High liquidity assets such as money market instruments (MMI) play a large role although it is

often constitutes a small percentage in a fund. MMI serves as a counterbalance tool in volatility of
a portfolio as a whole1 due to the nature of the asset itself as it is a low risk to risk free asset. In
other words MMI help in diversifying the risk of the fund contributed by other asset classes2.
Moreover, MMI do offer a regular income stream unlike securities like stock which may or may
not have a dividend pay-out. As MMI are mostly mature in a shorter period, yield from the
investment can be obtained in short term. Upon the maturity, a different MMI will be invested
again in the fund.
However, the portion of high liquidity assets in a fund is often limited to only a small percentage
in a fund. Although the role of the assets in a fund is undeniable, there are still some drawbacks if
the assets are taking a larger portion of investments in a fund.
A positive correlation between the risk and return result is a low return from the MMI. Investing
large amount of capital in money market instruments may create a large opportunity cost as the
capital available can be invested in other alternative in order to obtain higher return. Besides, the
return from MMI are often depending on the interest rate. As interest rate may fluctuate, MMI are
actually subject to an interest rate risk. When there is a decline in interest rate, the yield from MMI
will be lowered. The situation will be worst when there is a negative interest rate causing a drop
in the NAV of the fund as a whole which is in contrast to the primary reason of investing in MMI3.

Asset Classes Equity Bond Risk Free Assets

Benchmark Index Nasdaq Stock S&P U.S U.S Treasury Bills

Market Index Aggregate Bond
Index
Weightage (Based
on Assumption) 60% 30% 10%
 Portfolio risk and return measurement are used to formulate an optimal choice of assets
and allocation. Primarily, the portfolio was constructed by collecting the monthly stock prices for
five years historical stock of the three listed companies which have been selected. One of the stocks
is chosen from Kuala Lumpur Stock Exchange and another two from Nasdaq. Thomson Reuters
Eikon has been used to gather the latest 61 monthly stock prices for each stock from May 2014 to
May 2019. All the collected data was copied and pasted in the excel to proceed further calculations
for the portfolio construction.

Moreover, the monthly gross returns (HPR) of each stock were calculated using the capital
gains formula, (P1-P0)/P0. Overall average monthly returns have been calculated by summing up
the total gross return and finally divide it by 61 months. Arithmetic mean has been considered in
this calculation where E(r)=1/n(r_1+r_2+r_3+⋯+r_n). Positive average monthly returns are
obtained through out 5 years for each stock at the end which indicates that the companies are
performing well in this healtech sector.

Volatility of asset return is calculated by using the variance and standard deviation which
is used to estimate accurate future returns. It stipulates the variability of realiasable results around
the mean value. By referring to the collected returns, the difference between the observed returns
and average monthly returns have been calculated and squared. The differences in squared have
summed up, formula. Monthly variance has been calculated by dividing the total squared
differences by the figure as per observations by subtracting one, formula. Monthly standard
deviation for each stock was calculated by the square root of the variance. Investment risk in the
portfolio is measured by using the standard deviation to show how the prices of stock fluctuates
wildly (Faulkenberry, 2006).

Annualized Average Monthly Return (AAMR)

Based on the values that were calculated in the above section, the AAMR is in accordance
of the geometric average where it is able to elaborate on how much an inventor is able to achieve
over a period of 12 months.

AAMR = (1+average monthly return)12-1

Annualized Variance (AV)

The overall AV is predetermined by looking at the overall monthly variance over a period of 12
months.
AV=(Variance *12)

Annualized Standard Deviation (ASD)

The ASD of each stock under the proposed portfolio is calculated by the square root the values
under the AV.

ASD=((STDEV*SQRT(12))

Variance-covariance matrix

Monthly variance covariance matrix (MVCM)

The MVCM or the dispersion matrix enables an investor to be able to access the value at
risk of respective stocks. Through this method, it enables the investor to be able to obtain an overall
probability measurement of the highest loss that an investor are about to face (Kharrat &
Boshnakov, 2016). The method that can be used to calculate the variance and covariance between
individual stocks are as follows,
12=i=1n(r-r2)n-1, ij=i=1n(i-i2)((j-j2)n-1
Annualized variance covariance matrix (AVCM)
The overall AVCM can be calculated by multiplying the values from the MVCM by a period of
12 months.

