Systematic Wealth Management - Essay Example

Table of Contents Systematic Wealth Management 2 Executive summary 2 About Us 2 Know Your Customer 5 Eligibility 5 Risk return 5 DISCRETIONARY MANDATE  7 INVESTMENT VEHICLES 8 PROPOSED INVESTMENT PROFILE 8 ASSET ALLOCATION 9 PROPOSED ASSET DISTRIBUTION 11 PROPOSED ASSET ALLOCATION 11 CONSTRUCTION AND IMPLEMENTATION: A CORE-SATELLITE APPROACH 12 15 IMPLEMENTING THE SATELLITE: PROPRIETARY AND PROVEN SYSTEMATIC STRATEGIES 15 INCOME GENERATION – BLOOMBERG STABLE RETURN MODEL 16 ALTERNATIVE INVESTMENTS 16 PROPOSED INVESTMENTS 18 Systematic Wealth Management Executive summary This is a factious organization that is going to offer their client Cristiano Ronaldo a portfolio investment. The presented work has been composed in order to provide an in-depth understanding about the investment management of a wealth management firm with the objective to help accumulate and enhance their client’s lifetime wealth. This portfolio will determine the risk and return of which Cristiano Ronaldo can take into consideration when deciding how to best invest a portion of his wealth to help in sustainable cash flow for a non-profit organization he runs in Africa. About Us Systematic Wealth Management operates on the philosophy of strategic asset allocation. We carry out extensive research and come up with a process of determining maximum distribution of wealth across a wide array of asset classes that are established for your investment objective, timeline and risk tolerance. We will use over eighteen asset classes in order to come up with an optimal portfolio that will be perfect for your investment objective. A well-diversified portfolio needs to have exposure to a wide variety of asset classes to enable stable returns over time and diminish overall risk. Systematic Wealth Management Main office address Cecilia Chapman 711-2880 Nulla St. Mankato Mississippi 96Y 5B2 Head office telephone number (257) 563-7401 Website www.systematicwealthmanagement.com Years in business 7 Total assets under management $ 2,852 million Assets under management growth 44% Customer for; Cristiano Ronaldo Presented by; …………. Know Your Customer My client, Cristiano Ronaldo is a Portuguese football player, currently playing for Real Madrid Football Club in Spain La Liga. He is a high net worth client with a budget of $18 million. With a net worth of $320 million (Forbes, 2016), he is currently the highest earning athlete. The client home address is Santiago Bernabeu Stadium Aveninda de Concha Espina, 1 28036 Madrid Spain. Phone; +34 913 440 557 Eligibility With a net worth of $320 million and an investment budget is $18 million, his eligibility is beyond reasonable doubts. Risk return In 6 years-times, the client expects a return on investment of 60%. He runs a number of charitable organizations in Africa and South America. Specifically, he is targeting to help Amana Education Center, a non- profit organization he started in Zambia with this investment. The Institution core mandate is rehabilitating street children, accommodating and educating them throughout the education system until they are financially independent. The institution currently has enrolled more than 500 street children and has been operating for four years. The age of children in the institution ranges from as young as months to 18 years. The main purpose of this investment is to support not only the education of these less privileged children but also to cater for their general life expenses. Cristiano expects to start getting returns after the sixth year. Simply, the client wants an education plan that will ensure a sustainable education in the long run. By investing $18 million as initial savings and returns of 60% by the sixth year this portfolio is expected to run for 20 years and will have educated 200 students up to tertiary level. Investment objective Long Education savings Time horizon up to 20 years Risk tolerance moderately high Review preferences You have indicated you prefer one, in-depth annual review However, this plan’s returns will be subject to various risks that is subject to the investment type that the funds will be put in. we shall give an elaboration of these risks to our client to be informed that the value of investments, and the returns from them might go down or up and that it is not a guarantee that the plan will give returns as stipulated in this portfolio. All in all, the portfolio focuses the current and future turbulence of market volatility. Therefore, the recommendation given has a low risk since the investment will be in medium to long term (5 years and more) which will be in line with the period he expects to get first payout (6 years). DISCRETIONARY MANDATE  We will carry out discretionary investment management services in this plan. Discretionary services are used when the clients either have little experience in investment or they have no time or inclination to be involved in it. Since you are a busy footballer with less knowledge in regard to investment, discretionary mandate services will be most suited for your plan. Our diverse team of professional is skilled in assisting you meet your goals while uncovering opportunities. As a team, we will assess, simplify, and coordinate all of your financial matters. We will look at the big picture to define your entire financial landscape and then leverage our in-house wealth management philosophy and a proprietary Asset Management Platform to efficiently build, manage, monitor and control every aspect of your portfolios while at the same time balancing your goals and risk tolerance. The result will be a holistic wealth management solution that combines boutique level