Myth-Busting IPS: Creating a Non-Gender Bias Portfolio for an Institutional Investor

The present Investment Policy Statement (IPS) report was developed following the CFA Institute guidelines, aiming to provide a clear and transparent document with details on the investment strategy. The IPS was exclusively prepared for risk and return profile of Allianz Global Investor GmbH, an institutional client. Allianz portfolio is being prepared according to a Socially Responsible Investing (SRI) sub-fund profile, focused on gender equal driven companies, and will be composed by European and Emerging Markets Large-Cap Blend Equity companies. The primary goal of the portfolio is to maximize returns, by constraining volatility to Packaged Retail and Insurance-based Investment Product´s (PRIIP) risk rating classification of 4, translated to a standard deviation range of 6.12% and 10.20%. The portfolio is built to a recommended 5 years of minimum holding period. The security screening process was based on Bloomberg Gender Equality Index, which tracks the public companies’ commitment and transparency in gender-data reporting. Consequently, the client wishes to demystify gender bias in corporate and financial world, by reinforcing that a gender diverse and inclusive portfolio is equally able to achieve high performance. Regarding investment philosophy, the client expresses preference for Value Investing theory, considering the macroeconomic outlook of high interest rates. The portfolio is optimized using Mean Variance Theory, recurring to Excel Data Solver to build multiple investment scenarios and Bloomberg as the main data source. The final optimal portfolio is composed by 99% of risky assets and 1% of risk-free asset, and it expects to have an annual return, R_P, of 23.63% and an annual volatility, σ, of 10.20%. The risk assessment performed is based on historical Value at Risk (VaR), Monte Carlo Simulation and a Risk Matrix, highlighting the most inherent risk and the impact in the portfolio, for the next 10 to 15 years.