Portfolio Expected Return (PER)

The PER refers to the mixture of the expected returns of the considerable number of stocks in an
investment portfolio. Each stock under the portfolio were allocated with equal weightage in order
to have been allocated with equal weightage in order to maintain a balance under the suggested
portfolio. The function that was used to calculate the PER involves:-

=MMULT(TRANSPOSE(ALLOCATED WEIGHTAGE, AVERAGE ANNUALISED

RETURN)

Portfolio variance (PV)

The PV refers to a statistical value of modern investment theory which aides in the
estimation of the dispersion of average returns from the mean of the portfolio. It also is able to
determine the overall risk present under the portfolio. The function that was used to calculate the
PV involves:-

=MMULT(TRANSPOSE(ALLOCATED WEIGHTAGE, AVCM ,ALLOCATED

WEIGHTAGE)

Portfolio standard deviation (PSD)

 The PSD refers to the standard deviation of the rate of return on an investment portfolio
which is used to measure the inherent volatility of a portfolio. This measurement is also able to
measure the investment’s risk as well as to analyze the stability of returns of a portfolio.The
function that was used to calculate the PSD involves:-√PV

Sharpe ratio (SR)

The SR refers to the measurement of risk-adjusted return of an investment portfolio. It is

capable in measuring the excess portfolio return over the risk-free rate (3.18%) to the PSD of the
portfolio(3.2012%). The function that was used to calculate the PSD involves:-

In the context of Sharpe ratio, it defines as an expected return per unit in addition to the
standard deviation. In order to attain the returns and the standard deviation of the portfolio, the
calculation of Sharpe Ratio was calculated through the formula.

We have attained a Sharpe ratio of 1.048 through the solver function within excel, which
is attained at an optimal level of Sharpe ratio of the portfolio in accordance to the weightages
levelled. The weightages are attained on the assets that are intended to be invested. The main goal
to maximize Sharpe ratio is to have a full extend of return with reasonable level of risk which leads
us to mean variance efficient portfolio (MVEP). What this simply means to attain the best
combination of risk and return compared with the others. The calculation of mean variance sums
to a return of 6.5347% with an estimated risk of 3.2012%.
 To achieve another objective by utilizing a minimum variance portfolio, a minimum level
of standard deviation that are produced by using the weightages that are obtained from the desired
portfolio. The reason or rather the objective is to achieve a minimized risk from other target returns
which will in return benefit us on a better shape attained on the frontier. In order for this objective
to be achieved, the calculation has to be repeated several times.

The total calculation of return, risk(Standard deviation) and variance are classified in
accordance of ascending order with respect of the risk-free rate being at constant stand of 3.18%.
In accordance to all the information above, the respective Sharpe ratio is then calculated.

Coherent with the mean variance efficient frontier in comparison to the minimum variance
frontier will resolve in the end production of an efficient frontier (ISyE, 2013). Pictured on the
scatter plot of each dot are the representation of the portfolio constructed on the aspect of the asset
weight combination. The point noted as an upward-sloping section represents minimum-variance
frontier which is efficient. This in turn results in no higher amount of return coherent to the given
level of risk. The range of the efficient portfolios above, states the minimum-variance point at
return of 5.5058% and a risk level of 2.895%. This is interdependence of the risk appetite of an
investor to select a portfolio stated along the efficient frontier.

To attain an efficient optimal portfolio, a combination of both risk-free assets and risky
asset portfolio to promote a lower reduction of risk for investors (Kent, 2007). Projected on the
graph is a point of the capital allocation line which is represented by the blue tangent line claiming
the highest point ratio of 1.048. In other words, the slope line is also regarded as Sharpe ratio which
is reward-to-risk ratio.
 What can be studied from is that for each holding asset an investor is willing to hold, would
compute to the accumulation of return achieved via the Sharpe ratio. What classified as additional
returns refers to profits gained higher compared to risk-free assets offers. Calculation of additional
return is by subtracting the return of an asset to a risk free rate. Finally, the Sharpe ratio is then
calculated by dividing excess return by standard deviation to its assets.