This report provides information about wealth growth through investments in securities or financial instruments. It also focuses on developing expertise in trading with Bloomberg and creating an effective portfolio for maximum returns.
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BLOOMBERG TRADING GAME Student number DEGREE
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EXECUTIVE SUMMARY The importance of this report is to provide information about wealth growth of an investor through investments in securities or financial instruments. In other words, investors can enhance their wealth by doing diversified investment in various different types of stocks available in the capital market. Diversification is a unique technique which reduces risk by apportioning investments among various different stocks or securities. The main aim of diversification is to maximize returns by investing in different areas of capital market. In this report a portfolio is set up where 150 million pounds are invested by using “Bloomberg trading platform”. The investment is done in various classes of assets which include: retail and consumer electronic products. Another important purpose of this report is to develop investigative and creative expertise in trading with Bloomberg. With the help of Bloomberg trading platform the investor can create an effective portfolio which provides maximum return in the future. 2
CHAPTER ONE INTRODUCTION Investment Policy Statement Investment objective The main objective of this project report is to provide wealth maximization technique to an investor through diversified investment. As a financial planner, it is very important to manage theriskinportfoliowhileadoptingriskmanagementtechnique.Thewealthcanbe maximizing through balanced investment in the portfolio which contains broad range of different securities or financial instrument of FTSE 100. Investment strategy For buying the securities or stocks from the capital market the growth strategy of investment is used. Growth strategy of investment is about purchasing the securities or stocks with an aim of increasing in the securities value over a period of time i.e. one month. This strategy follows an approach of diversification to create and manage the securities in an effective manner (Tsangas, et. al., 2019). According to Harry Markowitz, the creation of portfolio depend upon the relationship between the returns expected represented by mean and the variability of these returns represented by standard deviation or variance. Markowitz theory emphasizes on “efficient frontier”, which provides better return for a given level of risk or minimum risk for a given level of returns as compared to other portfolios (Eskerod, et. al., 2015). Both risk and returns can be divided into the following two parts: Systematic (cannot be diversified) Non- systematic (can be diversified) Systematic is such a component of risk and returns which is on account of the market wide factors. It includes a change in economic policy, central bank restrictive policy of credit, recession in industry, etc. Whereas non-systematic is such a component of risk and returns, 3
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which is on account of the performance of the company. It includes company strike, unexpected entry of a new competitor in the market, etc (Barillas and Shanken, 2018). 4
CHAPTER TWO Portfolio Summary Portfolio management is an important for the investors because it minimizes the level of risk and provide satisfactory rate of return. An investor should choose securities or assets that offer a rate of return and risk level which is acceptable to him. FTSE 100 index is affected by geopolitical factors, industry sectors, issues affecting specific firms and monetary policy. So what are the factors which recently influencing the volatility and level of the FTSE: Interest rates The Brexit referendum Earning reports The bank of England’s quarterly inflation report Changes to specific industry sectors The FTSE 100 impact the portfolio of investors in positive or negative manner depends upon stocks which are included in the portfolio. The stock market impacts the rate of return and also minimizes or maximizes the level of risk associated with portfolio. The diversified investment helps to investors to reduce the level of risk in the portfolio (Grinold, 2018). Returns and risk of a portfolio totally depend upon the co-relation between the securities contained in the portfolio. The construction of portfolio basically depends upon two notions: Notion of diversification Notion of negative co-relation What sort of shares should investors buy? Investors find that some companies are very sensitive to the economic cycle of bust and boom which often called cyclical stocks while other tend to be much less volatile which often calleddefensivestock.Defensivestocksincludebigmultinationalconsumerbrand companies and utilities, while cyclical stocks are companies like banks and builders of house who often see their profits fall down sharply or even make losses when the economy struggles (Kaiser, et. al., 2015). 5
