Portfolio Analysis

INVESTMENT STRATEGY AND RATIONALE WITH RISK ADJUSTED RETURNS

CALCULATIONS

Venkat Srikanth, Kaashni Rastogi, Shreshthi Kumar & Niko Gigiberia

INSTINCT INVESTMENTS | UNIVERSITY OF WARWICK
| Who Is This Investment Suitable For? Our thesis.
Introduction to our thesis
This paper presents a comprehensive investment thesis aimed at constructing a geographically and sector-wise diversified portfolio that balances
growth potential with effective risk management. The primary objective is to create a portfolio resilient to global economic uncertainties by targeting
both emerging and developed markets with strong economic fundamentals, political stability, and currency resilience.
The regional strategy focuses on the United States, India, Japan, Singapore, Switzerland, and Germany - countries selected for their unique strengths.
For example, the United States offers unmatched market depth and innovation, India boasts high growth potential driven by demographic advantages,
and Japan provides stability with advanced industries like robotics. Similarly, Singapore’s role as a financial hub, Switzerland’s economic resilience,
and Germany’s leadership in manufacturing make them ideal for a balanced, globally diversified portfolio.

On the sectoral front, the paper identifies technology, healthcare, financial services, consumer cyclicals, and utilities as the foundation of the portfolio,
chosen for their robust potential for growth and sustained demand. Sectors like energy and real estate are excluded due to structural challenges,
geopolitical risks, and their poor alignment with the portfolio’s goals. By combining macroeconomic insights and rigorous analysis, this thesis
outlines a forward-looking investment strategy designed to achieve sustainable returns while mitigating risks.

Who is this investment suitable for?

With a Sharpe Ratio of 3.57, and an estimated annual return of 36%, this investment is an ideal opportunity to anyone who is looking to grow their
wealth in a relatively short term, with moderate exposure to downside from possible shifts in market. As it is known that there is no investment
without risk, we firmly believe that our portfolio mitigates the risks through a careful selection of valuable investments that are very likely to grow in
the foreseeable market conditions.

What models did we use in each section to valuate and compare and why did we use them?
This thesis employs a diverse set of economic and financial models across its sections, showcasing a robust analytical framework. We first used
Arbitrage Pricing Theory (APT) as the central valuation model to evaluate stocks, allowing for a nuanced analysis of systematic risks. Unlike the
Capital Asset Pricing Model (CAPM), APT considers multiple macroeconomic factors like GDP growth, currency strength, and inflation. This indicates
a depth of analysis that accommodates multifactor risks. Secondly, we conducted SWOT Analysis to qualitatively assess business models and identify
growth opportunities. This complements the quantitative framework and ensures a holistic understanding of equity valuations. Thirdly, we used the
Bloomberg CRS, a risk-assessment metric that evaluates financial, economic, and political risks associated with each country. This adds rigour to the
geographic selection process by embedding political stability and currency resilience into investment decisions. Fourthly. we worked on
Macroeconomic Forecast Modelling, employing historical and forward-looking data trends (e.g., inflation, industrial production, policy directions) for
scenario analysis. This aligns sector and geographic investment decisions with anticipated macroeconomic shifts. Furthermore, we examined Historical
Financial Performance Metrics, Sharpe Ratio, Beta, and Total Returns over ten years are used for sectoral evaluation, ensuring that each sector's risk-
return profile is well understood. Moreover, it was helpful to look at Peer Analysis, wherein, through comparative methods, equities were assessed
across similar industries and geographies to select optimal investments. Lastly, we explored the Exclusion Strategy, where the exclusion of real estate
and energy sectors is justified using sector-specific macroeconomic and geopolitical trends, with data visualisation (e.g., oil price curves, inflation
breakdowns) supporting the decisions.

Overall, this blend of multifactorial quantitative models and qualitative assessments underscores the analytical depth and diversity of the thesis, making
it adaptable to real-world complexities.

What is the structure of the document and what does that entail?

Introduction and Objectives: The thesis begins by stating its primary aim - regional and sectoral diversification to mitigate risks and maximise returns.
This sets a clear purpose for the subsequent analysis.

Regional Analysis: Each chosen region is assessed individually, supported by metrics such as GDP growth, inflation, and currency volatility. This detailed
analysis demonstrates a robust regional selection process tied to the portfolio's overarching goals.

Sectoral Analysis: Key sectors (e.g., technology, healthcare, financial services) are evaluated with metrics like Sharpe Ratios and Total Returns, allowing f
or nuanced decisions on sectoral allocations. Exclusions (energy and real estate) are thoroughly justified.

Macroeconomic Trends and Forecasts: The integration of past trends and future forecasts adds temporal depth, aligning the portfolio with evolving market
conditions.

Methodology: The methodological section outlines a rigorous process, from equity screening to SWOT analysis and APT-based valuation. This
transparency enhances the credibility of the findings.

Asset Allocation and Recommendations: Final recommendations reflect the culmination of all analyses, providing a well-rounded investment thesis.

