Investment Strategy and Portfolio Management - Coursework Example

Investment Strategies Introduction Investment strategies are changing day by day. New policies are being adopted by the s to make their investors happy and to have a regular income. It is difficult for a financial institution to survive in today’s market without implementing proper planning and strategies. Morris Capital allows the investors to withdraw the money after five years. Though this may seem to be an advantage to the investors, it is not of much use to the company. The reason is, long term investments will be of more benefit to the company when compared to these short term investments. The competition is very tough and the company finds it difficult to compete with others. (Blake 2000).The investment form the customers are the basis for running such institutions. Only if the contributors are more and they get attracted with the institution, they will deposit more funds. To attract the contributors and increase the inflow, the company must follow new policies and strategies. The fund withdrawals must always be less than the fund inflows. If the withdrawals exceed the inflow, then the company will undergo a tough time. It will be difficult for the company to increase the inflow once the level of withdrawals becomes more. To maintain the stability between the inflow and withdrawals they have to adapt to the new management policies and should alter their investment plans accordingly. (Bodie et al 2009). The company must decide the plans and policies on the day of investment committee meeting. The committee must discuss on the future strategic asset allocation and tactical asset allocation ranges. The current scenario in the investment environment is completely different than the one that prevailed earlier. Since there are various other investment institutions that offer other benefits and offers, the company must makes sure that they maintain their investors and the level of their assets. Characteristics of Investment Institutions The investment institutions follow various forms of fund operations and investment options. The company provides fund for educational purpose and they cannot change the basic formalities and procedures. The characteristics of a investment institution is to make the public deposit funds and to provide them a time period after which they can withdraw either a part or the specified amount form their contribution.(Buckle, Thompson 2004). These financial institutions concentrate more on providing the investors with a good investment option that will fetch the company a long term investment. The present situation in the financial market is not much favorable and the investors may wish to withdraw their money from such institutions. (Bodie et al 2009). The company has the responsibility to retain their investors by providing any additional benefits. The investment institutions play a major role in the future of the investors. They invest their money with an intention of getting it at the time of their requirement. This institution provides funds for educational purpose and the investors would require it to pay their children’s fees. Since it has to be done with in a stipulated time, the institution must make sure that they provide withdrawal option after five years. Investment Objectives Investment institutions provide various options for the investors. An investor would expect the institution to keep up with their words and to provide them a problem free investment return. The basic investment objectives are safety of the funds, income from the invested amount and the growth of their investment. (Cuthbertson, Nitzsche 2008). The company must follow such objectives to satisfy the investors and this would definitely increase the number of investors. The committee must decide on including options which will fulfill these objectives. The safety of the investment is the major criteria of any investment company. The company can decide on including any other benefits that would enable them to continue their investment this company. They should provide options to withdraw their money according to the financial requirement of their children’s education. The investor will also expect an income from the investment. The institution must provide an investment environment based on the current financial market. (Blake 2000).The government decides the rate of interest and other options that must be followed by the institutions. The institution can have flexible options of withdrawal that would increase the number of investors. By including these features the company will be able to satisfy the investors. (Jones 2003). The investors may have other objectives like minimizing the tax and these objectives must be met by these institutions. Asset Allocation The company holds assets worth 13.5 million and they should strive hard to maintain the asset value. This will pave the way to increase the number of investors. If the company’s asset value increases, the company can be sure of getting more investments. The committee should decide on maintaining and increasing their asset value. The assets of the company are not in a single form. It has its assets U.K equities, overseas equities, corporate and government bonds, commercial property and short term investments. Asset allocation is creating different ways to maintain the assets using the asset classes. Asset allocation will help in optimizing the investment and its performance. Since the assets will be allocated on different classes, the risk of investment is considerably low. (Gibson 2000).The financial market will certainly be fluctuating and asset allocation will protect the investors from the risk. This is possible since each asset class will have risk at different levels. The company’s risk among the asset is less since the assets are wide spread among the various equities and bonds. (Rutterford, Davidson 2007). The asset allocation is based on the basic strategic and tactical methods. Most of the investment companies allocate their assets according to their types of assets. The assets may be cash, stocks and the equity bonds. The company’s assets are diversified as bonds, stocks and cash. Hence the company must allocate their assets according to the market situation. Based on the current situation the company must allocate their assets according to certain strategies. Principles of Portfolio Management The company must select a portfolio management strategy according to the company’s financial status. If the company needs to be improved, then the strategy must be selected to suit the improvement. There are various principles to manage the portfolio of a company. The company must follow these principles so that the company’s financial status will improve. The company must implement a process to control the market volatility. The committee should satisfy the requirements of the investor. It must make use of flexible options for the management. The company has to decide on strategies which will minimize the risk and fulfill the objectives of the investors. Asset allocation is one among the important principles of portfolio management. Thus the company must realize the importance of allocating their assets. These principles must be followed by the company to ensure proper investment returns and this in turn will increase the number of investors. Bond Valuation and Bond Portfolio Management Morris Capital’s assets include government and corporate bonds. The value of bond is decided by the company. These bonds are purchased by government or the public. When a company requires money, they can borrow by means of selling bonds to the public or the government. The rates of interest of such bonds are generally fixed. Since the rate of interest is fixed, the bonds will serve the company for a long time. Bond portfolio management strategies should be implemented by the company to improve the company’s financial status. The various bond portfolio management strategies are passive, active management strategy and matched funding strategy.