Answer To: Global Portfolio Simulations Objective: The purpose of this assignment is to: (1) select and monitor...
Shakeel answered on Aug 06 2021
Global Portfolio Simulation: A performance report
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Table of Contents
Security Selection Rational 3
Assets Allocation 3
Investment: Current Assets Holding 4
Economic /Market drivers 4
Portfolio’s value over next 20 days 5
Risk and Return Analysis 6
Portfolio Analysis 7
Conclusion 8
References 9
Appendix 10
Security Selection Rational
My client is 35 years old young professional who has been currently working in a financial firm as a Financial Analyst. He is bachelor now and currently living with his parents and hence, he has no such financial obligation right now. He draws monthly $5,000 and almost 75% of his earnings remain unspent. A small part of earnings is spent on his parent’s health expenses and other household utilities.. The five years’ goal of the client includes purchasing of his own house worth $300,000 and buying of car worth $100,000. Since, client has good saving and no immediate financial obligation, he can take higher risk on his investment. In the period of just 5 years, he needs to have $400,000 to meet his financial goal and hence, equity is the best investment avenue to achieve the goal. Therefore, we have selected seven blue chip equities and two ETFs in the portfolio. Most of the stocks have beta more than 1 and hence, they are classified as aggressive stocks. Higher beta stock would yield more return over the market if market moves on upward trend. As Covid-19 pandemic has been contained and the normalcy has been progressively coming, we can expect the economy will come on right track soon. A positive outlook of the market is observed and hence, higher beta stocks are selected for better return even when the client can bear the high risk. The portfolio will be reviews on monthly basis and balancing would be done if required.
Assets Allocation
The Assets allocation is made in stocks and ETFs. 25% fund is allocated to the Large cap shares, 50% of the fund is allocated to the Mid-cap shares, 10% of the fund is allocated to the Small-cap shares and the rest 15% of the fund is allocated the ETFs. The detail fund allocation is given in the graph 1 below.
Graph 1
Investment: Current Assets Holding
The investment in the different assets is made at their market price as on 12th July 2021. The detail is given in table 1 below.
Table 1: Investment in different assets
Stocks and Bonds
Ticker
Beta
Market price as on 10th July 2021
No of units purchased
Investment value
Large cap (25%)
Amazon
AMZN
1.14
$3,718.55
66
$2,45,424
Mid cap (50%)
Tesla
TSLA
1.96
$685.70
245
$1,67,997
Facebook
FB
1.29
$353.16
465
$1,64,219
Microsoft
MSFT
0.78
$277.32
600
$1,66,392
Small cap (10%)
Blink Charging Co
BLNK
4.24
$34.63
1450
$50,214
Redfin Corp
RDFN
1.89
$60.58
830
$50,281
ETFs (15%)
iShares Convertible Bond ETF
ICVT
1.45
$101.02
500
$50,510
iShares US real Estate ETF
IYR
0.85
$106.17
480
$50,962
SPDR S&P500 ETF
SPY
1.01
$437.08
125
$54,635
Total
$10,00,634
Economic /Market drivers
The US retail industry is one of the fastest growing industries and it is worth $5.4 trillion as on Year 2019 and 35% of the market is captured by big players like Walmart, Amazon, Kroger, Cotsco etc (allianceexpert, 2019). The retail industry in US has grown at an average growth rate of 5% and expected to grow in future at the rate of 6.6%. Therefore, a positive outlook is observed in near future and hence, the Amazon stock is preferred to buy where 25% of the fund is allocated.
Largest allocation of 50% is made in the mid cap shares that include Tesla, Facebook and Microsoft shares. Tesla and Facebook are aggressive stocks while Microsoft stock is defensive one. All three stocks are from IT and technology sector. In the last decade, there is a substantial growth taken place in the technology sector. Artificial intelligence, cloud computing and digital transformation of business operations have significantly changed the way the world we look at. According to the Deloitte (2021, pp.4), “The imperative to digitally transform is driven by the large numbers of companies that have already gotten started. For example, global public cloud service revenue is forecasted to reach $308.5 billion in 2021 and $354.6 billion by 2022.” The AI based revenue is expected to reach at the level of 4100 billion by year 2025 that is driven by deep learning, machine learning and conversational AI applications. Education sector, Healthcare sector, Motor vehicle, social media platform and space exploration program are some of the heavy users of artificial intelligence. According to Nickei et al (2019), “The data processing, internet publishing, and other information services sector increased its contribution to GDP threefold...