The structure ensures a logical flow, progressively narrowing the focus from broad macroeconomic trends to specific asset selection. This hierarchy is
appropriate as it mirrors the typical investment process, catering to both academic rigour and practical relevance.
 Region Filter
Objective: Our portfolio strategy prioritizes geographical diversification to mitigate overall risk and reduce reliance on any
single economy. By targeting regions with lower market fluctuations and strong indicators of political stability and
currency resilience, we aim to position the portfolio for sustainable growth while managing exposure to global
economic uncertainties.

Selection Summary: Based on extensive research, we have identified the following regions as optimal for inclusion in the portfolio:
Germany, India, Japan, Singapore, Switzerland, and the United States. Each of these economies offer unique
advantages and opportunities that align with our investment objectives. The Bloomberg CRS is a risk assessed
score that considers financial, economic and political risks associated with each country. Below is an overview of
the rationale for selecting each region:
Germany
GDP Growth in 1 yr 5.36%
Germany offers a robust and stable investment environment, underpinned by a strong industrial base,
advanced infrastructure, and leadership in engineering and manufacturing. The country's focus on green Bloomberg CRS 71
technology and digital transformation provides significant growth potential. There is also minimal Inflation Rate 2.37%
currency risk due to Germany's use of the Euro (EUR), ensuring stable returns for investors.
Market Return 23.68%
Challenges of the German market include an aging population, high labour costs, and reliance on exports, Currency Volatility 0.14%
which make the economy sensitive to global trade dynamics.

India
GDP Growth in 1 yr 5.36%
India offers significant long-term growth potential driven by a strong economy, demographic advantage,
and thriving technology and consumer sectors. India’s emerging market with potential for substantial Bloomberg CRS 57
returns, particularly in technology, infrastructure, and consumption-driven industries make it an Inflation Rate 2.37%
excellent opportunity for a high-growth market, enhancing the portfolio’s returns.
Market Return 25%
Problems of investing in India include currency volatility, bureaucratic complexities, and market Currency Volatility 4.4975
fluctuations, which require careful monitoring.

Japan
GDP Growth in 1 yr 0.5%
Japan combines a stable investment environment with an advanced infrastructure, strong corporate
governance, as well as leadership in technology and manufacturing. Growth sectors in Japan include Bloomberg CRS 74
robotics, renewable energy, and export-driven industries. The low volatility (JPY/USD) supports Inflation Rate 2.4%
balanced risk and steady returns.
Market Return 15%
While domestic growth in Japan is limited by an aging population, global competitiveness offsets these Currency Volatility 0.15%
challenges.

Singapore
GDP Growth in 1 yr 1.1%
Singapore is a premier destination for investment due to its political stability, robust regulation, and
strategic role as a financial and trade hub in Asia. Its focus on sustainability and innovation adds further Bloomberg CRS 82
appeal. The Singapore Dollar (SGD/USD) is stable, making Singapore a reliable choice for portfolio Inflation Rate 1.6%
diversification.
Market Return 14%
Singapore’s limited natural resources and high dependence on global trade make it vulnerable to external Currency Volatility 0.4%
economic shifts.

Switzerland
GDP Growth in 1 yr 1.3%
Switzerland is known for its economic and political stability, strong currency (CHF), and advanced
industries such as pharmaceuticals, precision manufacturing, and banking. Its reliable returns and Bloomberg CRS 77
leadership in innovation and high-quality production make it ideal for conservative investors seeking Inflation Rate 0.40%
stability and quality in a diversified portfolio.
Market Return 6.5%
The main risk of investing in Switzerland, include high costs of doing business and limited market size, Currency Volatility 0.22%
which constrain growth opportunities for certain investments.

The United States

GDP Growth in 1 yr 2.7%
The US remains the cornerstone of global investment portfolios due to unmatched market depth,
liquidity, and innovation. The U.S. Dollar (USD) serves as the global reserve currency, reinforcing Bloomberg CRS 75
stability and growth potential. Leading sectors include technology, healthcare, and finance, driving Inflation Rate 2.6%
global returns.
Market Return 10.3%
The obstacles of investing in the US market include volatility, economic cycles, and policy uncertainty, Currency Volatility ~0%
requiring vigilant analysis and risk management.
 Sector Filter
Summary of Investment Strategy based on Sector:
We have identified key sectors with strong returns, sustained innovation, and resilient demand, to focus our investment strategy on companies capable of consistent
performance. Based on our analysis, we have chosen to prioritize technology, utilities, healthcare, consumer cyclicals, and financial services as the foundational
pillars of our portfolio, due to their robust potential for growth and stability. Additionally, communication services, industrials, and basic materials have been
recognized as sectors where opportunities can be uncovered through careful equity or ETF selection and risk mitigation strategies. Conversely, we have excluded
energy and real estate from our investment scope, as their risk profiles and returns do not align with our objectives.
This approach ensures a focused and diversified portfolio, balancing growth opportunities with prudent risk management.

