Case study in finance

6Author’s Surname

Course Details:

Finance Investment Portfolio Case study

Introduction

The work of the financial advisor is to come up with financial advice and guidance. Clients are there to seek out the advisors for some reasons including management of money, asset protection and planning their retirements. We currently run a boutique investment planning business and give some financial investment services for retail investors at the small to medium scale. The task in this scenario would be to invest 1,000,000 dollars outside for the sake of their superannuation account in order to come up with a nest egg for their retirement. Considering the situation of the share market and the new realities like Brexit, the best thing would be to invest in the physical share investments for high quality type securities illustrated by some of the biggest companies on the Australian exchange. The paper will go into the investment philosophy and strategies for the development of portfolios which are in line with what the client had requested for the project. Investment categorization and detailing will also be included in the subsequent sections of the paper.

Strategy Philosophy for portfolio development

Growth can be augmented through the redevelopment or repositioning for higher and better utilization. Outperformance of the inflation growth is possible when one buys assets well which are much lower than the adjusted replacement cost as buying assets where the demand from the underlying elements would be expected to outperform the economy. The competing approach to this method is the net asset value protocol. This is favored by investors that want to consider the relative returns as the main priority. This investing approach would focus on the assessed asset values for the portfolio, and these are usually calculated according to the periodic valuations and market conditions which are perceived.

Developing a suitable asset allocation using diversification of the funds

There is a common saying that reward does not come without a certain amount of risk. One cannot control the way that the markets move, but understanding the historical patterns of the equities and the bonds would help a person handle the risks they have in their portfolio and select the balance of investments that would set them on the right path. Achieving long term financial goals would mean that they have to accept risk reward tradeoffs and appreciate historical elements of the different investments. Over the years, equities have offered a higher number of returns than bonds, though they have usually carried more risk over the short term. The mix concerning equities and bonds chosen is going to depend on the amount of risk that one is willing to take for an experienced return (Bedingfield, 2015). This also depends on the reasons for investment and when the returns are needed. However, it is good to remember the value of the investments and income gotten could rise and fall and one could get back less than was invested in the first place.

Diversification Reduces Risk

To reduce the risks, one has to diversify the portfolio across a board mix of assets from various departments. The action of diversification would aid smoothing out the ups and downs of the market so that returns from the better performing assets would be there to assist in the offsetting of those which are not particularly performing well. This is why; the client is going to diversify the investment funds over 10 of the physical equity securities. This is from the directive issued that each investment shall not have more than 10 percent of the overall funds. These ten physical equities will be chosen from the listen of market securities to come up with the best options depending on the client. It was also directed that 20 percent of the overall investment was to be kept within a cash management trust as the secure investment. The choice for this was theANZ Cash Advantage Fund currently returning at 2.15 per annum(Bedingfield, 2015).

Cost management

Of course, one has to think about the costs in relation to the investments that are being made. Whatever, investments have been chosen; the client would increase their chance to perform successfully if they focused on the assets that have lower fund costs. This is because the lower, the charge, the more that the client is going to get to save. The fund costs are incurred in spite of the fund performance (Vanguard Asset Management 7). Even though the asset allocation decision is one of the numerous cornerstones that are there for achieving an objective as it works if one sticks to it over the course of time and through the varying of the environmental markets. Some of the investors could find that making impulsive of corrective decisions and altering the long term program which ends up in disaster. The following table shows the chosen physical equity securities which were chosen from the Australian share exchange and the relevant investment disbursed in each case.

Physical share equity

Category

Investment

DOMINO’S PIZZA ENTS.

Hotels, restaurants and leisure

Diversified financial services

COMMONWEALTH BK.OF AUS.

CIMIC GROUP

Construction and engineering

IRON MOUNTAIN CDI.

Real estate investment trusts

Biotechnology

REA GROUP

BLACKMORES

Personal products

COCHLEAR

Healthcare equipment and supplies

MACQUARIE GROUP

Capital markets

ANZ Cash Advantage Fund

cash management trust

According to the requests from the client, they wanted to set aside a specific amount of funds for the cash management trust to be placed there as part of the liquid and secure investment providing a return at 2.15 percent per annum for 200,000 dollars. At the same time, they also requested that 50 percent of the Australian direct share investment component to be hedged with the use of the market futures. We chose 6 out of the above investments which were the best options for this and illustrated the options below in the table with justification as to the reasons for choosing them depending on price and market sector.

BLACKMORES

Personal products

COCHLEAR

Healthcare equipment and supplies

Biotechnology

COMMONWEALTH BK.OF AUS.

DOMINO’S PIZZA ENTS.

Hotels, restaurants and leisure

MACQUARIE GROUP

Capital markets

The data is from the first of July which is the last accurate assessment of the data from the Australian securities investment market. The table above shows the best investment hedging options for the market considering there are representatives from different sectors. Blackmores is in personal products while Cochlear and CSL are closely related for Biotech and healthcare. Dominos represents the entertainment industry and Macquari and the Commonwealth bank represent the financial markets. They are evenly diversified to avoid sharing in adverse effects if the economy rocks a particular industry. They are also chosen according to the strike price as these companies represent the top 6 strike price offerings which are likely to benefit investors the most in the event of an upset in the market.

Works Cited

Bedingfield, Chris.“Investment Perspectives: Why investing for total return, not relative

return, makes sense. Insights”. Web 7 December 2015. Retrieved 14thAugust 2016 http://www.bennelongfunds.com/insights/152/investment-perspectives-why-investing-for-total-return-not-relative-return-makes-sense#.V7AyblR9601

Vanguard Asset Management. “Principles for investment success”. Web. 2014. Retrieved 14th

August 2016.https://www.vanguard.co.uk/documents/portal/company/principles-for-investment-success.pdf