Investment Portfolio Construction Essay Example

9INVESTMENT PORTFOLIO

Invеstmеnt Роrtfоliо Соnstruсtiоn

Client portfolio Characteristics

Executive Summary

Investment for retirement which involves risk tolerance as a strategy is strategic. In this case, the time horizon for the client is long. Investment in high security entails client preference, income and liquidity needs, time horizon and risk tolerance. The portfolio entails the shares with a minimum of 50% together with investment in ETFs and LICs. It also requires maximum 10% share and customer inclination. This paper further analyzes the SPI Futures Contract which provides an hedging portfolio together with SPI Options which additionally permit market index dynamics, supporting and permit conjecturing. Finally, it discusses the Investment in the money administration trust and presents the whole information in a portfolio structure.

Introduction

The client seeks to invest for retirement other than his/her normal employment-based account. He is risk tolerant investor, the investment strategy will take into account his interest in capital growth, key focus in blue chip companies. The total investment bestowment is $2000, 000 which is average sized investment and his/her portfolio may not dominate stockholding in companies to affect price in trading. The client’s investment time horizon is long, based on the fact that he/she wants to supplement employment-based superannuation with need for minimal liquidity (20% of the total fund held in Cash management trust) (Maginn, 2007).

Investment philosophy and Strategy

The client profile above gives as sufficient information to enable us make an objectively diversified portfolio. The client seeks a long term investment plan with low risk and highly secured.

The investment philosophy will therefore be based on four underlying principles clearly outlined by the client objective. These principles are; risk tolerance/aversion, time horizon, liquidity and income needs, as well as client preference (Reilly & Brown, 2012).

The client is non risk averse and requires an investment that has high level of risk tolerance. These are those listed investment companies and exchange-traded funds (ETFs) with 50% in top 100 listed companies. The timing horizon for the kind of investment the client needs is the long term one secure and with long term income stream as compared to short term. The portfolio has a minimum level of liquidity with maximum of 20% of the total fund maintained in a cash investment (20%*$2000, 000 = $400,000)

The client being Bullish about US economy, prefers a 10% of the portfolio to have a US economy exposure. He/she allowed short selling of securities with a declining value trajectory but maintains that enough cash reverse be maintained for repurchasing. This philosophy creates an environment for selecting a portfolio with a bias for capital growth in the long run. This strategy is well suited for long-term investments such case for retirement, and thus better than short term high risk investment alternatives (Maginn, 2007).

The portfolio thus will comprise the following investments:

  • 50% of the investments in LICs and ETPs

  • Futures Contracts and Options

  • Cash Management Trust

  • Minimum investment 50%*$2000,000=$1000,000

  • 50% of this offer introduction must be supported, requiring a buy cost for list alternatives or upkeep of a prospects contract settlement account.

  • Singular organization shares gives at most 10%*$2 million = $0.2 million

Investment in ETFs and LICs:

  • Greatest invested resources into ETFs or potentially LICs = 0.35* $2 million = $0.7 million

  • Maximum of 10 percent of the portfolio ($200,000) resources put into any one ETF or LIC.

  • The customer inclination on particular segment or market speculation prerequisites:

  • Minimum introduction to the US market or economy = 0.1 * $2 million = $0.2 million.

— This can be accomplished through short or long position share investment,LICs and ETFs.

  1. SPI Futures Contract

  • This will provide hedging the portfolio and additionally theorizing on an adjustment in the market list utilizing a SPI fates contract exchanged on the Australian Stock exchange. This is a minimum of 50% *$1000,000=$500,000

Acting as a seller or buyer of a December 2017 SPI 200 contract

  • Current exchanging estimation of 5,663 which is less than the ASX 200 estimation of 5,724.40 on 1oth October 2017.

  • Settlement record of $20,000 per SPI 200 contract – thusly no less than 4 prospects.

  • Contract will give you introduction to a speculation estimation of $566,300 ($25*5,663 *4) require an edge venture of 4 * $20,000= $80,000.

  • A one-point change in SPI contract cost speaks to a $25 change in the value .

  • we will accept a settlement modification on the agreement cost toward the end of the speculation time frame, when the positions are closed off.

  1. SPI Options

These additionally permit conjecturing on, or supporting, a market list change

  • Similar to fates contracts, with the exception of they are not legally binding.

  • But this implies you have to pay the buy premium (cost) forthright, while you just need to furnish an edge account with prospects contracts.

  • Option value is ($25 * SPI value) per contract.

  • Purchase premium is ($25 * premium or shutting cost) per contract.

  • Purchase of 4 SPI 200 call choices will give you presentation to a speculation estimation of $566,300 ($25 * 5,663.0 * 4) and will cost a premium of $8,150.00 ($25 * $81.50 * 4).

  • Purchase of 4 SPI 200 put choices will give a proportional introduction to a venture estimation of $566,300 ($25 * 5,663* 4) and will cost an indistinguishable premium of $8,150 ($81.5 * 4 * $25).

  • We will expect that file alternatives are sold (the position are finished off) toward the finish of the venture time frame.

  1. Investment in the money administration trust (AMP Cash Manager CMT).

Add up to put resources into CMT:

— Maximum = (0.2*$2 million = $0.4 million)

Portfolio structure

Equity Shares

$ 159,810.00

Cochlear

$ 137,826.00

$ 159,984.00

QBE Insurance*

$ 135,080.00

AGL Energy

$ 125,000.00

Aristocrat Leisure*

$ 87,000.00

Cimic Group

$ 96,225.00

Lendlease Group

$ 103,680.00

Ramsay Health

$ 145,000.00

Spark Infrastructure

$ 129,500.00

Treasury Wine

$ 94,350.00

$ 1,373,455.00

LICs and ETPs

WAM Research

$ 70,200.00

Platinum Capital

$ 77,400.00

Betashares S&P 500*

$ 88,900.00

Betashares US Dollar*

$ 89,460.00

Vanguard MSCI IntSh*

$ 104,601.00

SPDR Emerging Mkts

$ 66,290.00

$ 496,851.00

 Hedged Position for ASX Equity Investments

Futures contract value

$25 * 5663

Net equity share exposure

$1373,455.00-$496861.5

$ 876,604.00

50% hedge of exposure requires buying 4 futures contract

$20000*4=$80000

Invest in settlement account

$ 80,000.00

Cash Investment in Cash Management Trust

Cash holding

$ 49,694.00

$ 2,000,000.00

* Indicates investments (securities) providing exposure to the US.

The investment strategy selected under this portfolio is growth investment strategy which focus more on long term investment in listed companies rather short term investment with short term income streams. The selection of equity shares and LICs and ETPs ensures that larger portion of the portfolio goes to the listed companies as required by the client with the remainder hedged against market uncertainties while the remaining potion held in cash investment (Maginn, 2007).

References:

Maginn, J. L. (2007). Managing investment portfolios: A dynamic process. Hoboken, N.J: John Wiley & Sons.

Reilly, F. K., & Brown, K. C. (2012). Investment analysis and portfolio management. Mason, Ohio: South-Western Cengage Learning.