Technology

10 yr Beta 1.99
Driven by rising digital dependency,
younger demographics, urbanisation,
10 yr Sharpe Ratio 0.89
advancements in AI and automation.
10 yr Total Return 19.29
Impacted by high fixed cost, (%)

competition, scrutiny over antitrust

issues, digital taxes and AI ethics.

Healthcare

Driven by an aging, health conscious,

and urbanised population, 10 yr Beta 0.91
evolving and developmental policies,
and use of AI in remote 10 yr Sharpe Ratio 0.47

diagnosis.
10 yr Total Return 13.62
(%)
Impacted by the strict regulations,
competition, and privacy
concerns along with inequality
concerns.

Financial Services

Driven by growing demand for

10 yr Beta 1.104
financial inclusion, retirement
planning, and fintech innovations 10 yr Sharpe Ratio 0.47
like blockchain and digital
payments. 10 yr Total Return 17.96
(%)

Impacted by high fixed costs,

compliance with evolving
regulations, competition, and
globalization.

Utilities

Driven by population growth, 10 yr Beta 0.539

urbanization, and advancements in
IoT-driven maintenance and 10 yr Sharpe Ratio 0.33
distributed energy systems.
10 yr Total Return 16.09
Impacted by Infrastructure safety (%)

regulations, water scarcity, and

balancing capital intensity with
sustainable practices.

Consumer Cyclicals

Driven by urbanization, e-commerce 10 yr Beta 1.273

growth, and cultural shifts toward
sustainability and personalization. 10 yr Sharpe Ratio 0.47

Impacted by sensitivity to 10 yr Total Return 11.34

(%)
disposable income fluctuations,
labour regulations, and price
elasticity.
Industrials

Driven by urban infrastructure

10 yr Beta 1.161
needs, transportation demands, and
automation in response to aging
10 yr Sharpe Ratio 0.51
demographics.
10 yr Total Return 9.36
Impacted by capital intensity, trade (%)

policies, and stringent safety and

emissions regulations.

Basic Materials

Driven by infrastructure growth,

advancements in recycling 10 yr Beta 0.923

technologies, and the development

10 yr Sharpe Ratio 0.34
of sustainable materials.
10 yr Total Return 19.1
Impacted by commodity price (%)
volatility, environmental laws, and
resource depletion.

Communication Services

Driven by rising digital dependency,

younger demographics, increased
10 yr Beta 0.977
urbanization, and demand for real-
time connectivity and content.
10 yr Sharpe Ratio 0.43

Impacted by scrutiny over antitrust 10 yr Total Return 15.12

issues, digital taxes, content (%)

moderation policies, and

cybersecurity challenges.

Reason for excluding Real Estate and Energy Sectors:

Energy: The energy sector is experiencing a declining trend1, which our research
suggests is likely to persist throughout 2025 and possibly beyond. This
claim is supported by the MSCI World Energy Index’s price-to-book
valuation of 1.76x, which reflects a subdued investor confidence. The
lack of a risk premium, indicated to us, limited potential upside to
investing in this sector at present. Of the regions we selected, the United
States is the largest producer of oil and gas. With Donald Trump’s
imminent second term in office, we can expect policies that attempt to
advance US energy self-sufficiency like those previously implemented
by Trump from 2017-20212. Such policies, combined with the OPEC+
unwinding production cuts, are a recipe for a supply glut in the energy
sector. This oversupply poses further potential suppression of the oil
prices, mirrored by trends across the global oil and gas prices, which
negatively impacts the whole sector. Additionally, rising geopolitical
tensions in the Middle East continue to erode the confidence of investors
in the energy sector. These combined factors show that the energy sector
lacks necessary conditions for attractive investment opportunity in the Figure 1: A downward shift in WTI's price curve signals bearishness towards oil's short-
term supply-demand dynamics. This may signal demand risks for oil which is another
upcoming years.
cause for concern for potential investors. Source: Bloomberg Intelligence.

Real Estate: Like energy, the real estate sector is also on a downward trajectory3, which our team predicts will continue in the upcoming years. A key concern in the
recovery of the real estate sector is the sluggish economic recovery that is observed in major regions across the world, coupled with rising unemployment
due to corporate downsizing, and the reduced need for offices (driven by work-from-home trends due to the COVID-19 Pandemic and the advent of
generative AI), recovery can only be expected in the long run. High interest rates, stricter policy on housing, and rent regulations add to the political and
legal challenges faced in this sector. It can be seen that policy changes are slowing momentum traction in the real estate market, hindering its recovery
from the REIT slide, caused by the pandemic in 2020. Real estate’s illiquid nature makes it less adaptable to market changes which inherently adds to our
uncertainty when gauging for risk and predicting future returns of the sector.

In summary, the combination of structural headwinds, geopolitical, national, and international policy-driven risks, as well as macroeconomic uncertainties, renders both
the energy and real estate sectors unsuitable for investment in a portfolio that aligns with our thesis, which is based on current market conditions and predictions for the
upcoming 18 months, as outlined in the upcoming sections.

