Investments and Portfolio Management - Bank of Queensland Ltd and Bendigo and Adelaide Bank Ltd - Case Study Example

Investment and Portfolio Management Investments and Portfolio Management The companies that are given in the excel sheet are from a number of sectors in the economy. The Australian Foundation Investment Company is a limited company that deals with a managing a variety of Australian stocks. Aurora gas and oil limited is in the petroleum sector and seals with exploration and drilling of oil and gas reserves. Bank of Queensland Ltd and Bendigo and Adelaide Bank Ltd offer banking services and are in the financial sector. Boral Limited is in the construction sector and deals in construction and building materials all across the globe.Caltex Australia Limited is a dealer in fuel and oil products and a major player in the petroleum sector. Cedar Woods Properties Limited deals in the development of residential and commercial players and is a major player in the real estate sector. Cochlear Limited is a listed company in the manufacturing sector that specializes in supplies; designing and manufacturing of hearing implant that are sold all across the globe. David Jones Limited is an exclusive department store and is involved in the retail sector. Flight Centre Travel Group Ltd is one of the world’s largest travelling agencies and is in the transport sector. Graincorp Limited is a company in the agricultural sector and deals in handling and storage of grains and other agricultural commodities(Rad & Levin, 2006). James Hardie Industries PLC is an Irish company that is in the industrial sector and deals in the manufacturing of cement products.Leighton Holdings Limited is a contracting and project development company and is in the industrial sector.Platinum Capital Limited is in the financial sector and is involved in investments in various securities and assets. Perpetual Limited is also involved in the financial sector and provides investment advice to individuals and corporate companies. Ramsay Health Care Limited is a group of health facilities operating in the United Kingdom and is in the health care sector. ResMed Inc is a manufacturing company that develops and markets medical products.UGL Ltd is an engineering company that is in the industrial sector. Woolsworth is a major player in the retail sector and operates a chain of supermarkets all across the country. Zimplats Holdings Limited deals in mining of precious commodities and is in the mining sector. The companies that are given in the excel spreadsheet are spread over several sectors. Some are in the financial sector while majority are in the industrial sector and resource sectors as perdefinitions of the ASX. Some of the companies that are in the industrial sector include: UGL Ltd, ResMed Inc, Cochlear Limited, James Hardie Industries PLC, and Boral Limited. Some of the companies that are in the resource sector include: Zimplats Holdings Limited, Aurora gas and oil limited, Caltex Australia Limited (Fabozzi, 1998). There are various listed companies that are included in the list. These offer investment services to individuals and companies; they have investments in various assets and more particularly in securities of companies that are listed in the Australian stock exchange. Some of these companies include Australian Foundation Investment Company, Perpetual Limited, and Platinum Capital Limited.Some companies that are included in the list have investments in property. These have investments in the residential and commercial sectors. An example of such a company includes Cedar Woods Properties Limited.Most large companies do not only operate on a local scale but have operations in foreign locations. As such they have international exposure. One such company is Ramsay Health Care Limited that operates clinics in the country and also in the United Kingdom. Another company is Zimplats Holdings that has a presence in Zimbabwe from where it obtains mineral resources. Flight Centre Travel Group Ltd is a travel agency that also has global operations. All the companies that are included in the list are included in the S&P/ASX200 index. From here these companies can be traded by members of the public and other investment companies. These listed companies included those that are based in the country and those that have international operations.The companies that dominate the S&P/ASX200 index are those that are in the resource sector and in the financial sectors. The oil industry is a huge field due to the demand of petroleum products within the economy. Some of these companies include the Aurora Gas and Oil Limited Company and Caltex Australia Limited. The banking industry also dominates the index with companies such as Bank of Queensland Ltd and Bendigo and Adelaide Bank performing quite well. Flight Centre Travel Group Ltd is in the transport sector and has been performing well in over a number of years as it is one of the best performing travel industries across the globe(Rajegopal, McGuin & Waller, 2007). 1. The rate of inflation (March 2004 CPI – March 2003 CPI)/ March 2003 CPI * 100% Australian Consumer Price Index (As of March) 2004: 80.2 2005: 82.1 2006: 84.5 2007: 86.6 2008: 90.3 2009: 92.5 2010: 95.2 2011: 98.3 2012: 99.9 2013: 102.4 2014: 105.4 Rate of Inflation: 2004: 2% 2005: 2.4% 2006: 2.9% 2007: 2.5% 2008: 4.3% 2009: 2.4% 2010: 2.9% 2011: 3.3% 2012: 1.6% 2013: 2.5% 2014: 2.9% The risk free rate of return refers to a return that is expected by an investor in case of investments with zero risks attached over a certain period of time. Risk-free asset (a) Return Relative= (Ending value of Investment)/ (Beginning value of Investment) = 111,619,295.48/73,441,529.02=1.5198 (b) Holding Period Return (HPR)= Return Relative-1=1.5198-1=0.5198 (c) AHPR= (Return Relative) ^(1/(324/52))-1=(1.5198)^(1/(324/52))-1=0.0695 Cash The $5 million cash is invested in Macquarie Cash Trust (CMA) and the rate of return