Should investor buy non-UK stocks? Now a days a lot of companies especially the biggest ones on the market of UK, sell their products and services all around the world these days. In fact about 70% of profits from FTSE 100 companies now come from outside UK. So it is better to invest little part in non- UK companies to earn more profits (Liao, et. al., 2018). Following are the 8 steps which help to the investor to build a high- yield low- risk portfolio of stocks or securities: Only invest in companies with a track record of consist growth Only invest in companies with small pension and debt obligations Only invest in companies with a track record of inflation- beating growth Only invest in companies with consistently high profitability Invest in companies who have sustainable competitive advantages in the market Always focus on the long- term and ignore the short term Regularly improve the portfolio by continuously selling the weakest link Create a low risk portfolio by broadly diversifying The major buying by an investor which included following stocks: ROKU OCADO Portfolio information The five largest holdings or portfolios above 5%, at the end of the trading period are shown below. Holding% of Fund value as at 22.04.19 RUKO14.96 OCADO5.25 Barclays24.19 6
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Portfolio performance record (example) Investme nt Numbe rof shares Beginnin g price £ Beginnin gmarket value £ Endin g price £ Ending market value £ Holdin g period yield % (Ri) Mark et weigh t (Wi) Weighte d rate of return (WiRi) A800, 000 2016,000,00 0 1512,000,00 0 250.051.25 B500, 000 5025,000,00 0 2512,500,00 0 100.202.00 C600, 000 4024,000,00 0 4527,000,00 0 50.753.75 Total65,000,00 0 51,500,00 0 7.00 Overall, the return on the portfolio is 7.00%. Performance is cumulative over the period from 2/01/2018 to 22/04/2018. 7
Note:Formula for calculating the expected rates of return: E(Rport) =∑ i=1 n WiRi Where: Wi= the weight of an individual asset in the portfolio (use the beginning market value) Ri= the rate of return for asset i 8
CHAPTER THREE Portfolio Performance Analysis In this part each stocks or securities that were traded are explained and analysed. We have five stocks where we traded but analysed and described only three most profitable in detailed based on models like the SWOT analysis, PESTEL and Porter’s Five Forces. OCADO Group PLC Ticker Symbol:OCDO Sector:Consumer Staples Company description Ocado Group plc. was established in 2000 by Tim Steiner, Jonathan Faiman and Jason Gissing and is headquartered in Hatfield, the United Kingdom (Bodie, Kane and Marcus, 2013). In United Kingdom the company operates its business in online grocery and also internationally. Ocado functions its business operations through two sections: Retail and solution. The company involved in the monetization and development of intellectual property and technology used for the online logistics, consumer goods, retailing and distribution of grocery. On its website: Ocado.com, the company also sells general merchandise products which includes three speciality destination sites like sizzle, a kitchen and dining store; fabled, a premium beauty store; and fetch, a pet store. Opening Message The company main strategic objective is to align the interests of our investors, customers and other important stakeholders to offer long term shareholder value. Ocado relies on online shopping done by the customers (Liao and Chou, 2013). Following are the key points of company which are mentioned below: Delivery Punctuality: 94.9% Mature CFC efficiency: 164 units per hour 194 deliveries per van per week 9
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Average basket size:£106.85 Order Accuracy: 98.8% Average orders per week: 296K Performance 1 week5.39% (rise)1 year159.51% (rise) 1 month31.82% (rise)2 year471.58% (rise) 3 months69.94% (rise)3 year374.84% (rise) 6 months63.25% (rise)5 year200.11% (rise) Past performance is an indication of future performance and Performance figures are based on the previous close price. 10
Financial Analysis 11
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Inventories:56.5042.9039.1029.9027.60 TradeandOther Receivables: 104.7066.8059.4060.8043.10 CashatBank&In Hand: 410.80150.0050.9045.8076.30 CurrentAsset Investments: n/an/an/an/an/a Other Current Assets:4.300.400.30n/an/a 576.30260.10149.70136.50147.00 Other Assets:n/an/an/an/an/a Total Assets:1,349.90909.00700.60591.60538.20 Liabilities: Current Liabilities: Borrowings:22.9027.2082.7028.1030.90 OtherCurrent Liabilities: 306.40222.60208.20167.90137.10 329.30249.80290.90196.00168.00 Net Current Assets:cn/acn/acn/acn/acn/a 14
