Assignment: Design a portfolio strategy that you expect will outperform the Barc

Question

Assignment: Design a portfolio strategy that you expect will outperform the Barclays Aggregate Index over the next twelve months. You should state whether you would like to be overweight, underweight or be neutral relative to six different major sectors of the market and provide your rationale for doing so. You should also state your desired duration and convexity characteristics and your rationale for doing so. This should be consistent with your sector allocation strategy Please provide the macro-cconomic environment that you expect will prevail over the next twelve months and the rationale for your expectations.- Your sector weighting strategies should be based on valuations and fundamentals. Historical spread levels will be provided to make your valuation judgements. Fundamentals should be based on your assumptions about the macro-economic environment. To the extent you have knowledge of the "technical" condition of a sector (dynamics of supply and demand), you may incorporate that as well. Below are the characteristics of the Barclays Aggregate Index as of 10/31/2017 3.60% Treasury Agency Agency MBS CMBS ABS Corporates 25.71% 36.95 051% 1.83% Other 28.03% 3.37% Sector Weightings Yield to Maturity Option Adjusted Spread Duration Convexity 2.60% 35 basis points 5.96 Years .16

Explanation / Answer

The portfolio strategy for the above question is as:

Convexity

Yield Characterstics

Duration positioning

Sector positioning

Macro economic environment

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