Investment and Fund Management Assignment

INVESTMENT AND FUND
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Part A...............................................................................................................................................1
Part B...............................................................................................................................................2
CONCLUSION................................................................................................................................4
Appendix..........................................................................................................................................5
REFERENCES................................................................................................................................9

INTRODUCTION
This report is prepared on investment and fund management in which investment is done
in various investment avenues. Recently, an individual earns a lottery in which he receive £1
million amount. In order to earn good return he wants to create a portfolio. Portfolio is a basket
of investments in which entire corpus is invested. As per discretion of an individual, investment
is made in 6 different instruments.
Companies in which investment will be made
 Associated British foods
 Berkeley group holdings
 Barratt developments
 Intercontinental hotel
 Intercontinental consolidated airline
 Sage group
 Morrison
 Admiral group
 Inmarrat group
 Mark & Spencer group
Part A
Investor is risk averse and to minimize a risk it is decided to prepare a diversified
portfolio. In respect to this it is decided that corpus will be divided among six investment
avenues namely liquidity funds, fixed deposits, equity real estate, commodity (gold) and shares
that are listed in other countries stock exchanges. As mentioned in the case study that investor is
risk averse and he wants return which increase according to increase in inflation rate. Hence, it is
decided that majority of amount will be invested in shares and remaining corpus amount will be
invested in other investment domains. Shares is a instrument that has capability to give inflation
adjusted return (Jorion, 2007). It is a instrument that give high return if higher risk is taken.
Thus, share is a prominent instrument which we think will help an individual in achievement of
target return.
1

Part B
As per mentioned in question file investment is made in following domains. Liquidity- Seven percent of total corpus is invested in liquidity funds. As mentioned in
question file that investor is risk averse and by keeping his profile in mind liquidity funds
are taken in portfolio. Return on liquid funds is very low and from last two years its
return is declining steadily. Due to this reason, proportion of this fund in portfolio is just
7%. On the basis of past four years return on this instrument is anticipated as 0.04%.
Hence, due to low return and risk averse investment behavior of investor this instrument
is taken in portfolio and its proportion in same is taken as 7%. Fixed interest – Proportion of fixed interest in the portfolio is 23.75% and such a large
proportion to this instrument is given because investment in this security is safe. Returns
on this sort of deposit are also not affected market fluctuations like we see in case of
shares and bonds. In order to protect substantial portion of invested corpus in a safe zone
23.75% of corpus is invested in fixed deposits. Prices of stocks and commodity are
fluctuating very quickly when any data is released (UK bank interest rates. 2015). Due to
fluctuation turmoil happens in market and investors lose their money. But in case of fixed
deposits situation of turmoil does not comes in existence. Even Bank of England makes
changes in its interest rate structure then also return on fixed deposit will not changed.
Hence, by considering investor investment nature 23.75% of corpus is invested in fixed
deposits. Equity- This instrument has only 24.02% share in entire portfolio. Good returns cannot
be earned merely by making investment in debt securities. Hence, investment is made in
shares. By considering investor investment behavior investment is made only on those
sector companies which will heavily benefit from growth of UK. Returns and beta values
as well as sector to which they belong is considered while allotting them weight age in
an amount that is allocated for investment in equity. In this way an attempt is made for
maximizing profitability of investor. Real estate- Investment in real estate is made because values of real estate increase by
11% on year on year basis (London rents map, 2015). This trend is expected to continue
because UK GDP is growing and its PMI is above 50 at the level of 55. On other hand, its
unemployment rate also decline substantially with increase in wage rate. This increase
2

income level of savings and expenditure capability of the people of UK. Due to this
reason demand for real estate increased. Growth rate of 10% is anticipated in case of this
investment avenue. Due to very much strong positive outlook, its share in portfolio is
kept at 25.02%. Commodities- In commodities investment is made in gold. In past 7-8 months prices of
yellow metal is fluctuating and sharp downside is observed in this metal. Fall of stock
indices does not cushion price of gold in international market (Live data gold. 2015).
Hence, proportion of this commodity in portfolio is just 9.22%. It is expected that in case
of positive movement in its prices a sharp uptrend can be seen as seen in past one year.
Due to this reason, proportion of yellow metal is selected in portfolio but its proportion is
kept very low in the portfolio.
 Overseas – In case of overseas investment is made in Indian companies that are
fundamentally very strong. Investment is made in India because nation is growing
continuously and reforms are implemented very quickly by new government. FII
sentiments about investment in the mentioned nation are also positive for long term
(Mindtree. 2015). Cipla recently acquire two companies and it has strong presence in
USA which is largest market for pharmacy companies in terms of sales. Technology or
IT sector of India is very strong and Mindtree is known for its low cost services and its
share also performs well in entire fiscal year. HDFC and Lupin are giant companies in
relevant sectors and their fundamentals are very strong (Lupin. 2015). Hence, these four
companies are selected for overseas investment.
Table 1: Portfolio performance
Amount Income Capital gain
Liquidity 70000 70280 280
Fixed interest 237542 237578 36
Equity 240202 301268 61066
Real estate 250186 254024 3838
Commodities (Gold) 92185 107857 15672
Overseas (Stock market) 109885 131092 21207
Results 1000000 1102099 102099
3

CONCLUSION
On portfolio as per requirement return of £ 1,00,000 is earned and it is recommended to
strictly comply with this portfolio while making investment of one year.
4

