Investment Portfolio Issues - Essay Example

Student Professor/instructor Course Date CASE STUDY 1 – INVESTMENT PORTFOLIO CONSTRUCTION In the current market place, it is important to have a well-maintained portfolio for the success of any investment. Thus, knowing how to determine allocation of assets that best conforms with one’s investment’s strategies and goals is an important aspect that one needs to make part and parcel of himself/herself before making any decision of investing in any portfolio. By doing so, the future needs in terms of capital will be met and as a result creates a peaceful mind. Therefore, in order to construct a successful portfolios that are aligned to investments strategies and goals of an individual or a group, a systematic approach should be followed. In this case, detailed explanation on the different philosophies and strategies followed by my client in the construction of their investment portfolio is done with an aim of meeting their investment strategies and needs. Firstly, it was important to determine the appropriate and best asset allocation for the client. In order to do this, the client’s investments goals and financial situation was ascertained as the first thing. In this case, the current capital base of $1,000,000 invested in the different portfolios based on the growth rate as wells as the future capital needs were the most important factors that were considered. Thus, this necessitated the relooking of the uncertainty of the market share caused by the referendum decision of the UK to quit the EU. With regard to that, use of physical share investments in terms of the quality securities ranks that is represented by the 100 largest listed companies was an important move to select the best asset on the Australian Securities Exchange. Thus, choosing of 40% of the total investment funds as equity securities and putting of 10% as the limit for investing in other companies was the best move. In addition to that, by selecting 50% as a direct share investment in the Australian market would have improved the future capital needs to the desired levels. As a consequence of the client’s move of selecting the asset, the asset diversification would be met. In addition to that, the personality and the risk tolerance of the client was determined. In this case, the acceptance of the client to diversify on several assets was an important aspect. Thus, ascertaining of the financial and capital needs in the future was crucial before allocating the different assets to the risks attached in investing in any asset. This is achieved through the client’s reasonable level of risk tolerance and the willingness to invest their funds in the equity securities that were in listed investment companies or exchange-traded funds, equity market option securities or futures contracts, and cash. In addition to that, the intention of the client is to invest in the portfolio with a capital growth perspective gives the decisiveness of the client which will meet their demand. Therefore, the future capital needs and the current situation is met. The next step was the division of the capital based on the selection of the security that meets the limits set during the asset allocation. In this case, choosing of 40% of the total investment funds as equity securities and putting of 10% as the hedge for investing in other companies was the best move. In addition to that, by selecting 50% as a direct share investment in the Australian market would have improved the future capital needs to the desired levels. As a consequence of the client’s move of selecting the assets and their diversification, the risk of losing the security in case of failure of one of the security. This is given from the trend of the various assets provided from the historical data that assets had unpredictable prices from time to time. For example, the different assets selected by client in order to meet their strategy were based on the quality and the potential of each investment. They have indicated that short-selling of securities is also permissible, although sufficient reserves are required to be held in a cash management account to meet re-purchasing requirements. In addition to, they have they approved the use of equity index futures contracts and option securities for speculating or hedging purposes. Based on that, the closing price of the December 2016 SPI 200 Futures Contract was 5,336 on 13/07/16 which represents the contract of A$ 25 × SPI 200 value. On the other hand, the creation of a $10,000 settlement account to meet margin movements has made the security selection a success to the company. Also, basing of the assets on the different categories the client have decided to allocate, the future capital of the market has increased. For instance, the selection of the assets with a put value of $4950 which represents a 20% cash value of the capital enables the client to make purchases of valuables assets once they are available. Additionally, the selection of the preferred cash investment in the ANZ Cash Advantage Fund is an advantage for the client has its return of 2.15% per annum improves the capital of the client which was then main aim of the capital growth of the client. For the case of the exchange traded funds, the selection of the security is based on the relative change of the performance of the S&P/ASX 200 index. This ETFs, had a closing value of 5,388.50 on 13/07/16. This security was viable for the organizations has the variation of the security from the market value is low for the S&P/ASX 200 index. This gives the client an opportunity of having a stable asset as compared to having a single asset in the diversification. In addition to that, the funds provides a cheaper means of management and thus, the extra money earned from not being used in the management of the stock is ploughed back for reinvestment. Based on the above argument, the following table and pie chart represents different assets selected and the allocated value of each asset for the client HEALTHSCOPE 10% S&P/ASX 200 - PRICE INDEX 20% WAM CAPITAL 40% BETASHARES EURO ETF 20% From the result of the assets selection provided in the pie chart, it observed that the largest share of the security to be invested is WAM CAPITAL. This is because of its market share in the listed investment companies with little deviation of the pricing index throughout the period indicated in the historical data. As a consequences, the likelihood of losing in this kind of investment is low as compared to other market share in the same category. On the other hand, selecting of S&P/ASX 200 as the revaluating index of the market share indicates how strong and invariable the product is in the security market. Due to its property, the security share is taken to be high enough for the stability purposes to the client. In addition to that, selection of Beta shares Euros ETF provided the client with a good base for their capital growth. This is because of its high tolerance levels that the client is anticipating to obtain. HEALTHSCOPE takes the smallest share of the portfolio selection of the client, this is because of the high uncertainty of the portfolio from the previous market prices that tend change from time to time. As a result of this, the risk is high to invest in such a portfolio. In conclusion, one needs to put in mind that diversification is an important factor that one need to consider in efficient and best portfolio construction in order to curb the ineffiencies caused by an individual assets such as price fluctuations and so forth. For example, the use of ETFs in the diversification of the assets by the client would make the client to enjoy the economies of scale based on the amount of money invested in it. Therefore, the best bet for any long terms growth of an investment is that which is well diversified. This is because of its ability to protect the assets from any risks of large declines and any instances of structural changes in the economy such as the decision by the UK to quit the European Union. Read More