1
The MSCI Asia-Pacific Energy Index declined by 14.19% from July to November 2024, compared to the MSCI Asia-Pacific Index which Increased by 2.45%.
2
From 2017 to 2021, the US oil imports plunged by 27% and domestic crude output surged by 25.4% despite the COVID-19 pandemic.
3
The MSCI European REIT Index had a loss of 4.19% in the last year, as compared to the 11.08% gain observed for the MSCI Europe Index.
Macroeconomic Analysis and Strategy Alignment

Overview of the Last 18 Months - Macroeconomic Trends from Mid-2023 to Early 2025

Over the past 18 months, global macroeconomic dynamics have been shaped by significant political and economic developments across key regions, presenting a
mix of opportunities and challenges for investments. The regions selected in the region filter demonstrated progress in technology, sustainability, and strategic
alliances which provided opportunities for investment, and we approach the opportunities made in the last 18 months with caution, accounting for the challenges
faced by these economies in the same time period:

Opportunities Created: India, Germany, and Singapore explored Industry 4.0 through policies and tax concessions: India initiated the Production
Linked Incentive (PLI) Scheme to boost domestic manufacturing and the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) to
develop a digitally skilled workforce. Germany expanded its Industrie 4.0 Framework and introduced enhanced kfW support
programs to advance technological innovation. Singapore strengthened its position as a technology hub through initiatives by the
Monetary Authority of Singapore (MAS) and Enterprise Singapore, offering grants, tax incentives, and education.
Singapore and Switzerland were established as financial hubs through easing corporate tax rates and negotiations: They both
maintained strong financial and trade systems, with Singapore achieving one of the world’s highest trade-to-GDP ratios while
managing inflation and currency stability.
India, USA, and Japan explored Geopolitical and Economic Partnerships: India strengthened global ties through the Initiative on
Critical and Emerging Technologies (iCET), Comprehensive Economic Partnership Agreement (CEPA), and Trade and Technology
Council (TTC). United States and Japan enhanced regional influence via Quad initiatives and defence and technology agreements,
securing supply chain stability, particularly in semiconductors.
Challenges: India and the US have faced political polarisation and
significant involvement in geopolitical tensions, which could
create policy instability or impact global supply chains. In
Japan and Germany, there has been a gradual increase in the
age of population and labour shortages, as seen in the graph
below, both these factors pose a risk to a sustainable growth in
their economies. Singapore continued to grapple with rising
living costs that were observed by a cost-of-living index of
79.1. Switzerland and Germany face severe energy
dependencies, and the fallout of the European energy crisis is
attributable to persistent tensions in Ukraine. 18-month trend of the OEJPQWBU index which tracks the labour force of Japan.
Source: Bloomberg

As these economies transition into 2025, their focus on innovation, resilience, and adaptability positions them as key drivers of global economic stability and
growth. Now, we look at macroeconomic forecasts for the upcoming 18 months, and how that may impact these regions and the sectors that operate within them.

Macroeconomic Forecasts (Early 2025 – Mid 2026)

The following are some key financial events and expected growth in metrics that are going to take place in the upcoming year, which may have a direct impact on
investments made in this portfolio. Directly below are some forecasts for key metrics as per the countries:

United States Germany Switzerland India Japan Singapore

Expectations:

1. Germany’s inflation is set to decrease: In contrast to 2023, the lack of drop in road fuel and housing energy
costs resulted in an increase in inflation. The decrease in cost for clothing and footwear had little effect. It
is estimated that lowering contributions from the energy and services category should mark the beginning
of a disinflation process. This also indicates an opportunity for rate cuts.
[ The graph to the right shows the breakdown of the contribution to inflation by each category. Source: Bloomberg CPI<GO>.]
 2. Unemployment in the US is expected to slow down, along with a decrease in inflation: The six-month
moving average of workers transitioning into unemployment dropped by 1.39%, whilst the number of
workers who transitioned out of unemployment rose by 0.97%. This may indicate that the job market in
the US is stabilising post-depreciation in the second half of 2024. In the next 18 months the overall
unemployment rate can be expected to decrease, as seen from relevant momentum from the graph to the
left. The current disinflation is expected to continue, with a strong consensus that the favourable 2%
mark will be achieved.

3. Trump’s second term can have many impacts: US corporate taxes are expected to decrease as a result of the
enactment of the Tax Cuts and Jobs Act (TCJA) which Trump will get passed in a republican majority House
of Representatives and the Senate. Trump’s tariff imposition (particularly on Chinese goods) may prompt
Chinese businesses and high-net worth individuals to relocate assets offshore to mitigate potential trade
barriers, which may increase inflow for financial institutions with a highly globalised banking model, like
HSBC and Standard Chartered. As bearish reactions to the same risk, Electronic Manufacturing Services
(EMS)/ Original Design Manufacturer (ODM) suppliers may continue to scale back from China and expand
into India instead, as it is less impacted by the tariffs. On a similar note, SMIC and similar manufacturing
companies may choose to expand into Singapore or Japan. Japan and India are some of the least affected
Scale back of EMS/ODM supplier from China. Source: Bloomberg
countries from the tariffs, which is detailed below. Intelligence.

