saurav mandhotra

7/30/2019 Saurav Mandhotra

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Analysis and Comparison of Aviva Fund

Portfolio with its competitors

Saurav Mandhotra

Section C

62/2011


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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


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Objectives of the study


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Analysis and Comparison of fund portfolio of Avivawith competitors

Creating a portfolio for Aviva

Calculating Value at Risk(VaR)

Comprises of 3 Parts


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Analysis and Comparison of fund

portfolio of Aviva with

competitors(SBI Life Insurance andICICI Prudential Life Insurance)


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Funds under Study

Bond Fund (0%-40%:Cash and Money Market,60%-100% in Government and other Debtsecurities)

Growth Fund(Cash and Money Market 0%40%,Equity:30%85%Government and other Debt Securities:0%50%)

Balanced Fund (Cash and Money Market 0%40%,Equity: 0%45%Government and other Debt Securities: 50%90%)

Index Fund(Debt Securities Incl. Money Market 0%20%,Equity:80%100%)

Enhancer Fund( Debt and Money Market:0%40%,Equity:60%100%)

Dynamic P/E(Debt and Money Market :0%100% ,Equity:0%100% )


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Bond Fund

Investment objective :Progressive capital growth

with relatively lower investment risks.

%age of fund Invested

Money Market:37%

Government Securities:19%

Corporate Bonds:44%

Aviva ICICI SBI

Returns 4.62% 10.27% 9.64%


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Investment Pattern

47.3857 61.69

14.692.5

1.69

37.93 39.75 36.62

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AVIVA SBI ICICI

Corporate Bonds Government Securites Money market


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Growth Fund

Investment objective: long-term cumulative

capital growth while managing the risk of a

relatively high exposure to equity markets.

%age of Fund Allocated: EQUITIES 67.12 %

GOVERNMENT 3.65%

CORPORATE Bond 16.15%

MONEY MARKET 13.08%

Returns: -8.57%


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Comparison

Tracking

Error

Sharpe

Ratio

Treynor

Ratio

Jensen

Alpha

Informat

ion ratio

M^2 Beta Returns

AVIVA 6.00% -3.02 -0.27 -0.21 -0.16 -0.14 0.61 -8.57%

SBI LIFE 7.93% -1.14 -0.39 -0.06 0.91 -0.01 0.47 -10.09%

ICICI

PRUDE

10.48% -1.13 -0.22 0.24 -0.03 -0.03 -13.61%


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Balanced Fund

Investment objective: Long-term cumulativecapital 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%


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Returns Tracking

Error

Sharpe

Ratio

Treynor

Ratio

Jensen

Alpha

Informa

tion

ratio

M^2 Beta

AVIVA -2.40% 8.20% -3.36 -0.30 -0.13 0.64 -0.18 0.34

SBI LIFE -3.77% 12.64% -1.07 -0.38 -0.04 1.07 0.01 0.31

ICICI

PRUDE

-5.35% 15.12% -1.11 -0.14 0.71 -0.03 -0.03


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Index Fund

Investment objective :Generate returns in line

with the Stock market index - NIFTY. Subject

to exposure norms applicable under the IRDA

(Investment)Regulations.

