Analysis and Comparison of Aviva Fund

Portfolio with its competitors

Saurav Mandhotra
Section C
62/2011

About AVIVA
Aviva is a British multinational insurance
company
Sixth-largest insurance company in the world
measured by net premium income and has
53 million customers across 28 countries
Formed by a merger of two British insurance
firms, Norwich Union and CGU plc.
Aviva name was adopted in July 2002

Objectives of the study

Comprises of 3 Parts
Analysis and Comparison of fund portfolio of Aviva
with competitors
Creating a portfolio for Aviva
Calculating Value at Risk(VaR)

Analysis and Comparison of fund

portfolio of Aviva with
competitors(SBI Life Insurance and
ICICI Prudential Life Insurance)

Funds under Study

Bond Fund (0%-40%:Cash and Money Market,60%-100% in Government and other Debt
securities)

Growth Fund(Cash and Money Market 0%40%,Equity:30%85%

Government and other Debt Securities:0%50%)

Balanced Fund (Cash and Money Market 0%40%,Equity: 0%45%

Government and other Debt Securities: 50%90%)

Index Fund(Debt Securities Incl. Money Market 0%20%,Equity:80%100%)

Enhancer Fund( Debt and Money Market:0%40%,Equity:60%100%)
Dynamic P/E(Debt and Money Market :0%100% ,Equity:0%100% )

Bond Fund
Investment objective :Progressive capital growth
with relatively lower investment risks.
%age of fund Invested
Money Market:37%
Government Securities:19%
Corporate Bonds:44%
Aviva
Returns

4.62%

ICICI

10.27%

SBI

9.64%

Investment Pattern
100%
90%
80%

37.93

39.75

36.62

70%
60%
50%

14.69

2.5

1.69

40%

57

61.69

AVIVA

SBI

ICICI

Corporate Bonds

Government Securites

30%

20%

47.38

10%
0%

Money market

Growth Fund
Investment objective: long-term cumulative
capital growth while managing the risk of a
relatively high exposure to equity markets.
%age of Fund Allocated:
EQUITIES
GOVERNMENT
CORPORATE Bond
MONEY MARKET

67.12 %
3.65%
16.15%
13.08%

Returns: -8.57%

Comparison
Tracking Sharpe
Error
Ratio

Treynor
Ratio

Jensen
Alpha

Informat M^2
ion ratio

Beta

Returns

AVIVA

6.00%

-3.02

-0.27

-0.21

-0.16

-0.14

0.61

-8.57%

SBI LIFE

7.93%

-1.14

-0.39

-0.06

0.91

-0.01

0.47

-10.09%

ICICI
PRUDE

10.48%

-1.13

-0.22

0.24

-0.03

-0.03

-13.61%

Balanced Fund
Investment objective: Long-term cumulative
capital growth while controlling risk, by availing
opportunities in debt and equity markets
%age of Fund Allocated

Equity:32%
Government Securities: 10%
Money Market:13%
Corporate Bonds:45%

Returns: -2.40%

Returns Tracking Sharpe

Error
Ratio

Treynor Jensen
Ratio
Alpha

Informa M^2
tion
ratio

Beta

AVIVA

-2.40%

8.20%

-3.36

-0.30

-0.13

0.64

-0.18

0.34

SBI LIFE

-3.77%

12.64%

-1.07

-0.38

-0.04

1.07

0.01

0.31

ICICI
PRUDE

-5.35%

15.12%

-1.11

-0.14

0.71

-0.03

-0.03

Index Fund
Investment objective :Generate returns in line
with the Stock market index - NIFTY. Subject
to exposure norms applicable under the IRDA
(Investment)Regulations.
%age of Fund Allocated
Equities: 99%
Money Market:1%

