Type of paper: Report

Topic: Company, Investment, Banking, Finance, Risk, Portfolio, Market, Business

Pages: 5

Words: 1375

Published: 2021/01/21

Part A: Client’s Objective and constraints

Everyone is managing the risks in various ways because people have different abilities to manage the risks heavily. Irrespective the young age of the investors, they can be able to endure the general investment risks. This is because the young investors have more life span to conduct their projects and restore their status quo ante, when the conditions in the marketplace worsen, but only when they retire or nearing retirement.

Initial investment strategy

The company’s investment philosophy is uniquely based on the creation of the portfolio that meets our clients’ needs and preferences. Our goal is to serve our diverse investors that range from highly risk tolerant to risk averse. The company’s investment management personnel strive to derive highest return for the provided level of risk. At any cost, we anticipate that the portfolio is not deemed to offer highest return possible. Our fundamental objective is to ensure that our clients are comfortable achieving their investment growth. Mr. Alex’s ten years horizon is adequate time to foster value addition to his portfolio. In this case, the company has opted to pursue passive investment approach in an effort to meet the objectives of our client. This approach will help the company cut the aggregate transaction costs and enhance the management of the fees related to the portfolio. In addition, having a highly diversified portfolio will enable the company to apply effective strategies such as buy-and-hold strategy. Our client’s motive is not to outperform the stock market, but he is focused on the index return or thereabout. The passive investment approach is anticipated to help the organization to reduce capital gain tax. In order to realize our client’s investment goals involved selecting a well-diversified portfolio. It was essential to select the effective variety of stocks from various sectors to yield a return at a satisfactory level of risk.

Stock Descriptions:

ANZ Australian and New Zealand Banking Group Limited
AZN is among the oldest banks in New Zealand and Australia since it was established 175 years ago. Currently, the bank is operating in over 33 countries in Middle East, Asia-Pacific, America, and Europe. This banking group is one of the four largest banks in Australia, the leading bank in Pacific and New Zealand, and one of the 50 largest banks in the world. The banking group offers a variety of the financial and banking products to its customer base of more than nine million customers. For the last five years, this bank group has achieved a substantial average return and standard deviation, which indicates risk per unit of return. AZN operates in developing and developed countries making it a diversified financial institution. For this reason, our company advised Mr. Alex to invest his wealth in the ANZ’s stock.

BHP Billiton Limited

This is one of the leading global resources companies in the world. The fundamental purpose of the company is to enhance shareholder value through acquisition, discovery, marketing, development of the natural resources. Through its global operation, the company is committed to its Charter values of Integrity, Sustainability, Respect, Simplicity, Performance, and Accountability.
In the global market, BHP is the largest producer of major commodities such as coal, aluminum, copper, manganese, iron ore, silver, nickel, uranium, and silver. The company also has robust interests in gas and oil.

Wesfarmers Limited (WES)

WES constitutes of a diversified corporation that was established in 1914. It is the one of the leading market capitalization corporations in Australia. The corporation consists of various businesses such as conventional stores and supermarkets such as Coles, office supplies and home improvement such as Bunnings, department stores like Target and Kmart among others. Similar to many companies, the WES objective is to increase the shareholders wealth by offering satisfied and acceptable returns. The company has a diverse labor force and shareholder base of about 500,000. Therefore, incorporating such a diversified corporation into our client’s portfolio will enable our company to mitigate the risks and maximize the client’s confidence.

QBE Insurance Group Limited:

The company is among the 20 largest general reinsurance and insurance companies in the world with diversified operations in the major insurance markets. With its headquarters in Sydney, the company is listed on the Australian Securities Exchange. The company has a diverse labor force with approximately 17,000 people in more than 38 countries. Since QBE’s acquisition in 1982, the company has continuously provided over 135 acquisitions and has acquired a substantial growth for the last ten years. In 2014, the gross premium recorded premium was US$ 16.3 billion.

Lend Lease

Lend Lease company is among the medium-sized corporation on the ASX list, which has acquired a market capitalization of approximately $5.95 billion. The company operates in the real estate and the financial sectors and internationally in the America, Asia Pacific, and Europe regions. The company earns robust income from its massive scale and development projects. The company’s main products are related to infrastructure services and property management such as project management, development services, and construction. Operating in the real-estate sector provides the low-risk advantage to the corporation because real-estate investments have low risks. In addition, the company’s strategy to operate in a global market reduces the overall risk. Therefore, our company chose this company because it will offer low-risk services to our stock portfolio.


The company is among the largest integrated energy companies and leading ASX listed operator, owner, and developer of renewable energy in Australia. The company incorporates a diverse power production portfolio that involves peaking, base, and intermediate generation plants. The plants integrate traditional thermal generation and renewable sources such as wind, hydro, solar, landfill gas, and biomass.
The company has been in operation for over 175 years, and this has enabled it to acquire experience in merchant and retail energy businesses, upstream gas, and power generation portfolio. The company was among the initially listed companies in the Australia, with its establishment in 1837.

Stock classification

Morningstar Approach
The Vertical Axis:
Market Capitalization
The classification of the stock, small, mid or large, depends on their position in the cumulative market capitalization in their style zone. Large capitalizations are stocks that account for top 70 percent of the capitalization in its style zone. Mid-cap stocks account for next 20 percent while the small category accounts the remaining 10 percent. The corresponding market caps are flexible and hence able to vary with the market changes. Therefore, Alex’s portfolio of each stock can be categorized as the large caps because of their size.

The horizontal Axis:

Our company used the Morningstar approach to determine the investment style of stocks invested by Mr. Alex. The classification of his stock was derived through Value score that is based on important measures. Similarly, the growth score was derived from the five growth rates.

Part B: Calculating returns

The returns in the tables were calculated using the log return corresponding to the individual stock’s Return Index (RI). The days of the year were annualized to 250 instead of 365 days.

Part C: Volatility of Volatility

Understanding the historical daily returns of stock performance for the previous five years, was significant in forecasting daily returns for stocks. From Mr. Alex’s investment time horizon of 10 years, our company decided to utilize five years because they represented the normal prospect of the daily returns. It was significant to realize that the market was volatile for some months due to volatility in the market.

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Finance Report Examples. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/finance-report-examples/. Published Jan 21, 2021. Accessed June 19, 2024.

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