client services, institutional caliber portfolio management, and leading edge technology to help you achieve all of your long term goals. The wealth management cycle is comprehensive and dynamic, rather than static. In an economy where there is constant changes, it will only be prudent that your needs also change. Basically, that is the reason behind our plan and process to adapt quickly to such changes. UNIQUE ADVANTAGES: Unified Managed Household Capability Optimized Personal Strategic Asset Allocation Diversification in 18 Separate Asset Classes Tax-efficient Core- Satellite Portfolio Implementation In-house Institutional-caliber Portfolio Managers Proprietary ETF Selection Methodology Proven Systematic Equity Strategies Fresh-start Personalized Portfolios (not pooled) INVESTMENT VEHICLES Individual Securities Exchange-Traded Funds (ETFs) Broad Index Funds Hedge Funds Private Equity Investments Real Estate Investments Life Insurance PROPOSED INVESTMENT PROFILE The figure below shows the appropriate risk level we have presumed based on our collecting process and it will drive the asset classes selected for your portfolio This model is developed around five risk stages as illustrated in the bar chart. Using the questionnaire you provided, we came up with your risk profile. It evaluates your risk tolerance, investment objectives as well as your time horizon among other factors. There is a difference between risk and reward, and the most used technique of measuring it is standard deviation. Standard deviation measures the mean variance of portfolio returns. The risk of any portfolio is computed from the standard deviation of the expected returns of the underlying asset classes. ASSET ALLOCATION We operate on the philosophy of strategic asset allocation. We carry out extensive research and come up with a process of determining maximum distribution of wealth across a wide array of asset classes that are established for your investment objective, timeline and risk tolerance. We will use over eighteen asset classes in order to come up with an optimal portfolio that will be perfect for your investment objective. A well-diversified portfolio needs to have exposure to a wide variety of asset classes to enable stable returns over time and diminish overall risk The long term overall portfolio behavior is significantly accounted for by asset allocation. According to several academic studies, asset allocation accounts for over 90%, significantly making it the most important investment that significantly outweighing the relative value of stock selection and market timing. It is the most important component of investment process in decreasing volatility, controlling your risk exposure and producing consistent results in the long run. With our wide asset allocation process, you will be assured of strong quantitative tools that will fit into your unique situation to provide an investment portfolio that solves your unique requirements and objectives. The process begun by answering the questionnaire already submitted to us. As you may have noted, it captured your investment objective, income preference, personal liquidity needs and risk appetite. To optimize advice for every portfolio, we will use the results you provided into our proprietary profiling engine. To formulate your asset allocation, we will use modern optimization methods in the industry such as Black-Litterman as well as Ibbotson Building Blocks to compliment Modern Portfolio Theory. We will conduct an extensive measurement of historical performance of all market segments, correlations, yields and other valuation characteristics to determine a number of capital market theories. Using these techniques, we will be able to determine a performance range for every asset class and then choose the optimal strategic mix of asset classes for your particular risk profile. We then map the recommended asset allocation against Bloomberg’s database of investment strategies, in order to fit a core-satellite portfolio designed to meet your specific investment goals. From the experience we have had over the years, we understand that no asset class performs the same way at all times. Changes in market as well as economic trends result in different returns for different asset classes. This portfolio is well diversified and will reduce risk and boost your investment returns. It is for this reason that our wealth management creates portfolios that offer a combination of asset classes with different returns and risk components so as to offer you the best risk adjusted return in the long run. PROPOSED ASSET DISTRIBUTION The Asset Distribution represents an overall breakdown of proposed investments for your household. It includes portfolios and funds which are supplemental to the main Asset Allocation-based portfolio driven by your Investment Profile. Growth Diversified Model $12,000,000 Stable Return Model $6,000,000 Total $18,000,000 PROPOSED ASSET ALLOCATION The Proposed Asset Allocation is based on comprehensive research done by our Portfolio Management team. The latest optimization techniques have been employed to ensure efficient diversification for your portfolio across the most suitable combination of asset classes. This allocation is made to fit your Investment Profile, which is based on your Investment objective, Time Horizon and Risk Tolerance. CONSTRUCTION AND IMPLEMENTATION: A CORE-SATELLITE APPROACH “core-satellite” is a technique of portfolio construction that combines index funds with actively managed strategies within a single portfolio in order to minimize costs, tax liability and volatility while offering a chance to outperform the wide equity market as a whole. We have