Returns: -3.92%

Top 5 Equities
Equities

% amount of invested

Return Given by the Equity

Infosys Ltd

8.33%

-13.24%

Reliance Industries Ltd

7.90%

-30.08%

ITC Ltd

7.33%

23.04%

ICICI Bank Ltd

6.34

-22.41%

HDFC BANK LTD

5.73%

-5.85%

AGROCHEMICALS

25

AUTOMOBILES
BANKING AND FINANCIAL
SERVICES
CONSUMER GOODS

20

ENGINEERING
HOTELS
15

INFORMATION TECHNOLOGY
INFRASTRUCTURE
MEDIA

10

METALS & MINING

OIL & GAS AND ANCILLIARIES

OTHERS

PHARMACEUTICALS

POWER AND POWER

EQUIPMENT
REALTY

Returns Tracking Sharpe

Error
Ratio

Treynor Jensen
Ratio
Alpha

Informati M^2
on ratio

Beta

AVIVA

-3.92%

2.75%

-1.20

-0.12

-0.19

1.35

0.04

0.99

SBI LIFE

-14.99% 1.89%

-1.03

-0.36

-0.07

1.23

0.02

0.64

ICICI
PRUDE

-10.87% 13.15%

-0.86

-0.20

0.40

0.03

-0.06

Pattern of Equity Investment

Others
Telecom

100%
90%

1.93%
2.47%
6.71%

3.33%
3.98%
0.01%
5.80%

3.55%

Axis Title

80%

11.18%

70%

4.70%
0.91%
1.04%

60%

12.83%

0.47
2.92
5.99
4.13
13.03

20.92%
7.39
5.98%
1.51%
6.07%

40%

Pharmaceuticals
Oil & Gas
Metals

4.95
Media
14.03

50%
11.84%

POWER AND POWER EQUIPMENT

Infrastructure

11.41%
9.84

0.64%
6.87%

2.54

INFORMATION TECHNOLOGY

4.66%

30%

FMCG

27.07%
25.83

20%

Cement

22.16%

10%
11.98%

6.58%

8.51

ICICI

AVIVA

0%
SBI

BANKING AND FINANCIAL

SERVICES
Auto & Ancilliary

Enhancer Fund
Investment objective: Long-term cumulative
capital growth while managing the risk of
exposure to equity markets.
%age of Fund Allocated
Equities: 96%
Money Market: 4%

Return : -5.24%

AVIVA

Returns Tracking Sharpe

Error
Ratio

Treynor Jensen
Ratio
Alpha

Informati M^2
on ratio

Beta

-5.24% 3.42%

-1.24

-0.14

-0.20

0.70

0.03

0.96

--0.95

-0.33

-0.05

1.55

0.03

0.59

-0.21

0.33

-0.01

-0.04

SBI LIFE -11.52%

ICICI
PRUDE

3.74%

-12.18% 11.90%

-1.04

Creating an Efficient Frontier for

Aviva Fund Investment

Theory and Model used

Markowitz portfolio theory also know as
Modern portfolio theory
Black and Littermans Solution to the
Optimization Problem
Global Minimum Variance Portfolio

Markowitz Portfolio Theory

Inputs:
The expected return for each asset
The standard deviation of each asset (a measure
of risk)
The correlation matrix between these assets

Output:
The efficient frontier, i.e. the set of portfolios with
expected return greater than any other with the
same or lesser risk, and lesser risk than any other
with the same or greater return.

E
Nifty Commodity Bullion CurrencyFixed income
Nifty
0.0077 0.0035 -0.0003
-0.2% 0.000498
Commodity 0.0035 0.01075 0.0031
0.0% 0.000241
Bullion
-0.00029 0.00112 0.0031
0.1% 5.17E-05
Currency -0.00158 -0.0011 4E-05
0.1% 5.17E-05
Fixed income 0.0005 0.00032 0.0002
0.0% 0.002994
Risk Free rate
Mean
Variance
Volatility

Variance Volatility

Port 1

7.630%
12.841%
24.916%
4.070%
1.193%

0.0077
0.01075
0.00307
0.00081
0.00299

8.78%
10.37%
5.54%
2.84%
5.47%

8%

7.82%
0.01506
12.27%

Experime

15%
20%
12%
17%
36%

Po

20%
17%
22%
0%
20%
29%
Volatility
20%
53%
18%
0%
100%
100%

Expected Return
Mean
10.70%
VarVariance 0.000528
Volatility
2.30%Covar

Matrix

24.92%
4.07%
1.19%
7.63%
12.84%

Sigma
Mean
Sharpe Combination
ratio
of portfolio
% of portfolio12.27%
7.82%
Mean
Sigma
sharpe ratio
25.00%
0% 14.17%
6.86%
0.90
4.9%
1.76%
-1.8 28.0%
10% 12.66%
7.50%
0.62
4.9%
1.76%
-1.8
20% 12.16%
8.15%
0.51
5.8%
1.77%
-1.2
20.00%
30% 12.81%
8.79%
0.55
6.2%
1.79%
-1.0 23.0%
40% 14.43%
9.43%
0.68
6.8%
1.82%
-0.7
50% 16.76% 10.08%
0.87
7.2%
1.85%
-0.4 18.0%
60% 19.54% 10.72%
1.08
7.7%
1.90%
-0.2 15.00%
70% 22.61% 11.36%
1.29
8.7%
2.01%
0.3
14.00%
80% 25.86% 12.01%
1.49
9.7%
2.14%
0.8 13.0%
12.00% 90%
29.23% 12.65%
1.68
10.7%
2.30%
1.2 10.00%
100% 32.69% 13.30%
1.86
11.5%
2.43%
1.4
10.00%
8.0%
12.5%
2.62%
1.7
8.00%
13.5% Series1
2.81%
2.0
5.00%
6.00%
14.5%
3.02%
2.2
3.0%
15.5%
3.23%
2.3
4.00%
16.5%
3.45%
2.5
0.00%

