Investments and Portfolio Management

Executive Summary

The purpose of this study is to expand the boundaries of our knowledge by exploring some relevant information relating to the analysis of investments and portfolio management. In this assignment, we have assumed the role of fund manager trainee in EMJ Investments (EI). In order to get confirmed as a professional fund manager, our supervisor in fund management department of EI has asked us to set up a small investment fund and then manage it. For this assignment, we have assumed that we have received $100 million from investors who are pleased with our investment objectives, which suit their needs. Basically we are in a managed fund environment. In this assignment, we have developed suitable investment policies for our portfolio. Then, we have calculated the arithmetic mean, standard deviation, coefficient of variation and beta for each asset. Afterwards, we conducted performance evaluation of our portfolio to analyze its level of risk and return (Abor, 2005).

Investments and Portfolio Management

Investment Policy Statement

Broad investment objectives

Our investment objective is to construct a portfolio that consists of a combination of some instruments that are fixed income and equities, in order to balance the risk. According to researchers and analyst, a good distribution of the investment portfolio spreads the risk across different financial instruments such as: shares, term deposits, cash, currencies, bonds, real estate, mutual funds and others. This is known as diversifying the investment portfolio. The intention of the investor to invest in different securities is due to the diversification of risk. The investment strategy is a set of methods and tools for portfolio management. The purpose of its application is increasing the capital of the investor. Currently market comprises of five major investment strategies. Nevertheless, it should be noted that it depends on the investor how much risk he can bear and what is the objective when he is entering in to the market (Maringer, 2005) (Abor, 2005).

The main purpose of our investment in different kind of assets is to avoid risk and to look for higher returns. I have been given $100 million to invest on behalf of pleased investors. I will be investing this money in:

AGL

ANZ

BHP

Brambles

Delta Gold

News Corp

10yr Govt.bond

Target return for proposed portfolio

The annualized target return for our proposed portfolio is 2%, while the benchmark set for our portfolio is the market return i.e. ASX200 share market index. The most important thing which we are interested in is how much risk can be avoided and how much return he can get from the invested capital. Hence, the goal is to get high return and low risk. For this purpose, we construct the portfolio in such a way that we can diversify our investment in order to cover up the loss (Jones, 2007) (Altman, 1968).

Undoubtedly, the greatest threat to our portfolio is inflation. Typically, this will increase the prices of goods and services and will result in cheaper bond and share prices. This is because inflation is interpreted as the decline in value of ...