Portfolio Selection—The Asset Optimization Dilemma

Authors: M. Jayasree, N.V. Sri Ranga Prasad

Abstract: Krishna Sinha, a fund manager with around 10 years of investment experience, was looking at the returns of indexed stocks. He was currently investing big funds in index equity Exchange Traded Funds (ETF) of Bombay Stock Exchange (BSE) with a growth objective. A couple of days ago, he read an article in one of the leading newspapers that sector indices were performing better than the BSE Sensex traded funds. A detailed observation of sector indices gave an insight that they were yielding higher returns than index equity ETF. Further, the examination of index volatility as measured by value at risk was higher for some of the individual stocks in the BSE Sensex than the sectoral stocks. Mr. Sinha now wanted to have a portfolio that promised more returns with less volatility.