(Brentani 2004). The passive management strategy involves the procedure of buying the bonds and retaining them until the bond matures. The time period will be specified during the purchase of bond and till the date of maturity the bond will be retained. This is Buy and hold strategy which is one among the passive management of bonds. Another strategy in passive management is Indexing. This strategy follows the performance of the bond and a portfolio is constructed. Equity Portfolio Management In equity portfolio management the equity issues and bonds that have the common criteria are selected and a portfolio is built. The investors must invest in companies with good reputation so that the invested amount is safe. The committee members must decide on their equity bonds and its value. Since equity bonds and shares are important aspect in the company’s financial status. They should make sure the equity bonds are in the safe hands and the people holding these bonds must not sell it. The company’s assets are in the form of equity bonds that are divided among the government and the corporate in U.K. Performance Measurement Every company will measure its performance to know the growth rate of the company. It helps in knowing whether the predefined programs are following the schedule. The parameters are defined and the company’s growth is measured using those parameters. The committee members must ensure that the company’s performance is measured at regular intervals. This will enable the company to grow at a faster rate. (Armstrong 2000).The drawbacks and the disadvantages can be known and this in turn will lead the company to a better position. Performance is measured for various reasons. It will help in evaluating the company’s bonds and their values in the financial market. Another reason is to control the unnecessary expenses that incur in the company. The budget of the company’s expenses can be derived if the performance is measured. By doing this, the necessary money for each expense can be allotted and it will reduce the hidden costs. The major reason for measuring the performance is to improve the organization. This company can certainly improve if they measure their performance in terms of asset allocation. The institution can decide on how much funds to be allocated for each investor. Risk Measurement and Risk Management Risk Measurement Any financial institution is prone to risk than any other companies. The state of such financial institutions purely depends on the financial market and its fluctuations. The rate of risk involved in these companies is comparatively more. The company must use any one of the risk measurement techniques or systems to keep the company free from any sudden risk. The company’s major risk is the decline in the value of share and bonds. Risk measurement systems can be used to predict and measure the risk involved in each activity that occur in the financial institutions. (Gallati 2003).The risk is based on the market factors and the current situation of the company in the market. This primarily decides the company’s status among the other competent companies. The committee members must analyze the market conditions and based on that they can fix the price of bonds and shares. This will reduce the risk even if the financial market is completely down. Instead of deciding on a value that may result in a loss, it is better to measure the risk and then proceed with the price fixing. The committee meeting is conducted to address the problems and issues and finding ways to solve them. This committee meeting will turn out to be a success if they decide on the risk measurement factors and implement such techniques so that the standard of the company will improve. This in turn will increase the number of investors. Risk Management Once the risks are identified, the company should move on to the next step of managing those risks. The risks are assessed according to the company’s policies. They assess the reason of risk and the way to resolve the issue. The risks are prioritized according to severance of the risk. (Gallati 2003).f the risk is more severe, then steps are taken immediately to improve the situation and to solve the problem. Then they are monitored on a regular basis to ensure that they do not happen again. In this stage the probability of such risks can be identified. This will help in maintaining a system so that the company can avoid such risks in the future. The company has to decide on various issues that would improve the company’s standard and position in the market. To retain the existing investors and to increase the number of investors, the company must adopt any new technology or strategy. By doing so, the company can be sure of getting more investors which will increase the share and bond value. The assets will also get increased which in turn will encourage more people to invest in this institution. Since this institution deals with educational funding, more number of people would select this institution if it offers extra benefits. To survive in a market where the competition is too high is a very difficult task. The institution must allocate the assets and follow the principles of portfolio management to maintain the assets in a proper manner. The committee meeting should ensure that performance will be measured on a regular basis and the risk is also measured. References Blake, D., (2000). Financial Market Analysis. U.S.A: Wiley Publications. Bodie, Z., Kane, A, & Marcus, A., (2009). Investments. U.K: Tata McGraw Hill. Buckle, M & Thompson, J., (2004). The U.K .Financial System. Manchester University Press. Cuthbertson, K. & Nitzsche, D.,(2008). Investments U.S.A: Wiley Publications. Rutterford, J. and Davidson, M., (2007), An Introduction to Stock Exchange Investment. U.K: MacMillan Publications. Armstrong, M., (2000). Performance Measurement: Key Strategies and Practical Guidelines. U.K: Kogan Publishers. Gallati, R., (2003). Risk Management and Capital Adequacy. New York: McGraw Hill. Brentani, C., (2004). Portfolio Management in Practice. U.K: Elseiver Publishers. Gibson, R., (2000). Asset Allocation: Balancing Financial Risk. U.S.A: McGraw Hill. Jones, E., (2003). Investments. U.K: Alexander Hamilton Institute. Read More