INVESTMENT & FINANCIAL DATA ANALYSIS (QF302) KENNETH | ROOBAN | SELINA | YANATON | YUN JIE

Less sensitive to business cycle fluctuations HEALTHCARE SECTOR | OVERVIEW Defensive stocks Less sensitive to business cycle fluctuations Hospital Management Firms US$ 9.59 Trillion 35 Million workers Biotechnology Firms Health Maintenance Organizations (HMOs)

HEALTHCARE SECTOR | OVERVIEW

HEALTHCARE SECTOR | EXCHANGE TRADED FUNDS (ETFs)

Require at least one year of data to capture any seasonality trends HEALTHCARE SECTOR | ETF SELECTION BTEC JHMH FXH PSCH XH XLV RYH FHLC HCRF VHT PTH IYH No. of close price 79 332 2391 1718 22 4557 2525 824 183 3275 2591 4183 No. of good data points 57 308 8 109 Eliminated those that have too little data points to carry out an accurate analysis Require at least one year of data to capture any seasonality trends

HEALTHCARE SECTOR | ETF SELECTION Final 7 ETFs Benchmarks FXH PSCH XLV JHMH FXH PSCH XLV RYH FHLC VHT PTH IYH Normally Distributed No Random Walk Yes Final 7 ETFs Benchmarks FXH PSCH XLV RYH VHT PTH IYH 10 year T-bill S&P 500

HEALTHCARE SECTOR | 5-YEAR SHARPE RATIO Average return earned in excess of the risk-free rate per unit of volatility. The greater the value of the Sharpe ratio, the more attractive the ETF’s risk-adjusted return. FXH PSCH XLV RYH VHT PTH IYH Sharpe Ratio 0.37 1.14 0.93 1.23 0.89 0.11 -0.13

Reward-to-Volatility ratio HEALTHCARE SECTOR | 3-YEAR TREYNOR MEASURE FXH PSCH XLV RYH VHT PTH IYH Treynor Measure 0.02087 0.15253 0.00205 0.02945 0.04118 -0.07065 -0.09175 Reward-to-Volatility ratio High ratio  Investor has generated high returns on each of the market risks he has taken Difference from Sharpe Ratio  Treynor measure uses beta to measure volatility instead of using total risk (standard deviation)

Summary of Financial Ratios HEALTHCARE SECTOR | ETF RANKING Summary of Financial Ratios Ranking 1. FXH 2. RYH 3. VHT 4. PSCH 5. XLV 6. IYH 7. PTH PSCH FXH XLV RYH VHT IYH PTH Sharpe Ratio 0.37 1.14 0.93 1.23 0.89 0.11 -0.13 Treynor Measure 0.02087 0.15253 0.00205 0.02945 0.04118 -0.07065 -0.09175

rpt – rft = α + β1MKT + β2SMB + β3HML HEALTHCARE SECTOR | FAMA FRENCH 3-FACTOR MODEL Market factor: MKT Size factor: SMB Value factor: HML rpt – rft = α + β1MKT + β2SMB + β3HML Ranking 1. PSCH 2. FXH 3. RYH 4. PTH 5. VHT 6. IYH 7. XLV FXH IYH PSCH PTH RYH VHT XLV Alpha -0.144 -0.592 -0.014 -0.306 -0.241 -0.468 -0.70 β1 0.764 0.726 0.897 0.894 0.774 0.824 0.752 β2 0.219 -0.081 0.791 0.450 0.041 -0.032 -0.137 β3 -0.286 -0.189 -0.453 -0.408 -0.265 -0.373 -0.249

Underestimation/ Overestimation? HEALTHCARE SECTOR | OLS RATINGS FXH IYH PSCH PTH RYH VHT XLV Last Price $60.03 $148.64 $73.99 $50.43 $152.52 $131.06 $71.13 Slope 0.144 0.199 0.134 0.173 0.157 0.195 0.225 Y-Intercept 0.0004 0.0001 0.0005 0.0002 Variability -1.56% 1.82% 2.43% -2.41% 1.91% 1.56% -3.10% Underestimation/ Overestimation? OVER UNDER Took regression slope (+ / -) and variability into account Slope: Positive slope / negative slope? Variability: Forecasted price vs. Actual Price (16th Feb | 2nd Mar | 16th Mar) Underestimate / overestimate the actual price?

HEALTHCARE SECTOR | OLS RATINGS From these 3 graphs, we observed that using daily returns in our calculations seemed produce results that track the actual prices best. Change slide FXH IYH PSCH PTH RYH VHT XLV Returns 2.18% 1.27% 1.69% 3.02% 0.99% 1.40% 2.81% Rank 3 7 4 1 6 5 2 * Return based on April 14, 2017 forecast relative to March 30, 2017 forecast

PORTFOLIO OPTIMIZATION HEALTHCARE SECTOR | PORTFOLIO OPTIMIZATION Variance – Covariance Matrix FXH PSCH XLV RYH VHT PTH IYH 1.1E-04 9.7E-05 1.2E-04 1.3E-04 1.0E-04 9.9E-05 9.4E-05 9.3E-05 9.8E-05 9.2E-05 9.1E-05 1.5E-04 1.4E-04 1.8E-04 9.0E-05 9.6E-05 Constructed using shortest dataset as a constraint Inclusive of OLS forecasts from 2nd Feb to 14th April

Portfolio Sharpe Ratio HEALTHCARE SECTOR | PORTFOLIO OPTIMIZATION Equal Weights Maximum Sharpe Ratio Maximum Returns Minimum Volatility FXH 14% 0% IYH PSCH 27% 100% PTH RYH 6% VHT XLV 73% 94% Weights Portfolio Returns 0.06% 0.07% Portfolio Volatility 1.03% 0.98% 1.24% 0.95% Portfolio Sharpe Ratio 0.87 0.95 0.86 0.93 Change the objective to Maximize Sharpe ratio, Maximize Returns or Minimum Volatility respectively

MONTE CARLO SIMULATION HEALTHCARE SECTOR | MONTE CARLO SIMULATION FXH PSCH XLV RYH VHT PTH IYH 16th March 63.43 79.85 73.10 160.67 135.78 52.12 152.29 16th March Actual 62.63 78.66 75.85 160.83 140.21 54.09 158.75 % Error 1.28% 1.51% 3.63% 0.10% 3.16% 3.64% 4.07% 31st March 64.81 82.06 73.85 163.91 137.51 52.73 153.81 14th April 65.84 83.96 74.46 166.54 139.01 53.26 154.79 Returns 1.56% 2.26% 0.82% 1.58% 1.08% 1.00% 0.63% Skew 0.281 0.265 0.228 0.251 0.244 0.276 0.249 Ranking 1. PSCH 2. RYH 3. FXH 4. VHT 5. PTH 6. XLV 7. IYH

Ranking based on individual ranks for each of the techniques HEALTHCARE SECTOR | FINAL RANKING OF ETFs OLS Monte Carlo Fama French Financial Ratios Total Points Final Rank FXH 3 2 1 9 PSCH 4 10 RYH 6 13 VHT 5 17 PTH 7 XLV 20 IYH 26 Ranking based on individual ranks for each of the techniques Tie-break based on actual ETF performance

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