm

0.0038

𝑻𝒎 =

Rport = Average daily return of our portfolio
Rm = Average daily return of the market (VN-Index)
ß port = Beta of our portfolio
ß m = Beta of the market (equal to 1)
RFR = Daily risk-free rate (Interest rate of 10-year-government bond / 365 = 0.0597/365 =
0.0002)
The beta of our portfolio from November 24th to December 18th is 0.6578, which means
that if VN-Index drops 1%, our portfolio drops 0. 6578%. So, our portfolio is less volatile than the


17


market, matching investor’s requirement of moderate risk exposure. It can be observed that the Tratio of our portfolio and market are 0.0008 and -0.0030 respectively, indicating better
performance of our portfolio compared to the market. Importantly, while market is on the
downtrend, our portfolio displays positive return.

Sharpe ratio
Sharpe ratio measures portfolio’s risk premium per unit of total risk. By using standard
deviation as a proxy for portfolio’s risk, it takes both systematic and unsystematic into
consideration when evaluating performance of pooled stocks. In other words, it evaluates both
return and diversification of the portfolio. Like Treynor measure, higher Sharpe ratio for portfolio
relative to the market is expected.
SHARPE MEASURE
𝐒=

(𝐑 𝐩𝐨𝐫𝐭 − 𝐑𝐅𝐑)
𝛅𝐩𝐨𝐫𝐭

0.0577

(𝐑 𝐦 − 𝐑𝐅𝐑)
𝛅𝐦

-0.2887

S - Sm

0.3465


𝐒𝐦 =

σport = Standard deviation of our portfolio
σm = Standard deviation of the market

The Sharpe ratio of our portfolio is 0.0577, whereas that number of the market is -0.2887.
Thus, our portfolio’s result surpasses market performance. Similar to T-ratio, our portfolio still
generates minor positive return although the market is going down.

Jensen measure
Jensen is a composite portfolio performance measure based on the capital asset pricing
model (CAPM), in which α represents excess return of the portfolio compared with the required
rate of return calculated using CAPM.
Rjt - RFRt = αj + ß j(Rmt-RFRt) + ejt
18


Where:
Rjt : Daily return of the portfolio
RFRt : Daily risk free rate
Rmt: Daily return of market (VN-index)
Stock prices from November 23rd to December 18th 2015 were collected. After that, we
run regression to obtain α and ß, and the result is as follows:
α= 0.00260191 (p-value = 0.089499> 0.05)
ß = 0.694358081
Based on our calculation, the portfolio’s alpha is 0.2602; however, this intercept is not
statistically significant since its p-value is 8.95% (higher than 5%). Overall, our portfolio does not
outperform the market. Additionally, our portfolio’s responsiveness to macro-economic changes
is less sensitive than market since our beta is less than 1 (ß = 0.694358081 < 1), which also means
that our portfolio is less risky than the market in general. However, Jensen does not take into

account the efficiency of portfolio diversification. In other words, it does not fully reflect
manager’s investing ability because Jensen is a risk-adjusted measure based on systematic risk
only (CAPM).

Fama measure
Under Fama measure, excess return is decomposed into two main components: return
from risk and return from selectivity
a. Return from risk

β(Rm-RFR) = -0.20%

This number reflects the rate of return investors earn as compensation for the
corresponding systematic risk they are taking. This risk can be anticipated by investors and
represented by beta.
b. Return from selectivity

19


Selectivity is the sum of diversification and net selectivity.


Diversification = [σi/σm*(Rm-RFR) - β(Rm-RFR)] = -0.0714%



Net selectivity = Selectivity (α) – Diversification = 0.321%
Diversification implies portfolio manager’s ability to diversify among different stocks to

minimize unsystematic risk. Our portfolio’s diversification is negative (-0.0714%), indicating that

we are lacking in efficient diversification, so our portfolio is still affected by some certain degree
of unsystematic risk.
On the other hand, the net selectivity is positive (0.321%), showing our capacity to select
appropriate stocks. Since net selectivity is much higher than diversification, the return from
selectivity is positive (0.249%) as a whole. Thus, it can be concluded that the portfolio’s return is
partly attributed to manager’s prowess.

