Reference no: EM131159666 , Length:
CASE STUDY - INVESTMENT PORTFOLIO CONSTRUCTION
You run a small, boutique investment advisory and financial planning business providing financial services to retail investors. The company receives advisory and investment return commission fees for providing investment advice and designing investment strategies and portfolio for individual clients. You have recently been approached by a new client who is looking to invest $1,000,000 outside of their employment-based superannuation account to provide an additional nest-egg and funding source as they transition towards retirement. The client has provided the following brief and guidelines associated with their investment requirements:
- They have a reasonable level of risk tolerance, and are willing for their funds to be invested in equity securities, listed investment companies (LICs) or exchange-traded funds (ETFs), equity market option securities or futures contracts, and cash. They are looking for the development of an investment portfolio with a capital growth perspective, and are less concerned about ongoing income or the tax-effectiveness of the portfolio.
- Given the current sharemarket uncertainty following the referendum decision in the UK to leave the European Union (EU), they would only like physical share investments in the highest-quality securities represented by the 100 largest listed companies on the Australian Securities Exchange (outlined in the provided spreadsheet file). At least 40% of the total investment funds are to be invested in physical equity securities and, to ensure a prudent level of diversification, no more than 10% of the total funds are to be invested in any one company. They would also like a minimum of 50% of the Australian direct share investment component (excluding LIC and ETP investments) to be hedged using market futures or option securities to provide some protection again adverse market movements.
- They are comfortable with diversified investment in other segments of the Australian sharemarket or in international markets through holdings in LICs or ETFs (list of preferred LICs and ETFs is provided in the attached spreadsheet file).
- 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.
- They have also approved the use of equity index futures contracts and option securities for speculating or hedging purposes. Current information about these securities is as follows:
o The closing price of the December 2016 SPI 200 Futures Contract was 5,336 on 13/07/16 (Contract value represents A$25 × SPI 200 value). Each contract will require creation of a $10,000 settlement account to meet margin movements.
o The preferred equity market call option is the SPI 200 (A$25 × SPI 200 value) expiring in December 2016 with an exercise price of 4,950. The closing price of this call option was $492.00 on 13/07/16.
o The preferred equity market put option is the SPI 200 (A$25 × SPI 200 value) expiring in December 2016 with an exercise price of 4,950. The closing price of this call option was $106.00 on 13/07/16
- They have indicated that a maximum of 20% of the total funds can be maintained in a cash management trust as a liquid and secure investment. The preferred cash investment is the ANZ Cash Advantage Fund which is currently providing a return of 2.15% per annum.
The performance of the recommended investment portfolio proposed will be evaluated relative to the performance of the S&P/ASX 200 index, which had a closing value of 5,388.50 on 13/07/16.
Required:
This case study requires the completion of the following tasks:
- An explanation of an underlying investment philosophy and strategy for the development of the portfolio, which is consistent with the indicated requirements of the client. Explanation and justification for this strategy, individually or relative to alternatives, should be provided.
- A description, in table or similar format, of the recommended portfolio components, indicating the selected assets / securities and the magnitudes of investment in each.
- A brief explanation of how each of the recommended investment components aligns with the overall investment strategy.
Attachment:- Assignment.rar
|
How will the enrollment process be initially kicked off
: How will the enrollment process be initially kicked off? How will the plan be communicated to make it attractive? Draw conclusions based upon readings of, Martocchio (2015) and/or Milkovich, Newman and Gerhart (2015), personal experience, and data ..
|
|
How can these people try to minimize high levels of stress
: Stress is mentioned throughout this case study. How does this stress occur? What stress outcomes occur for people in these types of jobs? How can these people try to minimize high levels of stress
|
|
What impact did charlemagne have on early medieval period
: What impact did Charlemagne have on the early medieval period? How did architecture develop throughout the Middle Ages? Explain the influence of Christianity on the visual arts, literature, and music of this time.
|
|
Firm using the right balance of capital and labor
: The marginal product of labor is 10 and the marginal product of capital is 20. If the wage rate is $10 and the price of capital is $5, is the firm using the right balance of capital and labor? Explain why or why not. If why not, which input should th..
|
|
Explanation of an underlying investment philosophy
: An explanation of an underlying investment philosophy and strategy for the development of the portfolio, which is consistent with the indicated requirements of the client.
|
|
Explain critical mistakes to avoid in recruitment process
: Explain the critical mistakes to avoid in the recruitment process, mistakes that may have resulted in the recruitment challenges at Ellard Williams. This information would be beneficial to tailor the recruitment processes at Ellard Williams to cur..
|
|
Determine the pure strategy nash equilibria
: For the following situation, come up with a game (in normal form – the matrix representation we have been using) to describe the situation. Determine the pure strategy Nash equilibria.
|
|
What is or are the writers objective
: Is this written in the direct order or the indirect order? - Is the choice of order appropriate? Discuss why or why not. - What is or are the writer's objective or objectives? List it or them.
|
|
Monopolistic competition is like monopoly
: Monopolistic competition is like monopoly in that:
|