INVESTMENT PORTFOLIO

Investment Portfolio



Personal Investment Philosophy

The approach I have taken in this limited portfolio investment scenario is industry sector diversification. As the spread sheet is showing that the companies in which I have invested are from different business sectors, which include Food Producers, Oil & Gas, Pharmaceuticals & Biotechnology, Food & Drug Retailers and Exchange Traded Funds. This diversification reduces to risk of loss in investment. If the performance of one company decreases due to the industry trend, the other companies will not necessarily go down.

The relationship between risk and reward is essential in the design of investment portfolios. Diversification in portfolio investment seeks to obtain the optimal mix of assets to maximize profit while minimizing risk. Under this premise, the investigation focuses on the classical theory of investment portfolios by adding to this heuristic criterion (Lintner, 2005).

Diversified portfolios typically include investments in asset classes such as stocks and bonds and sometimes alternative investment strategies such as commodities, hedge funds, and managed futures. However, the decision to invest in active strategies and/or passive approaches within these asset classes should be a conscious decision that investors choose. As with many choices, there are pros and cons(Olsen,1998,pp. 10-18).

Passive Investment Characteristics

You get what you see. That is, the passive investment performance will be highly correlated to the performance of the underlying asset class.

Typically lower fees than actively managed strategies.

Passive approaches are typically more tax-efficient because there are fewer turnovers, thus triggering fewer tax events.

Potentially higher risk due to passive strategy of sticking with the asset class, even through large declines. On the other hand, passive strategies have outperformed many active managers in 2011.

Active Management Characteristics

Actively managed strategies focus on performance related to risk and downside losses.

Less downside, but sometimes less upside.

Normally correlated to underlying asset class, but lower correlations to underlying assets than passive investments (due to active management).

In the long-term, active management should offer better risk-adjusted performance.

Based on these observations, many investors, like me, will see that there is a place in a well-diversified portfolio for both active and passive approaches. Very large institutional investors such as billion-dollar endowments and public funds sometimes prefer passive approaches so they do not have to worry (quite as much) about market impact, liquidity, and commissions.

However, large institutional investors often decide to allocate portions of their funds to both active and passive management. This will increase diversification - and over the long-term, should help with downside risk and risk-adjusted performance. Individual investors may also decide to allocate to both active and passive approaches.

Market View

The overall market condition of United Kingdom's financial market is not so encouraging. Due to the debt crisis of Greece, Spain etc.., there is considerable pressure on the United Kingdom, as well. Additionally, it is also coming out of the effects of the global economic crisis, which affected the banking industry greatly; hence, it is experiencing slow growth and development. To be on the safe side, for the purpose of this portfolio, the FTSE-100 index is ...