Investment Philosophy & Strategy of Portfolio-Samples for Students

Question: Prepare an Investment Portfolio Proposal Document to be Provided to the Client. Answer: Introduction Investment Philosophy and Processes are applied by the organization for achieving the following goals such as understanding the behaviour of investor, managing investor expectations, developing the procedure to be applied in Investment Portfolio (Achillas and et.al, 2015). Present report revolves around explanation relating to Investment Philosophy and Strategy in the case when investor have a high level of risk tolerance and an interested investing major portion of the investment in individual equity securities. The further presentation has been provided in the manner in which investment should be made in accordance with specified nature of the investment. The report ends up with the explanation regarding the manner in which investment component aligns with the overall strategy. Analysis Explanation of investment philosophy and strategy for the development of portfolio Portfolio management strategy assists in increasing profits by managing risk and required returns (Powell, 2015). A forceful strategy of investment force capital approval as a chief objective of investment, instead of principles income or safety. Aggressive strategies of investment are appropriate in the current situation. It is because their extended prospect of investment allows them to persist fluctuation in the market far better for short prospects of horizons by investors (Walker, 2014). In the present scenario, as the client is having high-risk tolerance and interested in investing a major portion of the investment in the equity of high cap companies (Bodie, Kane and Marcus, 2014). Thus, aggressive investment philosophy strategy will be applied for constructing the portfolio. By applying the same, the expected objectives will be achieved in an appropriate manner. Further, capital growth strategy will also be applied as it assists in maintaining the goal of capital growth which consists mainly of equities (Grndl and Gal, 2016). Active management is required by aggressive strategies of investment rather than conservatives, as it is possible to get more unstable and requires constant adjustment to cope up with changing con ditions of the market. Regular rebalancing is also needed to maintain allocations of the portfolio to their levels of the target (Yang, Narayanan and De Carolis, 2014). Thus, by applying the above philosophy strategies, investors will be able to attain expected gains. Description of portfolio components Table 1: Table representing percentage allocated to different investments in the portfolio Particular Amount Allocated % Individual equity securities $800000 40% Listed Investment Companies $400000 20% Equity market options securities or Future Contract $500000 25% Cash $300000 15% Total $2000000 100% Selected companies for direct investment Table 2: Selected companies for direct investment ASX Code Company Name GICS Sub-Industry Name Current share price Percentage Amount to be invested AGL.AX AGL Energy Ltd GICS Sub-Industry Name 25.00 30% $240000 CTX.AX Caltex Australia Ltd Multi-Utilities 31.26 20% $160000 DOW.AX Downer EDI Ltd Oil Gas Refining Marketing 6.18 15% $120000 RMD.AX Resmed Inc Diversified Support Services 10.11 5% $40000 IVV.AX iShares SP 500 Health Care Equipment 320.83 20% $160000 AGL.AX AGL Energy Ltd US SP 500 25.00 10% $80000 Total 100% $800000 Figure 1: Share price trend for selected companies for investmen Explanation Regarding the Manner in which Investment Component Aligns With Overall Investment Strategy Active management is required by aggressive strategies of investment rather than conservatives, as it is possible to get more unstable and requires constant adjustment to cope up with changing conditions of the market (Fischer and Schltter, 2015). Regular rebalancing is also needed to maintain allocations of the portfolio to their levels of the target. Thus, cash has also been kept in balance so that in case any requirement regarding purchase or sales of shares occurs for rebalancing the portfolio could be accomplished without any obstacles. Listed investment companies Listed Investment companies are referred as a viable and well-established alternative to managed funds as the same have considerable advantages. In the present scenario, six companies have been selected for the purpose of direct investment (Jagric and et.al. 2015). It can be observed from the graph represented above that all the companies have either increased or stable trend. As the companies belong to high cap group, the company will be able to attain higher profits. The company will also be able to achieve market diversification through investing in LICs. Investment in investment companies refers to providing funding to mutual funds as they are highly qualified and can make better investment decisions. Thus in order to get good returns, part of portfolio contains investment companies having a good reputation in Australia (Ferreira and et.al. 2013). For this purpose top, five companies are selected in which equal investment will be made of concerned category i.e. 20% in each company of $400000. Company Symbol Last Price 10-Year return Carlton Investments Limited (ASX: CIN) $31.49 9.7 WAM Capital Limited (ASX: WAM) $2.26 9.4 Australian Leaders Fund Limited (ASX: ALF) $1.52 9.3 Mirrabooka Investments (ASX: MIR) $2.82 8.2 WAM Research Limited (ASX: WAX) $1.52 6.7 Investment in equity options Investment in this option is wise strategy to protect, grow and diversified share portfolio to maximise wealth of shareholders. By considering this factor, 25% of portfolio amount is invested in equity market options securities and Future Contract. In this option, full value of contract is not to be paid on upfront basis and at the time of maturity of contract difference is price is to be paid (Bodie, Kane and Marcus, 2014). Investment will be done in Sydney Futures Exchange (SFE) in SP 500 E-Mini (Sep '17) and 3 year Bond futures to ensure price stability and secured returns. Cash reserves Cash can be said as a key variant in the well-diversified portfolio, and a variety of objectives can be accomplished with same. These objectives comprise greater stability, potential inflation protection and diversification. Cash plays an important role in investors portfolio as it assists in creating liquidity as investors can withdraw it the same in a situation of market insolvency or closed stock exchanges, as making asset insolvency unattainable. Cash is kind of insurance policy; through which investor is independent to purchase assets and to pay out the bills when they are outstanding (Duchin and et.al. 2017). One more role of cash in investors portfolio which is considerably psychological. It can attach investor to the investment strategy by all kind of political and market conditions through offering peace to mind (Cardella, Fairhurst and Klasa, 2016). In situation; investors take a look at data sets; they can examine thoroughly historical instability outcomes for various comp ositions of the portfolio. Meaning full cash allocation provides stability for decreasing the down side risk. In the present scenario, appropriate 15% of investment has been kept as a cash reserve for accomplishing these objectives. Conclusion It can be depicted from above analysis that aggressive strategy is appropriate in case the company has high-risk tolerance capability. Further, in compliance with strategies of Donald Trump as it is expected that US economy has bullish nature; a major portion of investment has been made in equity investment so that maximum returns from same can be achieved. Further, a limited portion has been invested in listed securities so that some fixed profits from same can be attained. Investment has also been made in Future Contract; the amount invested so is safe and will be applied only in case higher returns are expected. A portion of investment amount has remained available as cash, and the same will be applied for reconstructing portfolio. It can also be utilized for attaining benefit by selling or purchasing shares. References Achillas, C., Aidonis, D., Iakovou, E., Thymianidis, M. and Tzetzis, D., 2015. A methodological framework for the inclusion of modern additive manufacturing into the production portfolio of a focused factory.Journal of manufacturing systems,37, pp.328-339. Bodie, Z., Kane, A. and Marcus, A.J., 2014.Investments, 10e. McGraw-Hill Education. Cardella, L., Fairhurst, D.J. and Klasa, S., 2016. What Determines the Composition of a Firm's Total Cash Reserves?. Duchin, R., Gilbert, T., Harford, J. and Hrdlicka, C., 2017. 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