4. India and Japan are likely to be the least affected economies as a result of the tariff impositions: Should
Trump impose a 20% tariff on these countries, they would be some of the largest economies to be resilient
to such a change. Under this scenario, Japan can be expected to reduce their total export to the US (which
would have accounted to 3.5% of its GDP) by 50%, this should lead Japan to identify new markets for their
goods, which will allow for mid-term impact on GDP to be more contained and manageable than other
regions. This also supports bullish Yen views. India is even less impacted by the tariffs attributable to its
relatively moderate trade surplus to the US. As mentioned, in previous years, India has worked on policies
that firstly boost domestic production within the country (like the Production Linked Incentive scheme) and
also improves bilateral relations with the US (like the Comprehensive Economic Partnership Agreement and
Trade and Technology Council). This may allow for the facilitation of negotiations on trade tariffs, to lower
them, as this is beneficial for both the US and India. Higher US tariffs for mainland China and concerns
regarding the South China Sea may prompt investors to identify alternative suppliers and production bases,
and India would be a primary beneficiary of such shift in consensus amongst exporters. It is however worthy
to note that the Adani ports of India and PSAI ports of Singapore won’t be immune to US-China Tariffs and
higher import duty will hinder the manufacturers’ profitability. The US accounts for a large volume of export
value for many developing countries in parts of Asia, and this is visualised in the graph to the left. However,
much like Japan, or even to a greater extent, India and Singapore are relatively less impacted by the tariff
impositions.

5. Data shows Japan is likely to achieve the 2% inflation rate target: Later this week, Japan’s rate
decision is being anounced. A rate hike to 0.5% is expected, which should achieve Japan’s 2%
inflation targets. A strong rise in labour cash earnings in November 2025 should be expected and
is supported by the Tokyo inflation gauges, which remains consistent with the Bank of Japan’s
assessment. This might indicate that further to the rate hike next week, another 50-bp rate hike
can be expected, taking the interest rate to 1% by July 2025. The graph to the right shows the
Tokyo inflation gauges.

6. Japan could be poised to further increase automation: Apart from the aging population, the rising
cost of labour and implementation of immigration-curbing policies drive a greater demand for
automation. This boost can drive up the sale of new cars, which is expected to increase by 3% in
2025.

7. Singapore, India, and Switzerland may favour easing policies in 2025: Core inflation in Singapore is just
over 2%, where the Monetary Authority of Singapore is likely going to favour growth and therefore a
reduced interest rate can be expected as soon as the end of this month [Jan-25]. India saw a further drop
in inflation rate from Nov – Dec 2024, which means the Reserve Bank has means to start an easing cycle
to prioritise growth. A 50-bp rate cut is expected in February and is likely to be implemented by the new
governor of the Reserve Bank of India, Sanjay Malhotra. Concerned by CPI decreasing towards zero, the
Swiss National Bank previously implemented a 50-bp rate cut, and it can be expected that there will be
another 25-bp rate cut in March-25.

Conclusion & Strategy

In this section we identified opportunities and challenges created by past macroeconomic events, which we can now traverse using our future outlook. The overall trend
in macroeconomics seem to continue without much change, whether it be the rapid evolvement of technology or the consistently prolonged geopolitical tensions. Maybe
this is truly the nature of macroeconomics, but our team wishes to prepare this investment for both the opportunities and the challenges by strategically knowing where
to invest and where to avoid investment. To truly make the best of all economies, we must optimise for the right sectors to be invested in the right region.
In the US, Germany, India, Singapore, and Japan, the increasing forecast of industrial
production and lowering of rates, support growth in manufacturing and construction, making
 the industrial sector a suitable investment; in contrast, Switzerland, with its decreasing
industrial production and GDP, does not present favourable conditions for this sector. The
technology sector appears promising in all the regions as these countries focus on innovation,
automation, and strategic development. Financial services thrive in Singapore, Switzerland,
and the US, driven by easing monetary policies and strong financial systems, but Germany's
rising unemployment and energy concerns, alongside Japan's higher interest rates, make this
sector less attractive those regions. Consumer cyclicals look favourable in the US, India, and
Singapore, with stabilizing unemployment and reduced inflation encouraging discretionary
spending, but are less appealing in Switzerland and Germany, where unemployment is rising,
and consumer confidence may weaken. Utilities, a defensive sector, are a safe bet across
most regions given the growth-oriented economic conditions, especially in a strong economy
like the US. Healthcare faces limited growth opportunities in Singapore, Japan, and Germany
due to cost pressures and policy uncertainties, but India’s increasing GDP and focus on health
infrastructure could make it a viable sector, like the US. Basic materials show potential in
Germany and Japan, where industrial production is rising, but are less favourable in
Switzerland, where industrial activity is declining. Communication services perform well in
economies with good enough disposable incomes, which we expect for the US, Germany,
and Japan.