5.54%
2.84%
5.47%
8.78%
10.37%

3.05
(1.38)
(1.24)
(0.04)
0.47

Optimum Capital Allocation

which is 17% Nifty,0% commodity,29% in
Bullion,53% in currency and 0% in fixed
income
Efficient Frontier
Nifty
Commodity
Series1
Bullion
Currency
Fixed income

Black Litterman Model

Anticipated Return
Risk Free Rate

2%
1%

Reliance
Hdfc
icici
sbi
itc
Infosys inds
119,945 93,722 124,291 182,795 132,753 265,776
13.05% 10.20% 13.52% 19.88% 14.44% 28.91%

919,282

Return
portfolio
Wtihout n- Wtih n- adjusted Optimized benchmar
factor
factor
with benchmark k with no
opinions portfolio opinion

Variance Co-variance Matrix

Hdfc
Hdfc
0.0006
icici
0.0005
sbi
0.0004
itc
0.0002
Infosys
0.0000
Reliance inds 0.0004

icici
0.0005
0.0011
0.0006
0.0002
0.0000
0.0006

sbi
0.0004
0.0011
0.0007
0.0002
0.0000
0.0004

Expexted b-return
0.037%
Expexted b-return2.0%
Hdfc
Hdfc
1.00
icici
0.96
sbi
0.70
itc
0.35
Infosys
0.04

icici
0.51
1.00
0.56
0.23
0.01

sbi
0.54
1.45
1.00
0.29
0.02

itc
Infosys Reliance inds
0.0002
0.0000
0.0004
0.0006
0.0002
0.0000
0.0002
0.0000
0.0004
0.0008
0.0000
0.0002
0.0000
0.0005
0.0000
0.0002
0.0000
0.0011

itc
0.26
0.77
0.27
1.00
0.02

Infosys Reliance inds

0.05
0.33
0.53
0.01
0.03
0.39
0.03
0.20
1.00
0.01

0.00%
0.00%
0.00%
0.00%
0.00%
0.00%

0.034%
0.050%
0.039%
0.031%
0.008%
0.053%

1.9%
2.4%
2.1%
1.8%
1.0%
2.6%

1.878%
2.445%
2.059%
1.763%
0.958%
2.554%

13.05%
10.20%
13.52%
19.88%
14.44%
28.91%

13.05%
10.20%
13.52%
19.88%
14.44%
28.91%

VaR(Value at Risk) of Funds

VaR(Historical Method)
8.00%
7.50%
7.00%
6.50%
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
-0.50%
-1.00%

Index Fund
return
Growth Fund
Return
Balance Fund
Return
Protector Fund
return
Enhancer Fund
Return
Bond Fund
Return
0

20

40

60

80

100

120

140

160

180

200

`
Index Fund
return

Growth Fund
Return

Balance Fund
Return

Protector Fund
return

Enhancer Fund
Return

Bond Fund
Return

Mean
(Yearly)

19.30%

11.27%

7.90%

6.39%

14.64%

7.23%

Volatility

23.45%

14.24%

6.64%

1.79%

19.14%

1.97%

Initial
Investment(A
ssumption)

100

100

100

100

100

100

Cut-off

80

80

80

80

80

80

Probability
that the
portfolio will
be less than
cut off

4.68%

1.40%

0.00%

0.00%

3.52%

0.00%

VaR(Using Monte-Carlo
Simulation)
Monte Carlo Simulation
25.00

20.00

15.00

10.00

5.00

0.00
Mar-09

Jun-09

Oct-09

Jan-10

Apr-10

Jul-10

Nov-10

Feb-11

May-11

Sep-11

Index Fund return

Growth Fund Return

Balance Fund Return

Protector Fund return

Enhancer Fund Return

Bond Fund Return

Dec-11

Mar-12

Jun-12

Thank You