Portfolio Analysis - Assignment Example

?Running Head: Portfolio Analysis Portfolio Analysis Table of Contents Introduction………………………………………………………………………3 2. Description………………………………………………………………………..3 3. Economic Market Analysis a. Gross Domestic Product……………………………………………………….5 b. Housing…………………………………………………………………………6 c. Oil………………………………………………………………………………6 d. Employment rate……………………………………………………………….7 e. Debt…………………………………………………………………………….8 f. Elections………………………………………………………………………...8 4. Individual stock analysis……………………………………………………………9 5. Best portfolio………………………………………………………………………10 6. Worst portfolio…………………………………………………………………….12 7. Conclusion…………………………………………………………………………15 Portfolio Analysis Introduction Portfolio analysis studies the performance of different portfolios under different circumstances (Reilly and Brown, 2011). It can also be defined as the analysis of company’s product market mix in order to determine the optimal allocation of the company resources. Portfolio analysis includes all efforts made by a firm towards the achievement of the best trade off between returns and risk tolerance. Portfolio analysis also involves the quantification of the financial and operational impact of a given portfolio, and it is quite vital as it helps firms to evaluate the performance of their investments and the effective timing of its returns. Each portfolio consists of sub-unit. For example, the financial sector can be made up of several banks or the Airline industry can be made up of several airline companies. The analysis of each portfolio helps an investor in making a decision when investing. Most likely, a rational investor will choose the best portfolio and screen out the ones that are not essential based on objective criteria. A good portfolio is characterized by high returns on investment (Reilly and Brown, 2011). Portfolio analysis requires subjective judgment as it is not easy to segment different industries. Description This report will analyze the performance of different portfolios that are displayed in FINVIZ to ascertain their trends at a particular time. Particularly, the analysis will be based on individual stock, the best and the worst performing portfolios. FINVIZ has several portfolios. Therefore, each industry has individual portfolios. Below is a table and a bar graph showing the performance of different portfolio listed in FINVIZ for a period of three months. No. Name Performance (Quarter) 1 Financial 5.87% 2 Industrial Goods 4.97% 3 Consumer Goods 4.84% 4 Services 3.62% 5 Healthcare 2.49% 6 Basic Materials 0.21% 7 Conglomerates -0.08% 8 Technology -2.95% 9 Utilities -4.06% Economic /Market analysis The contradictions that caused the 2008-2009 global recessions are not being resolved, and there is a possibility in the near future of another recession due to: •There are vast amounts of household debt, which are unpaid, particularly one for home mortgages. •The global capitalist crisis for example, most immediate European crisis, which will reduce exports in the U.S market and destabilize its financial system. •Introduction of a policy by the U.S government which forced expenditure at the federal, state and local level to be cut. As a result, the Gross domestic product (GDP) went down by almost one-half percent in 2011. It might also cause more harm in the future •Increased rates of unemployment, growing rate of inequality, the growing power of financial capital and growth driven by unproductive speculation (Reilly and Brown, 2011). This will also lead to instability and class struggle for capitalism globally. In this analysis, we will review the current situation in U.S using significant economic indicators such as; GDP, oil consumption and prices, employment and other indicators will be evaluates. Economic Market Analysis Gross domestic product (GDP) From the above bar graph, there was a recession in GDP, and this is indicated by the negative values. However, the economy started growing at a slow pace in 2009 and 2010. In early 2011, it fell down drastically and picked up towards the end. Last quarter results for 2012 show that the GDP grew by 2.7% the fastest growth since 2011 (Reilly and Brown, 2011). The acceleration in growth was driven by increased investments in inventory mostly in the manufacturing and wholesale, increased consumer spending especially on durable goods such as motor vehicles and parts. Exports also went up especially for industrial supplies and materials. A deficit on imports was experienced and a result an increase in the GDP. Increased government expenditure also contributed to the economic growth. On the contrary, consumer spending on household goods reduced by 1.4 percent, the slowest growth recorded since the last quarter of 2011. Previously it was recorded up by 2%. Also, spending on equipments and software’s for businesses went down, and it was the lowest in growth this quarter. Housing In October the pending home resale’s index rose by 5.2 exceeding the highest estimate by Bloomberg’s survey economists (Reilly and Brown, 2011). The quarterly report from the firming housing market shows that more contracts to buy previously owned houses were recorded. Oil Oil consumption also rose in the last quarter for 2012 as a result of increased GDP. In the New York exchange crude delivery rose to $1.58 to settle at $88.07 per barrel in January. This month of November, the prices went up by 2.1 percent. In London based ICE futures exchange, prices rose by 1.1 percent and settles at $110.76 per barrel in January. U.S is the largest consumer of global oil by 20%. Statistical review of world energy indicates that overall consumption currently raised to 21% a consumption of 18.8million barrels in a day. Employment rate There rate of unemployment in America are still dominant in the United States of America (Reilly and Brown, 2011). Below is a current histogram showing the ratio of the whole population to the employed. From the above graph, the ration of the employed to the whole population continues to fall year by year. This means that most of the population is unemployed (Reilly and Brown, 2011). From the graph, one can see that the rate of employment has been fluctuating from 1995 to 2013 with the highest increase in the employment rate being in 2001 and the lowest being from 2010. Approximately there are 154.5 million people in the U.S who are employed. The government is the largest employer with 22 million. Small businesses account for 53% of the workers while large businesses account for 38% of the workforce. Generally, small business account for 99% of all employing organizations. The ratio of employed by small to large businesses is the same each year as small