Reference no: EM131614559

Assignment: Fundamentals of Investing

Scope

Recognise the different investment products such as equities, REITs and real estate investments and discuss their relevance in planning an investment portfolio.

Discuss the role of fundamental analysis and the use of applicable market information and data in the investment decision-making processes.

Explain the characteristics, merits and demerits of each class of assets as well as the specific investment products being considered.

Describe and analyse the process of diversification and asset allocation (where applicable) and the expected results with reference to an investor's unique circumstances and objectives based on valid and relevant assumptions.

CASE STUDY ON MR. T

Many investors from overseas are often drawn to Singapore's real estate sector as they wish to leverage on the success story of Singapore, its long term stability and continuous economic growth over the years. Assume that such a foreign investor, Mr. T (a very high net worth individual (HNWI) with at least an equivalent of SGD 250 million in net investible assets), has allocated SGD 5 million in cash to invest in Singapore real estate but is clueless as to the wide range of choices available in the real estate sector and related investment opportunities here.

For this TMA, please assume an inflation rate of 3.0 % p.a., local bank fixed deposit rate of 1.0 % p.a., and property mortgage rate of 2.5 % p.a. for BOTH residential and commercial properties. ONLY the following 6 investment choices are to be considered by Mr. T:

I. Property stocks listed on SGX comprising Pro-Power Ltd. (PPL) and Harta-Rich Ltd.(HCL)

II. REITs listed on SGX comprising Admirable Real Estate Investment Trust (A- REIT) and Bespoke Real Estate Investment Trust (B-REIT).

III. Real property investments comprising 2 properties: a 99-year leasehold residential condominium of 1,300 sq. ft. in the Sentosa Cove area and a freehold commercial office unit of 1,300 sq. ft. in the Tanjong Pagar/Robinson Road vicinity. Both properties were recently completed and are ready for immediate occupation.

The salient features of the above investment choices are summarised in the tables below. (Note: ‘n.a.' means ‘not applicable' and ‘mn' stands for ‘million'):-

Assignment

Based on your understanding of the investment products and instruments that you have studied and your knowledge of the markets, especially those relating to equity, REITs and property investments, explain how you can use these tools and concepts in your recommendations to Mr. T.

In your report (using 800 - 1,000 words), please advise Mr. T as to how and why he should or should not invest or allocate his funds, taking into account the full set of information and data provided above, the current state of the local economy, the prevailing sentiments in the stock and property markets, and any other information that is readily available and accessible to you.

You are expected to provide analyses of the relative merits, demerits and risks involved, and the potential outcomes of the specific securities or assets if Mr. T were to take up your recommendations.

Additional Guidance Notes for Students

You should demonstrate your understanding of the investment products - especially those relating to equity, REITs and real estate investing that you have learned (refer to your course Study Guide) - in the course of preparing your recommendation(s) with sound reasons and explanations.

As additional guidance consider the following:

1. List the assumptions being used, for example, liquidity, risk, expected returns and yields if applicable, and any other relevant factors (including the use of leverage or bank loans to fund property acquisition if so desired) as well as risk factors used in making your recommendation(s).

2. In presenting your recommendations, you are to ignore the following expenses, fees and charges, government measures etc.:

a. Payment of commissions, stamp duties, brokerages or transactions costs, taxes (relating to property, income, and capital gains), legal, insurance or maintenance costs and charges relating to property ownership, and inheritance issues relating to Mr. T as a foreigner in your presentation.

b. The recent government measures such as Additional Buyers' Stamp Duties (ABSD) or Sellers' Stamp Duties (SSD).

c. Bank lending restrictions which would not be applicable for Mr. T considering his substantial means and credit worthiness.

3. Please remember to state the relevant steps involved in arriving at such a conclusion(s) including providing details of your assumptions and analysis and how your recommendation(s) meet these criteria.

4. As Mr. T is NOT an ordinary investor but considered to be a HNWI investor, any assumptions about his stage of life cycle investing may not be meaningful. However, do consider carefully what you think should constitute his investment profile, especially his needs, risk appetite and objectives, as these will help you determine the suitability of the various investment choices in terms of asset allocation or diversification where applicable.

a. Be sure to analyse the various investment and product choices. State your reasons for your preferences (including those, if any, rejected by you) and show Mr. T what your actual recommendations are. Besides giving your recommendations, you will need to demonstrate to Mr. T the possible results and consequences if he were to take up your suggestions and follow through with your plan.

b. Be reminded that in real life investing, investors often have to rely on the analysis of various factors, both internal and external, as well as uncertainties that affect decision making. The case study on Mr. T is no different as the information provided is limited. As such, you may have to rely on relevant external information that is available (such as the state of the local stock market, economic outlook, interest rate movements, supply and demand factors, data on sale and lease transactions etc.) before you can give meaningful advice to Mr. T.

c. A good recommendation will not only show the reasons for the choice(s) being selected but will also provide for mitigating factors and actions that Mr. T can take when accepting the recommendation(s).

5. You can state additional assumptions and risk factors that an investor should consider, and which are reasonable and appropriate in order to further enhance and make sense of your advice to Mr. T. Please also refer to 4(c.) above.

6. Please use graphs, charts and tables etc., where appropriate, to clearly illustrate the various points in your presentation. Bear in mind that such graphical additions not only save on the words you use but also can be an efficient and effective means of communicating your ideas to Mr. T if well-presented and properly chosen with up-to-date information.

7. You must use proper referencing and citation formats where applicable.