1. Analysis and Comparison of Aviva Fund
Portfolio with its competitors
Saurav Mandhotra
Section C
62/2011

2. 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

3. Objectives of the study

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

5. Analysis and Comparison of fund
portfolio of Aviva with
competitors(SBI Life Insurance and
ICICI Prudential Life Insurance)

6. 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% )

7. 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 ICICI SBI
Returns 4.62% 10.27% 9.64%

8. Investment Pattern

9. 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 67.12 %
GOVERNMENT 3.65%
CORPORATE Bond 16.15%
MONEY MARKET 13.08%
• Returns: -8.57%

10. Comparison
Tracking Sharpe Treynor Jensen Informat M^2 Beta Returns
Error Ratio Ratio Alpha ion ratio
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 10.48% -1.13 -0.22 0.24 -0.03 -0.03 -13.61%
PRUDE

11. 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%

12. Returns Tracking Sharpe Treynor Jensen Informa M^2 Beta
Error Ratio Ratio Alpha tion
ratio
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 -5.35% 15.12% -1.11 -0.14 0.71 -0.03 -0.03
PRUDE

13. 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%

14. 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%

16. Returns Tracking Sharpe Treynor Jensen Informati M^2 Beta
Error Ratio Ratio Alpha on ratio
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 -10.87% 13.15% -0.86 -0.20 0.40 0.03 -0.06
PRUDE

18. 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%

19. Returns Tracking Sharpe Treynor Jensen Informati M^2 Beta
Error Ratio Ratio Alpha on ratio
AVIVA -5.24% 3.42% -1.24 -0.14 -0.20 0.70 0.03 0.96
SBI LIFE -11.52% 3.74% --0.95 -0.33 -0.05 1.55 0.03 0.59
ICICI -12.18% 11.90% -1.04 -0.21 0.33 -0.01 -0.04
PRUDE

20. Creating an Efficient Frontier for
Aviva Fund Investment

21. Theory and Model used
• Markowitz portfolio theory also know as
Modern portfolio theory
• Black and Litterman’s Solution to the
Optimization Problem
• Global Minimum Variance Portfolio

22. 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.

23. E® Variance Volatility Experime
Nifty Commodity Bullion CurrencyFixed income Port 1 Po
Nifty 0.0077 0.0035 -0.0003 -0.2% 0.000498 7.630% 0.0077 8.78% 15% 20% 17%
Commodity 0.0035 0.01075 0.0031 0.0% 0.000241 12.841% 0.01075 10.37% 20% 22% 0%
Bullion -0.00029 0.00112 0.0031 0.1% 5.17E-05 24.916% 0.00307 5.54% 12% Volatility
20% 29%
Currency -0.00158 -0.0011 4E-05 0.1% 5.17E-05 4.070% 0.00081 2.84% 17% 20% 53%
Fixed income 0.0005 0.00032 0.0002 0.0% 0.002994 1.193% 0.00299 5.47% 36% 18% 0%
100% 100%
Risk Free rate 8%
Expected Return
Mean 7.82% Mean 10.70% 24.92% 5.54% 3.05
Variance 0.01506 Variance 0.000528
Var- 4.07% 2.84% (1.38)
Volatility 12.27% Volatility 2.30%Covar 1.19% 5.47% (1.24)
Matrix 7.63% 8.78% (0.04)
Sigma Mean Sharpe Combination of portfolio
ratio 12.84% 10.37% 0.47
% of portfolio12.27% 7.82% Mean Sigma sharpe ratio
0% 14.17% 6.86% 0.90 4.9% 1.76% -1.8 28.0%
25.00%
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
Optimum Capital Allocation
30% 12.81% 8.79% 0.55 6.2% 1.79% -1.0 23.0%
20.00% which is 17% Nifty,0% commodity,29% in
Bullion,53% in currency and 0% in fixed
40% 14.43% 9.43% 0.68 6.8% 1.82% -0.7 income
50% 16.76% 10.08% 0.87 7.2% 1.85% -0.4 18.0%
Efficient Frontier
60% 19.54% 10.72% 1.08 7.7% 1.90% -0.2 15.00%
Nifty
70% 22.61% 11.36% 1.29 8.7% 2.01% 0.3
14.00% Commodity
80% 25.86% 12.01% 1.49 9.7% 2.14% 0.8 13.0% Bullion
Series1
12.00% 90% 29.23% 12.65% 1.68 10.7% 2.30% 1.2 10.00% Currency
10.00%
100% 32.69% 13.30% 1.86 11.5% 2.43% 1.4 Fixed income
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%
4.00%
15.5% 3.23% 2.3
16.5% 3.45% 2.5 0.00%

24. Black Litterman Model

25. Anticipated Return 2%
Risk Free Rate 1%
Reliance
Hdfc icici sbi itc Infosys inds
119,945 93,722 124,291 182,795 132,753 265,776 919,282
13.05% 10.20% 13.52% 19.88% 14.44% 28.91%
Return portfolio
Wtihout n- Wtih n- adjusted Optimized benchmar
Variance Co-variance Matrix factor factor with benchmark k with no
opinions portfolio opinion
Hdfc icici sbi itc Infosys Reliance inds
Hdfc 0.0006 0.0005 0.0004 0.0002 0.0000 0.0004 0.00% 0.034% 1.9% 1.878% 13.05% 13.05%
icici 0.0005 0.0011 0.0011 0.0006 0.0002 0.0000 0.00% 0.050% 2.4% 2.445% 10.20% 10.20%
sbi 0.0004 0.0006 0.0007 0.0002 0.0000 0.0004 0.00% 0.039% 2.1% 2.059% 13.52% 13.52%
itc 0.0002 0.0002 0.0002 0.0008 0.0000 0.0002 0.00% 0.031% 1.8% 1.763% 19.88% 19.88%
Infosys 0.0000 0.0000 0.0000 0.0000 0.0005 0.0000 0.00% 0.008% 1.0% 0.958% 14.44% 14.44%
Reliance inds 0.0004 0.0006 0.0004 0.0002 0.0000 0.0011 0.00% 0.053% 2.6% 2.554% 28.91% 28.91%
Expexted b-return
0.037%
Expexted b-return .0%
2
Hdfc icici sbi itc Infosys Reliance inds
Hdfc 1.00 0.51 0.54 0.26 0.05 0.33
icici 0.96 1.00 1.45 0.77 0.53 0.01
sbi 0.70 0.56 1.00 0.27 0.03 0.39
itc 0.35 0.23 0.29 1.00 0.03 0.20
Infosys 0.04 0.01 0.02 0.02 1.00 0.01

26. VaR(Value at Risk) of Funds

27. VaR(Historical Method)

28. `
Index Fund Growth Fund Balance Fund Protector Fund Enhancer Fund Bond Fund
return Return Return return Return Return
Mean 19.30% 11.27% 7.90% 6.39% 14.64% 7.23%
(Yearly)
Volatility 23.45% 14.24% 6.64% 1.79% 19.14% 1.97%
Initial 100 100 100 100 100 100
Investment(A
ssumption)
Cut-off 80 80 80 80 80 80
Probability 4.68% 1.40% 0.00% 0.00% 3.52% 0.00%
that the
portfolio will
be less than
cut off

29. 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 Dec-11 Mar-12 Jun-12
Index Fund return Growth Fund Return Balance Fund Return
Protector Fund return Enhancer Fund Return Bond Fund Return

30. Thank You