REFERENCES
Jorion, P., 2007. Value at risk: the new benchmark for managing financial risk . New York:
McGraw-Hill.
Live data gold. 2015. [Online].Available through: < http://info.sharpspixley.com/data/gold/>.
[Accessed on 7th November 2015].
London rents map. 2015. [Online]. Available through: <
https://www.london.gov.uk/priorities/housing-land/renting-home/rents-map>.
[Accessed on 7th November 2015].
Lupin. 2015. [Online]. Available through:
<http://markets.ft.com/research/Markets/Tearsheets/Summary?s=LUPIN:NSI>.
[Accessed on 7th November 2015].
Mindtree. 2015. [Online]. Available through: <
http://markets.ft.com/research/Markets/Tearsheets/Summary?s=MINDTREE:NSI>.
[Accessed on 7th November 2015].
UK bank interest rates. 2015. [Online].Available through: < uk.deposits.org>. [Accessed on 7th
November 2015].
5

Appendix
Initial investment 1000000
Proportion to
II
Real estate 250186 25.02%
Equity 240202 24.02%
Liquidity 70000 7.00%
Fixed interest 237542 23.75%
Commodities (Gold) 92185 9.22%
Overseas (Stock market) 109885 10.99%
Total 1000000 100.00%
S.NO Companies Price
Return
(%) y-o-y Beta Industry
1
Associated british foods
(ABF) 3482 24.00% 0.88 Tourism
2 Admiral group (ADM) 1633 28.00% 0.78 Car insurance
3 Barclay group (BKG) 3148 40.00% 0.71 Home construnction
4
Barratt development
(BDEV) 584 41.00% 1.51 Home construnction
5
Intercontinental hotels
(IHG) 2612 10.00% 1.04 Tourism
6
International consolidated
airlines (IAG) 580 41.00% 0.49 Airlines
7 Sage group (SGE) 545 43.00% 1.04
Buisness support
softwares
8 Mark & Spencer (MKS) 540 32.00% 0.92 Retailer
9 Inmarsat (ISAT) 973 44.00% 0.49
Mobile settelite
cmuunication
6

10 Morrison (MRW) 167 16.00% 0.37 Retailer
Companies Price Stocks
Total
investment
Expected
return Weight
International consolidated
airlines (IAG) 580 20 11600 20.12% 4.83%
Barclay group (BKG) 3148 20 62960 28.41% 26.21%
Admiral group (ADM) 1633 15 24495 21.85% 10.20%
Morrison (MRW) 167 20 3340 5.95% 1.39%
Associated british foods (ABF) 3482 15 52230 21.13% 21.74%
Intercontinental hotels (IHG) 2612 10 26120 10.40% 10.87%
Barratt development (BDEV) 584 20 11680 61.88% 4.86%
Sage group (SGE) 545 25 13625 44.72% 5.67%
Mark & Spencer (MKS) 540 20 10800 29.44% 4.50%
Inmarsat (ISAT) 973 24 23352 21.59% 9.72%
Total investment 240202 100.00%
Companies Price
Expecte
d return Stocks
Expecte
d price
Capita
l gain
Total value
at end
Total
capital
gain
International
consolidated airlines
(IAG) 580 20.12% 20 697 116.67 13933.40 2333
Barclay group (BKG) 3148 28.41% 20 4042 894.49 80849.77 17890
Admiral group (ADM) 1633 21.85% 15 1990 356.83 29847.40 5352
Morrison (MRW) 167 5.95% 20 177 9.94 3538.78 199
Associated british foods
(ABF) 3482 21.13% 15 4218 735.61 63264.11 11034
7

Intercontinental hotels
(IHG) 2612 10.40% 10 2884 271.60 28835.96 2716
Barratt development
(BDEV) 584 61.88% 20 945 361.41 18908.11 7228
Sage group (SGE) 545 44.72% 25 789 243.71 19717.83 6093
Mark & Spencer (MKS) 540 29.44% 20 699 159.00 13979.95 3180
Inmarsat (ISAT) 973 21.59% 24 1183 210.03 28392.65 5041
Total
capital gain
61065.952
21
New value
301267.95
221
Overseas (Shares)
S.NO Companies Price
Return
(%) y-o-y Beta Industry
1 Cipla (CIPLA) 658 0.15% 0.52 Pharmaceutical
2 Mindree (MINDTREE) 1498 38.11% 0.74 IT
3 HDFC (HDFC BANK) 1080 18.48% 1.11 Bank
4 Lupin (LUPIN) 1857 34.24% 0.24 Pharmaceutical
Overseas (Shares)
Companies Price Stocks
Total
investment
Expected
return Weight
Cipla (CIPLA) 658 2500 1645000 3.49% 15.06%
Lupin (LUPIN) 1857 1600 2971200 13.61% 27.19%
Mindree (MINDTREE) 1498 2600 3894800 30.05% 35.65%
HDFC (HDFC BANK) 1080 2236 2414880 19.73% 22.10%
Total investment 10925880 100.00%
8

Companies Price
Expecte
d return Stocks
Expecte
d price
Capita
l gain
Total value
at end
Total
capital
gain
Cipla (CIPLA) 658 3.49% 2500 681
22.937
88 1702345
57344.699
9999999
Lupin (LUPIN) 1857 13.61% 1600 2110
252.80
4552 3375687
404487.28
32
Mindree
(MINDTREE) 1498 30.05% 2600 1948
450.11
0052 5065086
1170286.1
352
HDFC (HDFC
BANK) 1080 19.73% 2236 1293
213.10
344 2891379
476499.29
184
Total
capital gain
2108617.4
1024
New value
13034497.
41024
S.NO Liquid fund 1 2 3 4
CAG
R Value at end
Capi
tal
gain
1
Premier UK
money market
fund 0.5 0.8 0.2 0.1 0.4 70280 280
S.NO Rent Area CAGR CMP Forecast price
Total
benef
it Capital gain
1 299 Soth
wark
10.00% 2501
86
250436 2540
24.18
3838.186
9