Asset Selection
When allocating assets to a portfolio, investors typically worry about the diversity of a given portfolio as a measure against risks associated with high concentrations of
investment into a single section that could result in a relatively big loss. Even if these risks can be averted and measured through performing key analytics on the
portfolio, a much harder problem is posed in the mitigation of systematic risk. Our portfolio aims to account for and hedge against systematic risk through the usage of
Arbitrage Price Theory (APT) in evaluating stock. Unlike the typically used Capital Asset Pricing Model (CAPM) which only considers the performance of the market
an equity operates in, APT considers other factors and the sensitivity of a given price to those factors like GDP growth and CPI change, among others. In the APT
pricing model used in this asset analysis, we took into consideration the strength of currency, inflation rates change YoY, and rate of change in GDP for the market the
equity operates in.

Method: Using the equity screener on the UMushroom Platform, our team adhered strictly to the matrix given towards the end of the previous
section. We selected each set of countries and sectors separately and combined them in different groupings to find stocks among the
same industry and region that can be compared against each other. This helped us narrow down from the vast number of equities that
would have contradicted our macroeconomic outlook. We then analysed the financials and historical performance of individual stocks
we found to be of interest, especially attempting to see the relative resilience of share prices through market dips in the last year. Finally
we carried out a SWOT analysis, which allowed us to qualitatively identify value in certain business models which had investable
opportunities for growth. Identifying these, we forecasted the cash flow of each company in stringent conditions to test the true value
of equity, and using the APT model we developed on Excel, we conducted an in-depth peer-analysis to select and reject stocks. Here
are our selections for the investment.
The Portfolio:

Technology Equity:

NVDA - NVIDIA MSFT - Microsoft JBL - Jabil Inc. INFY - Infosys Limited AVGO - Broadcom Inc.
Corporation Corporation Manufacturing Global IT & Consulting Semiconductor & AI
AI & Semiconductor Tech Powerhouse in Cloud Innovation Leader Leader Champion
Leader & AI
• Growth Sectors: • Growth Focus: • Revenue Growth:
• Record Revenue: Automotive, Digital $13.07 billion
• Revenue Growth:
$35.1 billion in Q3 healthcare, transformation, (+47.3% YoY).
$56.5 billion (+13%
FY2025 (+94% consumer cloud, automation. • R&D Investments:
YoY).
YoY). electronics. • Innovation Edge: Leadership in AI-
• Cloud Strength:
• Data Center • Modernization AI-driven solutions, driven technologies.
Azure-driven
Dominance: $30.8 Focus: Automation, sustainability tech. • Opportunities:
Intelligent Cloud
billion contribution. sustainability, EVs. • Opportunities: Cloud services,
(+19%).
• Profitability Surge: • Opportunities: Strategic transformative tech.
• Robust Profitability:
$12.3 billion net Industrial partnerships, • Risks: Tech trends,
income; EPS: $4.98. $22.3 billion net
innovation, green steady revenue. competition,
• Innovation Focus: income (+27%).
energy. • Risks: Competition, economic shifts.
$2.5 billion R&D in • Cash Powerhouse:
• Risks: Supply currency volatility,
AI & data centers. $122 billion in
chain, geopolitical economic impact.
• Opportunities: AI reserves.
tensions, cyclicality.
leadership, GPU • Opportunities: AI
advancements, cloud solutions, Industry
dominance. 4.0, strong
• Risks: Competitive innovation.
pressures, valuation • Risks: Competition,
concerns, macro regulatory scrutiny,
headwinds. macro uncertainties.
Strong pick for AI and
A diverse leader for
Top pick for long-term Great for industrial Ideal for global tech cloud-driven growth.
transformative tech
growth in AI and computing. growth exposure. exposure.
exposure.
 Healthcare Equities Bonds ETF:

JNJ - Johnson & Johnson FRE - Fresenius SE & Co. KGaA US Treasury Bonds
Healthcare Stability Leader Global Healthcare Innovator Safe-Haven Investment for Stability

• Revenue Growth: $23.8 billion (+5% • Revenue Growth: €10.1 billion (+3% • Attractive Yields: Current yields
YoY). YoY). benefit from higher interest rates,
• Key Strengths: Pharmaceuticals, • Efficiency Gains: Debt reduction, offering competitive returns with low
MedTech, consumer health. streamlined operations. risk.
• Dividend Growth: ~2.8% yield. • Opportunities: High-demand • Opportunities: Reliable income
• Opportunities: Global health, MedTech and care provision. stream, hedge against equity market
sustainability, strong pipeline. • Risks: Economic volatility, regulatory volatility.
• Risks: Pricing pressures, regulatory changes. • Risks: Interest rate fluctuations,
challenges. Attractive for global healthcare potential inflation erosion.
A dependable choice for stability exposure. Ideal for risk-averse investors
and returns. seeking portfolio balance and
predictable returns.