Non-Current Liabilities: Borrowings:337.70350.80133.10144.70144.80 Provisions:17.7015.8014.206.305.20 OtherNon-Current Liabilities: 108.6045.00n/a2.702.00 464.00411.60147.30153.70152.00 Other Liabilities:n/an/an/an/an/a Total Liabilities:793.30661.40438.20349.70320.00 Net Assets:556.60247.60262.40241.90218.20 Capital & reserves: Share Capital:14.0012.6012.6012.6012.50 SharePremium Account: 587.00258.40256.90258.70255.10 Other Reserves:(124.00)(163.50)(164.00)(167.90)(168.30) Retained Earnings:79.60140.10156.90138.50118.90 15
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Shareholders Funds:556.60247.60262.40241.90218.20 MinorityInterests/ Other Equity: n/an/an/an/an/a Total Equity:556.60247.60262.40241.90218.20 16
PESTEL Analysis PESTEL analysis of Ocado plc. discovers that how PESTEL could affect the company in various ways. Following table shows PESTEL Analysis 17
SWOT Analysis for Ocado is presented below: StrengthsWeaknesses 1. Strong platform of technology and also have proprietary software. 2.Widerangeofgroceryofferand competitive pricing 3. Company expand their business of own brand name. 4. Ocado’s do their business in partnership withstrongbrandsuchasCarrefour, Morrison’sandWaitrose(Woodside- Oriakhi, Lucas and Beasley, 2013). 1. Single market exposure and relatively in small scale considering the whole UK market of grocery. 2. The main business operations basically dependent on credit debt and facilities. OpportunitiesThreats 1.Investmentintechnologytoincrease competitive advantage in the market and also enhancement in capabilities (Hoesli, and MacGregor, 2014). 2. In other European markets, expansion by replicating the business model. 3.Roboticslicensingallowedwarehouse platform working automatically. 1. Reduction in consumer spending due to Brexit which slowdown the whole economy. 2.Strongprice-warsinbetweenvarious grocery retail sectors affect the profit margin of a company. 3. A great competition in between online retail giants such as AMAZON FRESH. 18
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RUKO, Inc. Ticker Symbol:RUKO Sector:Communication Industry:Media Company Description ROKU Inc. was founded in October, 2002 by Anthony Wood and established as a Limited liabilitycompany.ItisanAmericantradedcompanybasedinCalifornia.Company manufactures a different variety of digital media players for customers who can easily access the streamed video with the help of internet and services of audio via TV. The company also licenses its software and hardware to other companies and earn more profits. Financial Analysis 24
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Roku Company’s PESTLE, SWOT and Porter 5 Forces: SWOT analysis, PESTLE and Porter five forces are the strategic tools which are useful for making the strategic planning. While they are assisting in identifying the company’s strengths and weakness relative to the sartorial opportunities and challenges. Management of the cited company could take the decisions by using these tools (Sevkli and et. al., 2012.). Ruko running in dynamic environment, where this is affected by the consumer spending attitude, enhancing regulatory framework for environmental components, technological variation, collective social trends, enhancing environmental activism among consumers, and regulatory systems. Company’s SWOT is: Strengths: Company’s strengths are: Brand identification of Affiliates. No monthly charges. Easy to get, user friendly, reasonable services, Accessible. Weaknesses: Lack of Promotion Education Deficiency in specific brand image. Opportunities: 25
Consumer Lifestyle Deficiency in the direct Competitors Increasing popularity of online media Threats: Easy to get in. Possible substitutes: Such as: game systems, Laptops Too relied upon the success of other media channels such as: Netflix, Amazon Prime and others. Porter’s five forces of Roku Inc. This is the tool which helps to identify competitive landscape of an industry. Each force assists strategic planners to assess an inherent profit potential throughout an industry. These are mentioned as under: Threat of new Entrants:Economies of scale is difficult to attain in the sector in which the cited company is running. Hereunder, companies which are having large scale of business get the competitive advantages. Roku Inc. is operating in the large scale and gain the cost advantages (E. Dobbs, 2014). This also creates issues in terms of production cost for new entrants, which ultimately creates the weaker force for the new entrants. Bargaining Power of Suppliers: In this market, suppliers have the lesser control over the prices and this turns the suppliers’ power in the weaker one. BargainingPowerofBuyers:Inthisindustry,suppliersaremorethanthebuyers. Therefore, they don’t have major control over the prices. This makes the bargaining power of buyer is weaker one. Threat of Substitute products:There are lesser substitutes available for the goods which are manufactured in this industry. Henceforth, this makes the weaker force within the industry. Rivalry Among existing Firms: Number of competitors are very less. Some of them are large in size. This makes rivalry among existing firms a weaker force throughout the industry. 26
