Example Of Business Plan On Portfolio Management

Published: 2021-06-18 05:30:48
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Category: Finance, Investment, Risk, Banking, Marketing, Apple, Stock Market, Market

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The report is being prepared with the objective of discussing my portfolio strategy where according to my risk tolerance(high), an amount of $50000 will be allocated amongst various asset classes. In addition to the risk tolerance, creating a well-diversified portfolio will be on the top of my preference list. I am sure that with the amount of knowledge and traits relating to portfolio management, I will be able to create a balanced portfolio for myself that will help me to earn 12-13% return on per annum basis.
Investment Strategy and Risk Tolerance
The golden idea in the world of the portfolio management ‘’Never put all your eggs in just one basket’’ has a deep impact over my investment strategy. Undoubtedly the investment process begins with the stock selection process where by analyzing the stock market news, stock returns and analyst reports, we proceed with the portfolio construction. However, at the time of the portfolio construction, I prefer a deep thought over asset allocation strategy to ensure that my portfolio is well diversified and the stocks or other assets are low correlated so the unsystematic risk in the portfolio is reduced to the extent possible. In addition, another important aspect which cannot be ignored is my risk tolerance. In the words of Adam Lewis, “Those with a lower tolerance for risk - for example, those getting close to retirement - are less likely to invest as many of their hard-earned pennies into an asset class that is perceived as volatile. Meanwhile, those investors with a much longer time horizon may be able to stomach short-term volatility if, say, over 20 years the trajectory of their returns is expected to be generally upwards” (Adam Lewis, 2012).
Thus, having attained an age of 45 years, I cannot ride fully on the tides of volatility but can afford a little though as my earning potential is high and in addition I also have my wife income to supplement mine. Hence, my risk tolerance level can be classified as moderately aggressive, where I am willing to invest in domestic stocks, mutual funds and a little in US treasury bills. While the treasury bills will serve the purpose of risk-free(almost)investment class, both stocks and mutual fund will be necessary provided my earning desire of more than 12% every year. The portfolio will be constructed with the available funds of $50000 and the emphasis will be primarily on domestic stocks that will be from different industries to provide a diversification buttress to our portfolio while a mutual fund with least expense ratio but high return will be looked out for.
About the securities
As already discussed, it will be the domestic stocks that will be the major constituent of our portfolio. However, to ensure diversification in our portfolio, each stock will be from difference industry offering low correlation with the other. Below is the information related to the stock that are included in our portfolio:
Apple Inc
Headquartered in California, Apple Inc. is a global leader in the consumer electronic industry where it offers products like IPhone, IPad, IPod, Macbook Laptops, etc. With the total market capitalization of $655.6 Billion, the company is one of the most valuable companies in the financial market.
The stock was selected for our portfolio because of the positive sentiments and consensus among the analysts relating to the stock performance right from the beginning of the year. The company had already announced launch of IPhone 6 and analysts were of the opinion that the stock is trading at a big discount. The most noteworthy recommendation came from billionaire investor, Carl Icahn (who owns $3 Billion worth of Apple Stock himself) that the stock is ‘undervalued’.
"Tim Cook is doing a great job there," but he thinks Apple is "very undervalued" and the board should be buying back the stock to help the small investor.
Ebay Inc
An e-commerce giant company that targets business to business and consumer to consumer sales through the portal. The company was founded in the year 1995 and at present operates under the total market capitalization of $68.18 Billion. Although the company now faces tough competition from other online start-ups but still it offers the products through the bid system where the buyers pay their interested bid for the product.