• .
Financial Services Equity

V - Visa Inc.
HSBC - HSBC Holdings CB - Chubb Limited
Global Payments Giant
Global Banking Powerhouse Insurance Market Leader

• Revenue Growth: $8.9 billion (+10%

• Earnings Strength: Higher interest • Premium Growth: Strong commercial
YoY).
income, robust capital ratios. performance.
• Key Trends: Cashless payments,
• Opportunities: Emerging markets, • Opportunities: Global expansion,
real-time systems.
trade, digital banking. specialty insurance demand.
• Opportunities: Cross-border
• Risks: Geopolitical risks, regulatory • Risks: Catastrophe losses, regulatory
transactions, innovation.
pressures. risks.
• Risks: Regulatory challenges,
Diversified exposure to global A stable, long-term insurance play.
regional slowdowns.
financial markets. Perfect for fintech and digital
payment exposure.

Utility Sector ETF Basic Material/Commodity ETF Consumer Cyclical Equity:

SE - Sea Ltd.
ZKB Gold ETF (AA USD)
XLU - iShares S&P 500 Utilities Sector ETF Southeast Asia’s Digital Leader
CH0047533549
US81369Y8865
Safe-Haven Asset • Strengths: E-commerce, digital
Stable Income Generator penetration, fintech.
• Macro Trends: Inflation hedge, • Opportunities: Emerging market
• Sector Focus: Electricity, water, growth, efficiency gains.
currency stability.
natural gas, renewables. • Risks: Competition, regulatory
• Opportunities: Portfolio risk
• Opportunities: Renewable energy, hurdles, volatility.
mitigation.
infrastructure modernization.
• Risks: Sensitivity to interest rates, High-growth opportunity in digital
• Risks: Rising interest rates, borrowing
dollar strength. economies.
costs.
Essential for a diversified portfolio.
Low-volatility, defensive income
option.

Communication Sector

DTE - Deutsche Telekom AG GOOGL - Alphabet Inc. PENN - PENN Entertainment Inc.
Telecom Leader AI & Digital Advertising Titan Gaming & Betting Innovator

• Strengths: Diversified revenue, next- • Revenue Growth: $88.3 billion (+15% • Opportunities: U.S. sports betting
gen networks. YoY). legalization, tech advancements.
• Opportunities: Global connectivity, • Key Areas: Cloud, Search, YouTube, • Risks: Regulatory pressures,
5G innovation. AI. consumer spending volatility.
• Risks: Competition, energy costs, • Opportunities: Generative AI,
High-growth potential in online and
inflation. enterprise cloud.
physical gaming.
• Risks: Antitrust scrutiny, ad budget
Strong pick for global telecom
pressures.
exposure.
Cornerstone of the digital
economy.
 Industrial Equities:

TM - Toyota Motor Corporation R3NK - RENK Group AG

Sustainable Automotive Innovator Engineering Excellence in Defense & Energy

• Revenue Growth: +10% YoY, driven by • Revenue Drivers: Defense systems,

hybrids and SUVs. renewable energy gear.
• R&D Investment: $8 billion in EVs, • Innovation Focus: AI diagnostics,
hydrogen, and autonomy. drivetrain tech.
• Opportunities: EV growth, emerging • Opportunities: Defense growth, energy
markets, AI mobility. modernization.
• Risks: Supply chain disruptions, EV • Risks: Contract reliance, economic
competition. cyclicality.
Top pick for sustainable mobility A strong niche player in industrial
and long-term growth. innovation.

Risk adjusted Return Calculations

Possibility of large losses:
All investments necessarily include some risk that cannot be fully diversified
away, meaning periods of loss will occur. It is important therefore that investors
understand what the potential magnitude of these losses could be and whether
they are comfortable with them. The chart opposite analyses the current
strategic asset allocation of the portfolio back to the year 2000, looking at
rolling one-year periods. For each of these periods we analyse what the largest
loss the portfolio experienced during that period was and then plot the total
occurrences on the chart. For instance, a chart that reads 5 per cent on the ‘x’
axis and 60 per cent on the ‘y’ axis would indicate that over any one-year
period there was a 60 per cent chance the portfolio fell by at least 5 per cent. It
therefore shows what would happen if you invested at the top and sold at the
bottom. Any recovery during the period is not considered.

Monte-Carlo Simulation and Asset Weight Assignment:

The simulation generates random sample portfolios of random weights for each asset
mentioned above, ensuring that no asset exceeds the 15% set weight limit, and the sum
amount equals 100%. Then considering the historical asset returns and their covariance,
the expected return, risk and Sharpe Ratio are calculated for each of the sample
portfolios. In our case we used historical data from the last 10 years and simulated over a
million sample portfolios before choosing the following weightage and found the
following results:

For a portfolio with this allocation, the expected annual return is roughly 36.6% which is
nearly quadruple the average yearly performance of the S&P500. The low volatility gives
rise to a Sharpe ratio of 3.7%, which indicates that this investment is an excellent
opportunity that produces much better returns relative to the amount of risk being taken.