PEST analysis of Roku Inc. This tool mentioned that might influence the profitability of survival of organization are much diverse. Political: Political risks dynamics from accidental variations in existing regimes of political to civil conflict to quite decisions taken by the government. To adequately appraise an extent ofentiresystematicpoliticalriskwhichRokuInc.mightbeexposedto,following components must be adhered before taking part in any investments (Zalengera and et. al., 2014): Level of political firmness which has in current years. Politician integrity and their likelihood in order to involve in corruption. High tax rate in the country. Economic: These are linked to the economy. For example, inflation rate, interest rate, GDP and existing stage of economic cycle. Economic framework is operational in sector in question. GDP growth rate will affect Roku Inc’s growth rate. Interest rate will ultimately assist about at what amount company’s is forecasted to grow in the future period of time. Social Factor: The social factors which influence Roku Inc are direct reflection on the society. Social factors influences are not only crucial for functional aspects of the cited company but also on the marketing culture of the organization. Technological Factor: This might dismantle the price framework and competitive landscape of an industry in a lesser period of time. Henceforth, this becomes highly crucial to have innovative in the market. 27
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CHAPTER FOUR Conclusion This report concluded that efficient portfolio helps the investor in generation of more income from the investment in various types of security. While using diversified technique the investor can reduce the level of risk and achieve the satisfactory return from this portfolio. In this report various models which include Porter’s five force model, SWOT analysis and PESTLE analysis are used for analysis the performance of companies. Number of words after excluding Executive Summary and References:2451 28
References Barillas, F. and Shanken, J., 2018. Real-time Portfolio Choice Implications of Asset Pricing Models. Eskerod, P., Huemann, M. and Savage, G., 2015. Project stakeholder management—Past and present.Project Management Journal,46(6), pp.6-14. Grinold, R., 2018. Linear Trading Rules for Portfolio Management.The Journal of Portfolio Management,44(6), pp.109-119. Kaiser, M.G., El Arbi, F. and Ahlemann, F., 2015. Successful project portfolio management beyondprojectselectiontechniques:Understandingtheroleofstructural alignment.International Journal of Project Management,33(1), pp.126-139. Liao, X.Z., Peng, L.H., Wu, L.X., Tian, M.W. and Yan, S.R., 2018. Research on the optimization of modern portfolio model based on optimal investment weight.Journal of Interdisciplinary Mathematics,21(5), pp.1157-1162. Tsangas, M., Jeguirim, M., Limousy, L. and Zorpas, A., 2019. The Application of Analytical HierarchyProcessinCombinationwithPESTEL-SWOTAnalysistoAssessthe Hydrocarbons Sector in Cyprus.Energies,12(5), p.791. Zalengera, C., Blanchard, R.E., Eames, P.C., Juma, A.M., Chitawo, M.L. and Gondwe, K.T., 2014. Overview of the Malawi energy situation and A PESTLE analysis for sustainable development of renewable energy. Renewable and Sustainable Energy Reviews, 38, pp.335- 347. Sevkli, M., Oztekin, A., Uysal, O., Torlak, G., Turkyilmaz, A. and Delen, D., 2012. Development of a fuzzy ANP based SWOT analysis for the airline industry in Turkey. Expert systems with Applications, 39(1), pp.14-24. E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45. Hoesli, M. and MacGregor, B.D., 2014. Property investment: principles and practice of portfolio management. Routledge. 29
Liao, S.H. and Chou, S.Y., 2013. Data mining investigation of co-movements on the Taiwan and China stock markets for future investment portfolio. Expert Systems with Applications, 40(5), pp.1542-1554. Bodie, Z., Kane, A. and Marcus, A.J., 2013. Investments and portfolio management. McGraw Hill Education (India) Private Limited. Woodside-Oriakhi, M., Lucas, C. and Beasley, J.E., 2013. Portfolio rebalancing with an investment horizon and transaction costs. Omega, 41(2), pp.406-420. R. Vlastelica,Roku Tumbles as Analysts See Competition From Apple and Amazon. 2019. (Online). Available through:<https://www.bloomberg.com/news/articles/2019-04-04/roku- tumbles-as-analysts-see-competition-from-apple-and-amazon>. Ocado, 2019. (Online). Avaialbe through:<https://www.bloomberg.com/quote/OCDO:LN>. 30
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