Investment Policy Statement: Miguel Duarte

This Master’s Final Work develops an Investment Policy Statement (IPS) for Miguel Duarte, a Portuguese individual investor whose objective is to acquire a commercial property valued at €800,000 in real 2026 terms over a ten-year investment horizon. Starting with an inherited capital of €500,000, the required gross terminal portfolio value is estimated at €1,160,000, accounting for an annual inflation rate of 2.0% and the 28% Portuguese capital gains tax established under Artigo 72.º of the CIRS, which corresponds to a minimum nominal required return of 8.78% per annum. The IPS follows the CFA Institute (2010) framework and builds on four passive investment pillars: Strategic Asset Allocation as the primary driver of long-term performance, low-cost UCITS ETF investing, broad global diversification and behavioral discipline. The macroeconomic context of 2026 (including the US-Iran geopolitical energy shock, the ECB’s post-tightening neutral monetary stance and the continued expansion of AI-related infrastructure investment) supports a Strategic Asset Allocation of 60% global equities, 30% eurozone fixed income and 10% alternatives, implemented through ten physically replicated UCITS ETFs with a weighted average TER of 0.22% per annum. Portfolio construction is based on Mean-Variance Optimization over a five-year estimation window (May 2021-April 2026). The resulting constrained Maximum Sharpe Ratio portfolio achieves an expected annual return of 13.91%, an annualized volatility of 9.43% and a Sharpe ratio of 1.262, exceeding the minimum required return by 513 basis points. A 100,000-path Monte Carlo simulation under a Geometric Brownian Motion framework is then used to estimate the probability of achieving the gross investment objective by 2036. Risk management combines Value-at-Risk and Expected Shortfall at the 95% and 99% confidence levels with a tolerance-band rebalancing framework and a structured risk matrix, providing a comprehensive assessment of portfolio risk consistent with the client’s moderate risk profile and the ten-year accumulation horizon.