%age of Fund Allocated Equities: 99%

Money Market:1%

Returns: -3.92%


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Top 5 Equities

Equities % amount of invested Return Given by the Equity

Infosys Ltd 8.33% -13.24%

Reliance Industries Ltd 7.90% -30.08%

ITC Ltd 7.33% 23.04%

ICICI Bank Ltd 6.34 -22.41%

HDFC BANK LTD 5.73% -5.85%


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0

5

10

15

20

25

1

AGROCHEMICALS

AUTOMOBILES

BANKINGANDFINANCIAL

SERVICESCONSUMERGOODS

ENGINEERING

HOTELS

INFORMATIONTECHNOLOGY

INFRASTRUCTURE

MEDIA

METALS&MINING

OIL&GASANDANCILLIARIES

OTHERS

PHARMACEUTICALS

POWERANDPOWER

EQUIPMENT

REALTY


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Returns Tracking

Error

Sharpe

Ratio

Treynor

Ratio

Jensen

Alpha

Informati

on ratio

M^2 Beta

AVIVA -3.92% 2.75% -1.20 -0.12 -0.19 1.35 0.04 0.99

SBI LIFE -14.99% 1.89% -1.03 -0.36 -0.07 1.23 0.02 0.64

ICICI

PRUDE

-10.87% 13.15% -0.86 -0.20 0.40 0.03 -0.06


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11.98%6.58% 8.51

27.07%

22.16%

25.83

0.64%

4.66%

2.54

11.84%

6.87%

9.84

12.83%

11.41%

14.03

1.04%

6.07%

4.95

0.91%

1.51%

4.70%

5.98%

7.39

11.18%20.92%

13.03

3.55%5.80% 4.13

6.71% 0.01%5.99

2.47%3.98%

2.921.93% 3.33%0.47

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SBI ICICI AVIVA

AxisTitle

Pattern of Equity InvestmentOthers

Telecom

POWERANDPOWEREQUIPMENT

Pharmaceuticals

Oil&Gas

Metals

Media

Infrastructure

INFORMATIONTECHNOLOGY

FMCG

Cement

BANKINGANDFINANCIAL

SERVICES

Auto&Ancilliary


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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 : -5.24%


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Returns Tracking

Error

Sharpe

Ratio

Treynor

Ratio

Jensen

Alpha

Informati

on ratio

M^2 Beta

AVIVA -5.24% 3.42% -1.24 -0.14 -0.20 0.70 0.03 0.96

SBI LIFE -11.52% 3.74% --0.95 -0.33 -0.05 1.55 0.03 0.59

ICICI

PRUDE

-12.18% 11.90% -1.04 -0.21 0.33 -0.01 -0.04


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Creating an Efficient Frontier for

Aviva Fund Investment


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Theory and Model used

Markowitz portfolio theory also know as

Modern portfolio theory

Black and Littermans Solution to the

Optimization Problem

Global Minimum Variance Portfolio


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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.e. the set of portfolios withexpected return greater than any other with the

same or lesser risk, and lesser risk than any other

with the same or greater return.

E Variance Volatility Experim


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E Variance Volatility

Nifty ommodit Bullion Currency ixed income Port 1 P

Nifty 0.0077 0.0035 -0.0003 -0.2% 0.000498 7.630% 0.0077 8.78% 15% 20% 17%

Commodit 0.0035 0.01075 0.0031 0.0% 0.000241 12.841% 0.01075 10.37% 20% 22% 0%

Bullion -0.00029 0.00112 0.0031 0.1% 5.17E-05 24.916% 0.00307 5.54% 12% 20% 29%

Currency -0.00158 -0.0011 4E-05 0.1% 5.17E-05 4.070% 0.00081 2.84% 17% 20% 53%

Fixed inco 0.0005 0.00032 0.0002 0.0% 0.002994 1.193% 0.00299 5.47% 36% 18% 0%

100% 100%

Risk Free r 8%

Mean 7.82% Mean 10.70% 24.92% 5.54% 3.05

Variance 0.01506 Variance 0.000528 4.07% 2.84% (1.38)

Volatility 12.27% Volatility 2.30% 1.19% 5.47% (1.24)

7.63% 8.78% (0.04)