businesses convert to large. Therefore, the number of employment each year is less. The living standards might as a result become poorer. Debt In 1980, the public debt was $909 billion at 33% of GDP. By the year 1990, the amount tripled to $3.2 trillion at 55.9% of GDP. In 2001, the debt went up to 5.7 trillion forming 55.9% of the GDP. It continued to rise up quickly and in 2012 it was nearly forming 100% of GDP compared to 80% of GDP in 2009. As at this quarter, U.S public debt stands at $16.158 trillion forming 100.37% of the GDP. This is worrying as it has taken a large percentage of GDP. This may slow down economic growth. With this continued trend, there is a possibility of an increase in the total amount of debt for USA in the future and this has negative impacts on its economy. Elections The current elections that took place in U.S were largely determined by the economy. People voted for the democrats simply because President Obama promised to make a difference in the economy. In reality, no dramatic improvement will be experienced though for the past 4 years there was a bit of improvement as the GDP rose. Republicans fell because people perceived them to sabotage the economy by making it worse than it is (Reilly and Brown, 2011). Though the US elections were full of promises on the country’s economy, nothing has been recorded and nothing seems forthcoming a situation which has huge impacts of the US economy. Individual stock analysis China HGS Real Estate Inc. engages in real estate development in china. It has Shaanxi Guangsha Investment and Development Group Co. Limited as its subsidiaries. It was founded in the year 1995 and its headquarters are in Hanzhong city, in the people’s republic of china. Major Activities include constructions and sale of residential apartments, commercial properties and parking lots. It develops multi-layer, sub-high-rise, and high-rise apartment buildings, as well as office buildings. The company ranks as one of the top gainers in FINVIZ stocks. The opening stock price was 0.75 and the closing stock price 4.35. Below is a graph showing the performance of the stock from time to time. China HGS Real Estate Inc. overall performance is also remarkable. The industry it is operating is good. The demand for properties is very high. This may be the cause of price rise. Table below summarizes the overall performance. Performance Market Cap 195.97M Income 3.95M Sales 26.10M P/E 48.33 ROA 3.48% ROE 5.55% ROI 4.63% Gross Margin 26.22% Operating Margin 17.44% Profit Margin 15.12% Return on equity is at 5.55% and therefore shareholders get a good return for each dollar they have invested. Return on assets is 3.48% thus the company utilizes well its assets in generating income (Reilly and Brown, 2011). The profitability ratios which include gross profit and net profit margin are at 26.22% and 15.12% respectively. The profitability ratios clearly indicate that the company was in a health financial position as it was bale to generate income from its assets. Also the ratio of sales to the operating costs is reasonable at 17.44%. This indicates that the company is making good profits. Finally, the price earnings per share (P/E) ratio was 48.33 meaning that shareholders get a good return for each share held (Reilly and Brown, 2011). “Best” portfolio Introduction The best performing companies in the portfolio below are ones in property management, mortgage investment and foreign regional bank. These companies have led to overall performance of the financial sector. Company Sector Industry Price Change Carver Bancorp Inc. Financial Savings & Loans 6 26.32% AMREP Corp. Financial Property Management 8.94 21.63% Asset Acceptance Capital Corp. Financial Credit Services 5.33 10.35% Banco Macro S.A. Financial Foreign Regional Banks 15.47 8.03% Security National Financial Corp. Financial Credit Services 6.74 7.32% ICICI Bank Ltd. Financial Foreign Regional Banks 41.54 7.12% America First Tax Exempt Investors LP Financial Mortgage Investment 6.88 6.83% HDFC Bank Ltd. Financial Foreign Regional Banks 42.85 6.41% Camco Financial Corp. Financial Savings & Loans 2.17 6.37% Walter Investment Management Corp. Financial Mortgage Investment 41.33 6.30% Seacoast Banking Corp. of Florida Financial Regional - Mid-Atlantic Banks 1.56 6.12% Phoenix Companies Inc. Financial Life Insurance 22.83 5.79% BBVA Banco Frances S.A. Financial Foreign Regional Banks 4.26 5.19% NorthStar Realty Finance Corp. Financial REIT - Retail 6.62 5.08% CTC Financial   1.46 -8.75% Stock analysis Carver Bancorp Inc. limited which is in the savings and loan industry had the greatest variance of 26.32% and impacted the overall performance of the portfolio. This makes Carver Bancorp Inc. Limited to be the most impactful stock in the portfolio (Reilly and Brown, 2011). From the above table, it is quite clear that Carver Bancorp Inc was performing better in its portfolio when it comes to the property management, mortgage investment and foreign regional bank sector. Worst portfolio Introduction The worst performing companies are in the electric utility sector. Stock analysis CHC, which is in the electric utility industry made the overall performance improve as it had the highest variance of 86.79% and it makes it quite impactful. Most of the companies in the foreign sector seem to be performing better than domestic ones (Reilly and Brown, 2011). In addition, it seems the country has adopted the use of other utilities or the market is already tapped and stagnant (Reilly and Brown, 2011) Conclusion Portfolio analysis is important as it helps an investor in choosing the right basket of investments. The investor will also analyze the degree of completion in the industry he ought it to invest. With this the investor can plan on how to strategize himself in the competitive environment. The investor will be able to know the expected returns from an investment and how to allocate resources optimally (Reilly and Brown, 2011). However, some investors usually prefer to play safe by accepting lower profits instead of investing in risky assets which have high chances of generating high returns. When this happens, portfolio analysis becomes quite useful as it helps in risk aversion for the investors. Portfolio analysis can also be used in analyzing returns by the investors. Therefore, it is recommendable for the investor to use the right matrix in doing the portfolio analysis. It is vital for the investor to identify the line of business in which to invest and the risks involved. Risk varies with type of investment. References Reilly, Frank K. and Brown, Keith C. (2011). Investment Analysis and Portfolio Management. Cengage learning. Read More