Investment Policy Statement for Sporting Club

Contents
Introduction........................................................................................................... 2
PART 1................................................................................................................... 2
Objective of Client.............................................................................................. 2
Risk..................................................................................................................... 2
Liquidity.............................................................................................................. 2
Legal................................................................................................................... 3
Tax..................................................................................................................... 3
Time................................................................................................................... 3
Unique Constraints............................................................................................. 3
Rationale for the above investment selection.......................................................3
Equity Investment of 60%..................................................................................3
Bond Investment of 30%.................................................................................... 3
Cash Investment of 10%..................................................................................... 3
Companies chosen under Equity Column...........................................................3
Brief Profile of the companies................................................................................4
Woolworths Group Limited.................................................................................... 4
Reason for Selection........................................................................................... 4
Wesfarmers Limited............................................................................................... 4
Reason for Selection........................................................................................... 4
Australia New Zealand Bank Limited.....................................................................4
Reason for Selection........................................................................................... 4
BHP Billiton Limited............................................................................................... 5
Reason for Selection........................................................................................... 5
Bonds..................................................................................................................... 5
Cash....................................................................................................................... 5
Investment Position............................................................................................... 6
Computation of Average Return from Investment.................................................8
Conclusion............................................................................................................. 9
References........................................................................................................... 10

Financial Management
Introduction
The assignment deals with creation of an Investment Policy Statement for a sporting club and
allocation of funds among equity, debt and cash for steady future returns. In addition, the
report also involves performance evaluation during the investment horizon and at the end of
the period.
Along with the aforesaid, the report inks the rationale for selection of a portfolio depending
on the requirements of the sporting club.
PART 1 Investment Policy Statement
Sporting organisation has a portfolio of $250,000 which is currently invested through an
investment maximizer account. The return on such investment is low and is not in alignment
with the risk bearing appetite of the organisation. Accordingly, the organisation now seeks
alternate opportunities to invest the portfolio for better returns and management of sporting
club.
Objective of Client
The objective of investment policy statement is to determine the return requirement of the
client. It can be absolute i.e. specific percentage like 10%, 12% etc. Further, it may be
compared to a benchmark percentage plus certain basis points. In the current case, the annual
return shall be absolute through which sporting club aims to maintain the annual expenditure
of the club and maintain the real value of capital. The current rate of inflation in the country
is approximately 3% and the expenditure requirement shall be approximately $ 20,000 per
annum post netting revenue receipts which is roughly 8% of Portfolio. Thus, the required rate
of return shall be 3% + 8%= 11%. Further, the sporting club may have a desired return higher
than the required rate of return.
In addition to above, the return objectives of the company shall be realistically and
achievable. In the present case, return higher than 15% shall be unrealistic and not be
achievable given the objectives and constraints of the company.
Risk
The risk bearing capacity of the organisation shall be average as the company is thinking of a
mix of debt, cash and equity. Also, the club is dependent on the cash flows for its daily
maintenance. Accordingly, the risk bearing capacity of the company is limited and
requirement of fund is intact. In addition to above the risk is also limited on account of
investment in limited domestic market and no exploration of alternative investment like real
estate, managed futures etc.
Liquidity
The liquidity requirement of the investment portfolio is high as the organisation needs regular
cash flow to manage its operations. Thus, the liquidity requirement of the portfolio is high
and the investment shall be made rationally based on the given constraint. Also, the liquidity
is influenced by other unique circumstance of the company. Also, the requirement to
maintain the cash shall influence the liquidity requirement.

Legal
Since sporting Club is generally an association of person and does not have any other
restriction as such. The legal aspects of the sporting club has not been analysed deeply.
Tax
Sporting club is a taxable entity in Australia. Accordingly, the impact of tax shall be
considered while computing the required rate of return from the investment. Thus, tax shall
be a critical factor in determining the objective constraint of the organisation. The said factor
has been ignored for analysis.
Time
Time is an important factor in determining the fund requirement of the organisation and
liquidity needs. Since it is an association of person and the expected time frame shall be
perpetuity.
Unique Constraints
Since details of any specific constraints are not available, the same has not been considered in
creation of Investment Analysis. Investment shall be ethical and social.
Based on above details, the best mix for the present sports organisation shall be 40% Value
equity investment, 60% bonds and debt instrument with a high coupon rate and 10%
investment in cash.
Rationale for the above investment selection
Equity Investment of 60%
The rationale for selection of 60% equity in the portfolio is it provides a higher rate of return
compared to other sources of investment. Further, the investment shall be value investing and
major investment shall be made in large market cap securities. The said investment shall
provide steady dividend return to the investment. Also, the fluctuation in the large value
securities are low. Thus, the value of investment shall remain intact under the said strategy.
Bond Investment of 30%
The rationale for investing 30% of the amount in bond is that it provides a stable return in the
form of coupon rate. Also, the market of Australia is stable and does not fluctuate much.
Thus, investment in bond shall provide the stable return to meet the liquidity needs of the
organisation. However, interest shall be taxed as ordinary income in terms of Australian
Income Tax Assessment Act, 1997. The said factor has been ignored for anlaysis.
Cash Investment of 10%
The rationale for investing in cash about 10% of the portfolio is to meet the sudden business
needs of the company which may arise on account of unforeseen situation. Also, the cash
investment has a very low rate of return.
Companies chosen under Equity Column
For the purpose of investing 60% of the portfolio, the following 4 companies have been
chosen:
(a) Woolsworths Group Limited;
(b) Wesfarmers Group Limited;

(c) Australia NewZealand Bank Limited;
(d) BHP Billiton Limited.
Brief Profile of the companies
Woolworths Group Limited
The Woolworths Group Limited is listed on Australian Stock Exchange. The beta of the
company is 0.96 and is less risky compared to ASX 200. The company is engaged in varied
business of food, petroleum, supermarket, drinks etc. The brands encompassed includes
Woolworths, Dan Murphys and BWS. The company is large cap with a market capitalisation
of $ 32 Billion. Also the company has strong fundamentals with a Return on Equity at 15.80
% which is higher than the industry. Also the ROI of the company is higher than industry
which is 6.06% (Reuters,com, 2019)
Reason for Selection
(a) Large Cap industry;
(b) Dividends;
(c) Lower Volatility and Risk.
Wesfarmers Limited
Wesfarmers Limited is listed on Australian Stock Exchange. The beta of the company is 0.95
and is less risky compared to ASX 200. The company is engaged in varied business of
supermarkets, liquor, hotel, home stores etc. The company has approximately 600 stores
throughout Australia and New Zealand. The company is large cap with a market
capitalisation of $ 46 Billion. Also the company has strong fundamentals with a Return on
Equity at 12.25 % which is lower than the industry. Also the ROI of the company is good at
9.57% (Reuters,com, 2019)
Reason for Selection
(a) Large Cap industry;
(b) Dividends;
(c) Lower Volatility and Risk.
Australia New Zealand Bank Limited
Wesfarmers Limited is listed on Australian Stock Exchange. The beta of the company is 1.29
and is risky compared to ASX 200. The company is engaged in varied business of banking,
financial product and services. The company has four segment of business and provide
services for retail, commercial business unit. The company is large cap with a market
capitalisation of $ 75 Billion. Also the company has strong fundamentals with a Return on
Equity at 10.76 % which is lower than the industry. (Reuters.com, 2019)
Reason for Selection
(a) Large Cap industry;
(b) Dividends;
(c) Lower Volatility and Risk;