Sigma Mean Sharpe r 12.84% 10.37% 0.47

% of portf 12.27% 7.82% Mean Sigma sharpe ratio

0% 14.17% 6.86% 0.90 4.9% 1.76% -1.8

10% 12.66% 7.50% 0.62 4.9% 1.76% -1.8

20% 12.16% 8.15% 0.51 5.8% 1.77% -1.2

30% 12.81% 8.79% 0.55 6.2% 1.79% -1.0

40% 14.43% 9.43% 0.68 6.8% 1.82% -0.7

50% 16.76% 10.08% 0.87 7.2% 1.85% -0.4

60% 19.54% 10.72% 1.08 7.7% 1.90% -0.270% 22.61% 11.36% 1.29 8.7% 2.01% 0.3

80% 25.86% 12.01% 1.49 9.7% 2.14% 0.8

90% 29.23% 12.65% 1.68 10.7% 2.30% 1.2

100% 32.69% 13.30% 1.86 11.5% 2.43% 1.4

12.5% 2.62% 1.7

13.5% 2.81% 2.0

14.5% 3.02% 2.2

15.5% 3.23% 2.3

16.5% 3.45% 2.5

Experim

mbination of portfol

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Series1

3.0%

8.0%

13.0%

18.0%

23.0%

28.0%

Efficient Frontier

Nifty

Commodity

Bullion

Currency

Fixed income

OptimumCapital Allocation

which is 17% Nifty,0% commodity,29% in

Bullion,53% in currency and 0% in fixed

income

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Series1

Expected Return

Volatility

Var-

Covar

Matrix


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Black Litterman Model

2%Anticipated Return


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2%

1%

Hdfc icici sbi itc Infosys

Reliance

inds

119,945 93,722 124,291 182,795 132,753 265,776 919,282

13.05% 10.20% 13.52% 19.88% 14.44% 28.91%

Variance Co-variance Matrix

Hdfc icici sbi itc Infosys eliance inds

Hdfc 0.0006 0.0005 0.0004 0.0002 0.0000 0.0004 0.00% 0.034% 1.9% 1.878% 13.05% 13.05%icici 0.0005 0.0011 0.0011 0.0006 0.0002 0.0000 0.00% 0.050% 2.4% 2.445% 10.20% 10.20%

sbi 0.0004 0.0006 0.0007 0.0002 0.0000 0.0004 0.00% 0.039% 2.1% 2.059% 13.52% 13.52%

itc 0.0002 0.0002 0.0002 0.0008 0.0000 0.0002 0.00% 0.031% 1.8% 1.763% 19.88% 19.88%

Infosys 0.0000 0.0000 0.0000 0.0000 0.0005 0.0000 0.00% 0.008% 1.0% 0.958% 14.44% 14.44%

Reliance in 0.0004 0.0006 0.0004 0.0002 0.0000 0.0011 0.00% 0.053% 2.6% 2.554% 28.91% 28.91%

Expexted b- 0.037%

Expexted b- 2.0%

Hdfc icici sbi itc Infosys eliance inds

Hdfc 1.00 0.51 0.54 0.26 0.05 0.33

icici 0.96 1.00 1.45 0.77 0.53 0.01

sbi 0.70 0.56 1.00 0.27 0.03 0.39

itc 0.35 0.23 0.29 1.00 0.03 0.20Infosys 0.04 0.01 0.02 0.02 1.00 0.01

Anticipated Return

Risk Free Rate

portfolio

benchmar

k with no

opinion

Wtihout n-

factor

Wtih n-

factor

Return

adjusted

with

opinions

Optimized

benchmark

portfolio


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VaR(Value at Risk) of Funds


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VaR(Historical Method)

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

0 20 40 60 80 100 120 140 160 180 200

Index Fund

return

Growth Fund

Return

Balance Fund

Return

Protector Fund

return

Enhancer Fund

Return

Bond Fund

Return


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`

Index Fund

return

Growth Fund

Return

Balance Fund

Return

Protector Fund

return

Enhancer Fund

Return

Bond Fund

Return

Mean

(Yearly)

19.30% 11.27% 7.90% 6.39% 14.64% 7.23%

Volatility 23.45% 14.24% 6.64% 1.79% 19.14% 1.97%

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

4.68% 1.40% 0.00% 0.00% 3.52% 0.00%

V R(U i M t C l


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VaR(Using Monte-Carlo

Simulation)

0.00

5.00

10.00

15.00

20.00

25.00

Mar-09 Jun-09 Oct-09 Jan-10 Apr-10 Jul-10 Nov-10 Feb-11 May-11 Sep-11 Dec-11 Mar-12 Jun-12

Monte Carlo Simulation

Index Fund return Growth Fund Return Balance Fund Return

Protector Fund return Enhancer Fund Return Bond Fund Return


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Thank You

saurav mandhotra

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