Erlangga Nugrahabharata Eileen Chu

Templeton Growth Fund facts:  Introduced in November 1954  Goal: LT capital appreciation in global equities  Average return : 12.55% since inception  The last 10 years: 3.66%

1. Determine Optimal Portfolio (OP) Identifying countries and weights Measure performance 2. Determine Optimal Constrained Portfolio (OCP) With Floor and Cap

 Summary measures for Templeton- for the year of 2009  r temp : 8.82 %  β temp :. 98  RVOL temp :.0886 MarketWeightri σβri*β* RVOL US UK France Switzerland Germany Netherlands South Korea Sweden Italy Singapore Japan Spain Hong Kong Ireland Brazil Templeton *rf 2009 :.0015

1. Calculate RVOL for individual countries (RVOL i ) 2. Rank countries based on RVOL i 3. Calculate C* as the cutoff point 4. Calculate each countries weights in OP 5. Calculate OP performance

Marketri(r i -r f ) σβ RVOL i US UK France Switzerland Germany Netherlands South Korea Sweden Italy Singapore Japan Spain Hong Kong Ireland Brazil World

Marketri(r i -r f ) σβ RVOL i Brazil Sweden Hong Kong Switzerland Singapore Japan South Korea Netherlands Germany US France UK Italy Spain Ireland

 C*=C Japan = Market(r i -r f ) β RVOL σσ2εiσ2εi (r i -r f ) β i / σ 2 ε i σ2mβi/σ2εi Ci Brazil , Sweden Hong Kong , Switzerland Singapore Japan South Korea , Netherlands Germany US France UK Italy Spain Ireland

Market βσ2εiσ2εi RVOL C*ZiWi Brazil1.49 2, Sweden Hong Kong1.18 1, Switzerland Singapore Japan

MarketWeight%ri(r i -r f ) σβri*β*Weight RVOL op Brazil Sweden Hong Kong Switzerland Singapore Japan OP  Summary measures for Optimal Portfolio (OP)  r op : 15.94%  β op :. 98  RVOL op :.1380

 OCP ANGGA  OCP CHU

 Maximize floor for US  Apply cap 6.5% to RVOL-ranked countries up to US

 Floor 35% for US  Apply cap 6.5% to RVOL-ranked countries up to Japan  International Diversification (keep all countries in the portfolio)  An Art not Science

 Summary measures for Optimal Portfolio (OP)  r ohu : 10.93%  β chu :  RVOL chu :.1380 Calculate the performance of OCP chu MarketWeight%ri(r i -r f ) βri*β* RVOL* US Brazil Sweden Hong Kong Switzerland Singapore Japan South Korea Netherlands Germany France UK Italy Spain Ireland OCPCHU

Portfoliorp β RVOL Temple Growth OP OCP Angga OCP Chu MSCI USA MSCI World Rank rp BetaRVOL 1OP 2OCP Angga 3OCP Chu 4Templeton GWorldTempleton G 5MSCI WorldTempleton GMSCI USA 6 MSCI World

 Gather 2010 data mance.html mance.html  Run the out of sample calculation for each country’s return, beta  Use the same weight of 2009  Calculate the portfolio performance (Templeton, OP, OCP, USA & World)

Index Level :Price Currency :USD Date/CountryFrance German y Netherla nd SWITZE RLANdUKUSA HONG KONGITALYJAPAN SINGAP ORESPAIN SWEDE NBRAZIL IRELAN DKOREA AC WORLD Monthly Ri r T = (V t+T -V t ) / V t

MarketWeightri β MarketWeightri β US US * UK UK France France Switzerland Switzerland Germany Germany Netherlands Netherlands South Korea South Korea * Sweden Sweden * Italy Italy Singapore Singapore * Japan Japan * Spain Spain Hong Kong Hong Kong * Ireland Ireland Brazil Brazil World World

MarketWeightriri βri*β* RVOL US,2010 US UK France Switzerland Germany Netherlands South Korea Sweden Italy Singapore Japan Spain Hong Kong Ireland Brazil Templeton World  Summary measures for Optimal Portfolio  r temp : 8.87%  β temp :  RVOL temp :.0853

MarketWeight%riri βri*β* RVOL op,201 0 Brazil Sweden Hong Kong Switzerland Singapore Japan  Summary measures for Optimal Portfolio  r op : 15.93%  β op :  RVOL op :.1357

MarketWeight%riri βri*β* RVOL ocp1,2010 US Brazil Sweden Hong Kong Switzerland Singapore Japan South Korea Netherlands Germany France UK Italy Spain Ireland  Summary measures for Optimal Portfolio  r chu : 11.06%  β chu :  RVOL chu :.1022

MarketWeight%riri βri*β* RVOL ocp2,2010 US Brazil Sweden Hong Kong Switzerland Singapore Japan South Korea Netherlands Germany  Summary measures for Optimal Portfolio  r angga : 11.39%  β angga :  RVOL angga :.1057

Portfoli orprp β RVOL p,2010 Temple Growth OP OCP Chu OCP Angga MSCI USA MSCI World RankrpBetaRVOL 1OP 2OCP AnggaOCP ChuOCP Angga 3OCP ChuOCP AnggaOCP Chu 4Templeton G 5MSCI World MSCI USA 6 MSCI World

Op performs the best Portfoliorprp β RVOL p,2009 Portfoliorprp β RVOL p,2010 Temple Growth Temple Growth OP OP OCP Chu OCP Chu OCP Angga OCP Angga MSCI USA MSCI USA MSCI World MSCI World Rankrprp BetaRVOLRankrprp BetaRVOL 1OP 1 2OCP A 2 OCP COCP A 3OCP C 3 OCP AOCP C 4Templeton GWorldTempleton G4 5WorldTempleton GUSA5World USA 6 World6USA World