The stock was selected because of the market sentiments relating to stock being undervalued. During the beginning of the year, majority of the analyst issued a buy recommendation for the stock and with rumors emerging of spun-off of PayPal Inc. by Ebay, the expectations of growth of the stock were quite high. In a mid-2013 time period, the revenue of the company rose by 11% and the payment revenue rose by 20%. Although the margins were not so high but were relatively in alignment with the market expectations and the near-term outlook and long-term outlook of the stock were optimistic for the stock.
‘’eBay looks like an underrated cash flow generator, with ample balance sheet flexibility to make additional strategic moves and/or return cash to shareholders.’’
Bank of America
Founded in the year 1998, Bank of America is a multinational financial institution and is headquartered in North Carolina. At present, it is the third largest company in the world and gained corporate reputation when it purchased Merrill Lynch, world’s largest asset manager and investment bankers in 2008. By the end of 2013, the organization had revenue amounting to $88.94 Billion.
The stock was included in the stock because banking sector had a lowest correlation with all the other sectors included in our portfolio. In addition, leading analyst firm, Goldman Sachs had rated the stock to be most attractive for the year 2014. The stock of the organization had performed relatively well and is rated as ‘’Financial come-back kid’’ where beginning with the stock price of $11.15 per share, it ended the year at $15.69 per share.
‘’ I expect the bank will be one of the strongest financial stocks in 2014. The bulls see the stock as still way undervalued and expect it to climb to $20 next year.’’
SEI Long Duration Fund
This will be the only mutual fund in our portfolio and at present is rated as #1 long duration mutual fund in the United States. The fund has outperformed its peers and with expense ratio as low as 0.15%, the fund has consistently generated returns above 9% on annualized basis(ofcourse with risk factor above-average).
The fund mimics the characteristics of high quality corporate bonds while the maturity period ranges from nine to fourteen years. The major asset classes of the fund are composed of long duration fixed income securities and synthetic instruments or derivatives having economic characteristics similar to fixed income securities. The type of fixed income securities the fund invests its money includes; securities issued by US government, municipal bonds and corporate bonds.
Portfolio Review
Referring to the portfolio performance over a quarter, I am satisfied with the outcome as the same aligns with my return objective of 12-13% on per annum basis. However, I do understand that my portfolio is highly exposed to risk as only $10000 worth of investment is allocated in the treasury bills and rest in stocks and high risk mutual fund. Hence, any negative market sentiment can ruin my portfolio returns.
Thus, I can re-allocate more funds towards treasury bills at the cost of my return objective but this will ensure a more balanced risk-reward portfolio for me.
In the nutshell, I have noticed how important was the portfolio diversification and the same helped me in attaining my risk objective of 12-13% per annum. In addition, the portfolio also have low beta of 0.57, indicating that the portfolio returns are not responsive to the market. However, we can assume that since the beta calculation was based on a quarter only, our results could not assure high accuracy relating to risk factor in the portfolio. However, including stocks itself calls for high risk and thus, I understand that I should soon balance my portfolio with low-risk assets such as treasury bills.
Works Cited
eBay Seems Undervalued, But Wall Street Will Need Convincing. (2013, July 18). Retrieved December 19, 2014, from http://www.investopedia.com/stock-analysis/071813/ebay-seems-undervalued-wall-street-will-need-convincing-ebay-amzn-pay-intu-aapl.aspx
Carl Icahn Explains Why Apple Is 'Very Undervalued' And eBay Should Spin-Off PayPal. (2014, January 23). Retrieved December 19, 2014, from http://www.businessinsider.in/Carl-Icahn-Explains-Why-Apple-Is-Very-Undervalued-And-eBay-Should-Spin-Off-PayPal/articleshow/29229051.cms
Marcial, G. (2013, December 20). 12 Attractive Stocks For 2014 That Performed Superbly In 2013. Retrieved December 19, 2014, from Forbes: http://www.forbes.com/sites/genemarcial/2013/12/20/12-attractive-stocks-for-2014-that-performed-superbly-in-2013/
SEI Institutional Investments Trust Long Duration Fund. (n.d.). Retrieved December 19, 2014, from US news: http://money.usnews.com/funds/mutual-funds/long-term-bond/sei-institutional-investments-trust-long-duration-fund/ldrax

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