teamed with Bloomberg to offer you this approach that will make your investment generate the highest returns possible. Using this approach, the “Core” of the portfolio will be invested in Exchange Traded Funds (ETFs) that represent a mix of asset classes which are allocated in line with your specific investment objectives, time horizon and risk tolerance. The “Core” is meant to mix superior diversification with tax efficient returns according to the laid down asset classes while following the overall asset allocation policy. On top of this Core foundation, our alpha-seeking systematic equity strategies - the “Satellite” will be used to promote the Core by providing the potential to attain higher returns and outperform the main market segments over a period of time. The Core-Satellite concept uses the basic differences between index and active fund management and balances the best aspects of both methods. High performance, low volatility and cost control all come together in a flexible combination that will be developed specifically to take care of your needs. The dynamic Bloomberg “Core” portfolios contain ETFs from 18 different asset classes - including U.S. stocks, foreign stocks, U.S. corporate and government bonds, foreign bonds, real estate, commodities. To select these ETFs, Bloomberg uses a complex quantitative technique that skillfully chooses ETFs according to a consideration of factors such as Expense Ratio, Tracking Error, Risk-Adjusted Sharpe ratio, Liquidity, and Correlation with the underlying asset class, among other factors. In addition, our experienced portfolio managers constantly monitor the market for the emergence of new pure-play asset-class-tracking Exchange-Traded Funds on the market in consideration for future selection. Our ETF-based asset allocation approach has a proven track record. IMPLEMENTING THE SATELLITE: PROPRIETARY AND PROVEN SYSTEMATIC STRATEGIES Bloomberg provides a wide range of equity strategies that includes over 12 systematic models, covering the large-cap growth, large-cap value, mid-cap and small-cap equity classes. Each strategy has been designed, analyzed and test over time using S&P COMPUSTAT which is the best financial database containing both fundamental and price-related data for US and Canadian Equities. The strategies combine hierarchical and multi-factor screens, incorporating basic and technical factors that our research has proved to be most successful in selecting best-of-breed equities in a given asset class over the long term. Equity recommendations for each strategy are generated anew on each trading day, and historical performance of all existing strategies is updated from COMPUSTAT on a monthly basis. Our portfolio managers further screen the list of recommendations for glitches or other signs that given recommendation may be unfit for a portfolio. INCOME GENERATION – BLOOMBERG STABLE RETURN MODEL We recommend this model as one of the investment true for the cash asset because it has high liquidity needs, low risk tolerance, and most important, the consistent returns. This model will be actively managed to generate income and will be based on a proprietary systematic plan. It will invest largely in income-producing asset classes and will be implemented through ETFs. Rebalanced monthly and very liquid, this model will also be part of an overall household portfolio with its low volatility and attractive stable return behavior. ALTERNATIVE INVESTMENTS Our vast experience and resources in the Alternative Investment space allow us offer access to additional methods of investments in the form of private equity, hedge funds, and real estate. Apart from providing an additional form of income, alternatives will offer exposure to investment opportunities that cannot otherwise be realized via the other investment methods earlier discussed such as the traditional equity and fixed income markets. As our qualified investor with long time horizons and greater tolerance for liquidity, and we really encourage you to consider allocating parts of this portfolio into alternative strategies. In addition to attractive risk adjusted return potential, alternatives will offer diversification benefits. PROPOSED INVESTMENTS With the exception of cash, we will implement the asset allocation using the following index fund securities; Name $ %   AIG 18000000 1.6 288000 AXIAL 18000000 0.5 90000 FIRST TRUST DJ SEL MICROCAP INDX 18000000 1 180000 GAMESTOP CL A ORD 18000000 3 540000 VODAFORNE COMMUNICATIONS CL A ORD 18000000 1.6 288000 HANGER ORD 18000000 0.5 90000 ISHARES STANCHART MBS FIXED RATE ETF 18000000 0.5 90000 ISHARES RUSSELL MIDCAP VALUE IND ETF 18000000 5 900000 ISHARES S&P/CITIGRO`UP INTER TRE ETF 18000000 7 1260000 ISHS JPMRGN USD EMRG MRKTS BOND ETF 18000000 4 720000 MCDERMOTT INTERNATIONAL ORD 18000000 4 720000 PHH ORD 18000000 0.5 90000 PILGRIMS PRIDE ORD 18000000 1 180000 POWERSHARES DB CMMDTY IDX TRCKNG ETF 18000000 3 540000 SAFEWAY ORD 18000000 1.6 288000 SUMSANG EMERGING MARKETS EQUITY ETF 18000000 7 1260000 SUMSANG INTERNATIONAL EQUITY ETF 18000000 12 2160000 SUMSANG US LARGE CAP GROWTH ETF 18000000 7 1260000 SEAGATE TECHNOLOGY ORD 18000000 1.6 288000 SKYWEST ORD 18000000 0.5 90000 SPDR STANCHART HIGH YIELD BOND ETF 18000000 5 900000 TENNECO ORD 18000000 0.5 90000 UIL HOLDINGS ORD 18000000 0.5 90000 UNISYS ORD 18000000 0.5 90000 VODAFORNE INTERMEDIATE TERM BOND ETF 18000000 5 900000 VODAFORNE LONG TERM BOND ETF 18000000 6 1080000 VODAFORNE MID CAP GROWTH ETF 18000000 6 1080000 VODAFORNE REIT ETF 18000000 4 720000 VODAFORNE SHORT-TERM BOND ETF 4 720000 VODAFORNE SMALL CAP GROWTH ETF 18000000 4 720000 DRIX RESORTS ORD 18000000 1.6 288000 TOTAL 100 18000000 Read More