Figure 5: Summary of Fama measure

Overall
Performance
Excess return
(Ri –RFR)
0.05%

Portfolio risk
CAPM
β(Rm-RFR)
-0.20%

σi/σm > β, portfolio contains
elements of unsystematic risk
0.898

Diversification
[σi/σm*(Rm-RFR) - β(Rm-RFR)]-0.0714%
Selectivity
(α)
0.249%


Net selectivity
0.321%

20


CONCLUSION
During constructing the portfolio, we are aware that there are several factors that can
negatively affect our analysis.
Firstly, a benchmark is very important in evaluating the portfolio, especially for passive
strategy. In this case, we choose VN-Index. However, it is not very suitable for our portfolio. VNIndex contains mainly blue chip stocks while our portfolio also have small and medium
companies.
Secondly, one challenging we have to face is that there are many companies operating in
more than one industry. It was difficult for us to decide which industry the stock belong to. For
example, REE Corp main business activity is mechanical engineering, which belong to the
construction industry. However, a substantial income of REE come from real estate and power
industry. Another example is PAC. Though the company is classified as in general manufacturing
industry, its product (battery) is closely related to automobile industry. Consequently, when
choosing which stock is potential, it can be quite misleading to compare the performance of such
companies with other peers in the same industry.
Thirdly, though market timing is an important factor in making investment decision, our
group did not have the choice to choose when to enter the market. Therefore, if we are allow more
time and, we hope to construct a better portfolio with a better result.

21


REFERENCE
Brown, Keith C, and Frank K Reilly. Analysis Of Investments And Management Of Portfolios. Thosmson
South-Western, 2009. Print.

/> /> /> /> /> /> /> /> />
22


APPENDICES
Appemdix 1: Net income of chosen companies from 2011-2014 (in
Net income
Stock

Company Name
2014

2013

2012

2011

260,430

417,756

1

HVG

Hung Vuong JSC

290,553


247,938

2

MSN

Masan Group Corporation

1,080,169

451,200

3

NAF

Nafoods Group JSC

18,601

1,419

-4,592

4

VCF

Vinacafé Bien Hoa JSC


404,783

260,389

298,242

211,113

5

VHC

Vinh Hoan Corporation

439,152

158,386

210,450

394,343

6

VNM

Viet Nam Dairy Products JSC

7


CLL

Cat Lai Port JSC

76,448

82,249

66,222

50,706

8

DVP

Dinh Vu Port Investment and
Development JSC

227,953

196,994

188,055

151,614

9

GMD


Gemadept Corporation

530,959

192,203

103,750

6,240

10

SKG

Superdong Fast Ferry Kieng
Giang JSC

103,236

55,677

58,572

39,009

11

TCL


Tan Cang Logistics &
Stevedoring JSC

108,166

85,190

68,433

91,608

12

VSC

Vietnam Container Shipping JSC

248,084

240,461

228,629

191,000

13

DXG

Dat Xanh Real Estate Service &

Construction Corporation

167,834

82,764

57,860

24,591

14

LHG

Long Hau Corporation

25,170

24,191

53,192

92,821

15

NLG

Nam Long Investment
Corporation


95,573

21,174

24,641

107,201

16

VIC

Vingroup Joint Stock Company

17

KSB

Binh Duong Mineral &
Construction JSC

96,760

83,277

18

MSR


Masan Resources Corporation

35,654

10,772

19

NNC

Nui Nho Stone JSC

104,250

20

NT2

21

CHP

Central Hydropower JSC

22

DQC

Dien Quang JSC


1,260,518 1,973,149

6,068,808 6,534,133 5,819,455 4,218,182

3,158,583 6,779,512 1,571,312

821,286

90,381

120,004

72,021

77,651

88,873

8,219

7,682

15,417

213,070

125,965

-6,957


236,594

121,266

49,040

PetroVietnam Power Nhon Trach
1,590,963
2 JSC

23

39,419


23

FCN

FECON Foundation Engineering
& Underground Construction JSC

130,306

102,332

94,530

86,675


24

REE

Refrigeration Electrical
Engineering Corporation

1,061,972

975,819

656,821

513,636

25

PAC Dry Cell And Storage Battery JSC

74,571

61,411

64,141

96,857

26

STK


Century Synthetic Fiber
Corporation

106,107

74,400

84,202

82,492

27

SVC

Saigon General Service
Corporation

51,808

41,172

44,845

44,623

28

FPT


FPT Corporation

29

DHC

Dong Hai JSC of Bentre

43,106

27,047

-2,536

366

30

APC

An Phu Irradiation Joint Stock
Company

24,999

15,557

12,954


34,554

1,632,085 1,650,155 1,540,327 1,681,818

Source: cophieu68.com

Appendix 2: Minimum variance frontier

Source: Team’s calculation

24