Liam Peoples

Date Approved

2025

Degree Type

Open Access Senior Honors Thesis

Department or School

Accounting and Finance

First Advisor

Yu Zhang, Ph.D.

Second Advisor

Charles Teague III, Ph.D.

Third Advisor

Ann R. Eisenberg, Ph.D.

Abstract

This project examines the construction and evaluation of a diversified equity portfolio designed to generate positive risk-adjusted alpha relative to the S&P 500 over a five-year investment horizon. The analysis is conducted within a macroeconomic environment characterized by structurally higher interest rates, slowing real GDP growth, and elevating geopolitical and political risks. A comprehensive top-down assessment of financial, economic, industrial, global, political, housing, and trade dynamics forms the foundation for establishing portfolio selection criteria. Emphasis is placed on balance sheet strength, durable cash flows, and pricing power, reflecting the higher cost of capital and increased volatility relative to the pre- 2022 period. The portfolio employs a blend of growth and value equities, excludes derivative strategies, and maintains diversification through a minimum of 30 holdings. Quantitative screening techniques are used to identify high-quality firms based on metrics including beta, standard deviation, Sharpe ratio, return on invested capital, leverage, and interest coverage. Portfolio performance is evaluated using historical risk-return measures and Monte Carlo simulations to assess forward-looking outcomes. Results indicate that the portfolio achieved superior risk-adjusted performance relative to the S&P 500, with a lower beta, higher Sharpe ratio, and positive historical alpha. While forward simulations suggest strong expected returns, the analysis highlights concentration risk, and sector-specific dependencies, particularly within semiconductors. Overall, the project demonstrates the effectiveness of combining macroeconomic analysis with disciplined security selection to achieve alpha while maintaining controlled systematic risk.

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