Further to this, it can be verified that our portfolio is indeed diverse, as shown by an Percentage Allocation of Assets
ENS (Effective number of Stocks) of 12.2 % , a Normalised Shannon Entropy of 0.905
and a Variance of 0.0015. These metrics are highly indicative of the most diverse a 19
asset portfolio can be, whilst still giving high results.
Our portfolio therefore reduces risk on multiple fronts and is formed on solid
macroeconomic driven strategy, from which we have committed ourselves to not
deviate, which roots our confidence in its growth value.
[The method we used using a python code has been appended below as proof of
calculation.]
NVDA MSFT INFY AVGO
JBL JNJ 0OO9.IL CB
V HSBC XLU SE
ZGLDUS PENN DTE GOOGL
TM R3NK.DE 0P00019Q5B

Fin.
 import numpy as np

import pandas as pd

import matplotlib.pyplot as plt

import yfinance as yf

# Download stock data

tickers = ["NVDA", "MSFT", "INFY", "AVGO", "JBL", "JNJ", "0OO9.IL", "CB", "V", "HSBC",

"XLU", "SE", "ZGLDUS.SW", "PENN", "DTE", "GOOGL", "TM", "R3NK.DE","0P00019Q5B"]

start_date = '2020-01-01'

end_date = '2025-01-10'

data = yf.download(tickers, start=start_date, end=end_date)['Adj Close']

# Calculate daily and annualized returns

daily_returns = data.pct_change().dropna()

annual_returns = daily_returns.mean() * 252

annual_cov_matrix = daily_returns.cov() * 252

# Monte Carlo simulation

num_portfolios = 3000000

results = np.zeros((3, num_portfolios)) # Array to store return, risk, Sharpe Ratio

weights_record = [] # To store weights

for i in range(num_portfolios):

# Generate random weights ensuring no weight exceeds 15%

weights = np.random.uniform(0, 0.15, len(tickers))

weights /= weights.sum() # Normalize weights to sum to 1

weights_record.append(weights)

# Portfolio return and risk

portfolio_return = np.dot(weights, annual_returns)

portfolio_risk = np.sqrt(np.dot(weights.T, np.dot(annual_cov_matrix, weights)))

# Sharpe Ratio (assuming risk-free rate = 0)

sharpe_ratio = portfolio_return / portfolio_risk

# Store results

results[0, i] = portfolio_return

results[1, i] = portfolio_risk

results[2, i] = sharpe_ratio

# Identify optimal portfolio (max Sharpe Ratio)

max_sharpe_idx = np.argmax(results[2])

optimal_weights = weights_record[max_sharpe_idx]

# Display results

print("Optimal Portfolio Allocation:")

for i, ticker in enumerate(tickers):

print(f"{ticker}: {optimal_weights[i] * 100:.2f}%")

print("\nExpected Annual Return:", results[0, max_sharpe_idx])

print("Annual Volatility (Risk):", results[1, max_sharpe_idx])

print("Sharpe Ratio:", results[2, max_sharpe_idx])

# Plot the portfolios

plt.scatter(results[1, :], results[0, :], c=results[2, :], cmap='viridis', marker='o')

plt.title('Monte Carlo Simulation of Portfolio Allocations')

plt.xlabel('Annualized Volatility')

plt.ylabel('Annualized Return')

plt.colorbar(label='Sharpe Ratio')

plt.scatter(results[1, max_sharpe_idx], results[0, max_sharpe_idx], color='red', marker='*', s=200)

plt.show()

import numpy as np

# Provided unnormalized weights

optimal_weights = np.array([899, 918, 164, 528, 881, 736, 485, 204, 18, 605, 240, 678, 25, 227, 1215, 110, 519, 1176])

# Normalize weights

optimal_weights = optimal_weights / np.sum(optimal_weights)

tickers = ["NVDA", "MSFT", "INFY", "AVGO", "JBL", "JNJ", "0OO9.IL", "CB", "V", "HSBC",

"XLU", "SE", "ZGLDUS.SW", "PENN", "DTE", "GOOGL", "TM", "R3NK.DE"]

# Calculate Effective Number of Stocks (ENS)

ens = 1 / np.sum(optimal_weights ** 2)

# Calculate Shannon Entropy (normalized)

entropy = -np.sum(optimal_weights * np.log(optimal_weights + 1e-10)) # Add small value to avoid log(0)

max_entropy = np.log(len(optimal_weights))

normalized_entropy = entropy / max_entropy

# Calculate Weight Concentration (Variance)

concentration_index = np.var(optimal_weights)

# Display Results

print("Effective Number of Stocks (ENS):", ens)

print("Shannon Entropy (Normalized):", normalized_entropy)

print("Weight Concentration Index (Variance):", concentration_index)

# Show the weight distribution for reference

for i, weight in enumerate(optimal_weights):

print(f"{tickers[i]}: {weight * 100:.2f}%")