is 3.3% p.a. Ending cash value==$5,000,000*(1+0.033)^(324/52)=$6121048.97 Portfolio return (a) Return Relative= (Ending value of Portfolio)/(Beginning value of Portfolio) = 169479751.76/100,000,000 =1.6947975 (b) Holding Period Return (HPR) = Return Relative-1=1.6947975-1=0.6947915 (c) Portfolio Annualized holding period return (AHPR)=[(Return Relative)]^(1/(271/52))-1 =(1.6947975)^(1/(324/52))-1 =0.0884 S&P ASX200 Index return (a) Return Relative= (Ending value of S&P ASX200 Index)/(Beginning value of S&P ASX200 Index)= 5248/6389.4=0.8214 (b) Holding Period Return (HPR)= Return Relative-1=0.8214-1=-0.1786 (c) AHPR = [(Return Relative)]^(1/(271/52))-1=(0.8214)^(1/(324/52))-1=-0.0311 Analysis of the portfolio Comparison of the portfolio With the investment 324 weeks, the table contains the measurement figures for portfolio; risk-free, portfolio and ASX200 index return. By comparing the figures of these three categories, the evaluation of the portfolio will be discussed. The portfolio has HPR of 69.4% and 8.84% per annual, which means that the stocks investment will appear profit. On the other side, the figure for risk-free asset gets an even higher return, which reached 51.98% for 324 weeks and 6.95% per annual. Moreover, ASX200 index return also shows a negative figure, which indicates that the recession has brought great loss the whole world economy. Although ASX200 has negative data because of the recession of world’s economy, the portfolio chosen has good performance. Performance measures Sharpe ratio is a measure of the excess return per unit of deviation in an investment asset or a portfolio. From the above table, portfolio1A, 2A, 3A and 4A have similar Shapre ratio, which all is close to 0.136933. Therefore, according to Sharpe ratio, these four portfolios have same performance. Treynor ratio is a measurement of the returns earned in excess of that, which could have been earned on an investment that has no diversifiable risk, per each unit of market risk assumed. The better portfolio would have higher Treynor ratio. From the above table, the portfolio2A has highest Treynor ratio compared with other three portfolios, which means its preference is best. Portfolio1A and 3A have similar Treyor ratio, so their performance is almost same. The performance of portfolio4A is not good compared with other three portfolios since it has lowest ratio. The answer is that it is nominal. This is the interest rate that is stated before taking into account other factors such as the rate of inflation. It is usually quoted when agreements are being made when giving out loans. This is not really risk free. This is because there are other factors such as inflation that always affect the value of the money. As such, the value of the capital will be greatly reduced as it is very difficult to control the rate of inflation. There are various ways by which the price data for the stocks can be converted into the rate of returns of the stocks. This can be by finding the difference between the price paid for the stocks and the market price of the shares. The answer is then multiplied with the number of shares that one owns so that the total return of the investments that has been made. The total return is then divided by the amount of money that was paid for these stocks. This will provide the return per share. This rate of return is therefore multiplied by 100% so as to find the percentage rate of return of these stocks. Calculation of returns The Platinum Capital Company has the highest rate of weekly return of all the companies that are listed in the index. On the other side, Boral Limited is the company that had the lowest weekly rate of return. There are four ways, which are variance, standard deviation, coefficient of variation and beta could be used to measure the risk. Variance’s square root is standard derivation, so they have the same meaning for the risk. Large variance or standard derivation indicated greater dispersion. In general, investors don’t like securities with high standard deviation which means they have high risk. The top risks are UGL, FLT and GNC and the low risks are COH, LEI and RHC. When securities’ expected returns are different, coefficient of variation is better measures for risk compared with variance and standard deviation, since it combined standard variance with expected returns. The lower coefficient of variation meanslower risk, such as RHC and PPT. The higher coefficient of variation meanshigher risk, such as UGL and RMD (Brentani, 2003). Qualitative performance When we discuss whether qualitative performance is good or bad, use earnings quality of individual securities within the portfolio to analyze it. Although GFC happened five years ago, the market condition is still unstable which would increase the systematic risk of the investment and reduce the investor’s confidence. Compared with the international investment environment, Australia market is more stable since the economy of China still develop well and Australia is impacted much by China economy. Therefore, as a reasonable fund manager would reduce the amount of international investment and enhance the domestic investment. Because China is important part for Australia’ economy and China need to import natural resources to develop its economy, our fund managers invest three in several natural resources companies (Reilly & Brown, 2012). RHC is a health care equipment & Services Company, has an increase in sales and EBIT, which means that the stock price of them would continue to rise. Moreover, in general, the announcement of new product would stimulate the stock price growth further. Therefore, it should be good investments in both stocks. DJS and WOW are both department store chain companies. As more and more oversea students come to Australia to study and these two companies accounts for larger parts supermarket chain in Australia. Therefore, their stock prices should be stable. Read More