Investment Management: Portfolio Construction and Objectives

This document provides an introduction to investment management and discusses the process of portfolio construction. It also explains the objectives and policies followed by investors. The document further explores five bond funds and five investment funds.

Investment
Management
Portfolio
Constructing

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Covered in Excel file...................................................................................................................3
Critically discuss the problems associated with short-selling......................................................3
TASK 2............................................................................................................................................4
Define investment objectives and policy.....................................................................................4
Rationale behind the portfolio construction.................................................................................4
5 bond funds and 5 investment funds:.........................................................................................5
TASK 3............................................................................................................................................9
Stock value from February 1st, 2019 to February 1st, 2020 of same companies which taken
from task 1...................................................................................................................................9
Portfolio composition .................................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
The word "investment" is strongly related to principles in the areas of trade, finance and
administration. Investment relates to the quick reorientation of financial resources and money to
income and future earnings instead of using them at the same time when it was created (Aouni
and et.al., 2018). Investment management is the skilled handling of the different investor's
capital instruments and funds for the gain of most. Investment management is really the method
by which the key financial shares and resources for a shareholder are managed competently to
maximize advantages. The investment management industry is growing significantly in recent
years and has handled annually billions of dollars worldwide. Money management and
consulting services can also include supervising the investments of a client and combining with
other properties that support also with certain life objectives.
In this report, different investment portfolio is created with number of investing option
depending upon the variance, rationale behind the portfolio making, most suitable investment
fund. In addition, importance of creating a hedge fund portfolio is discussed in this report.
TASK 1
Covered in Excel file
Critically discuss the problems associated with short-selling
Short selling is an investing or market practice the elaborates that inventory or other share
price may decrease It is an innovative technique that only seasoned investors and traders can
follow (Bruno, Chincarini and Ohara, 2018). In short sales, a position is created by purchasing
shares of a stock or other commodity which the lender assumes to be worth lower by a defined
future date–the expiry date. The lender instead markets these loans to investors that are ready to
pay the cost of the business. The dealer hopes that perhaps the price is likely to fall until lent
securities have to be repaid and can buy them at such a cheaper cost. The potentially unrestricted
risk of failure from short sales is that since the cost of every asset may rise to infinity. There has
been various risk related with short selling that are defined below:
Unlimited losses: At the time of short selling there is totally the reversal of the cost and
benefit imbalance because investors will to get higher result at shorter period through stock.
Possible benefits are restricted to 100% for a short seller, whereas financial losses are infinite
(Chow, M., Li and Shim, 2018).

Borrowing fee: Bad vendors have to pay a loan fee to traders. Just like the overall market,
borrowing costs vary through supply and demand, whereas fees involved with many of the
biggest shorter stocks will hit 100% of the trade's cost annually.
Pay dividend instead of getting: The higher the dividend a stock pays, the more
expensive it can become to sell it short. The original shareholder is also qualified to dividend
pay-outs because short securities should only be borrowed The dividend is indeed a
responsibility of the short seller to compensate (de Jong, 2018).
TASK 2
Define investment objectives and policy
In context of investment, an investor has many objectives or policies which they have to
follow in order to maximise their portfolio returns. Some of the objectives and policy are
discussed below:
Strategic asset allocation: It is one of the effective portfolio strategy which includes
various settings to allocate target of different asset classes and maintain portfolio balance
periodically. Allocation should be proper as per the different return of various assets (Guerard
and et.al., 2018).
Risk profile: It is an evaluation of individual ability or willingness to take risk. It is also
referring to the threats which in future company can face. For investors, it is very essential to
identify investment assets allocation.
Benchmark: It is also one of the effective method which is used by organizations to
compare their operational process as well as performance as per industrial practices and other
dimensions.
Above mention investment objective or policy followed by inventors and make sure that
selected portfolio provides higher return with minimum risk.
Rationale behind the portfolio construction
Portfolio management implies various things for individuals, and is, in particular, a way to
balance threat and benefits. Thus, the main techniques used in constructing a portfolio are
discussed underneath:

Global Minimum Variance Portfolio: The goal of this portfolio building strategy is to
reduce risk and to maximize the risk / reward equation. This produces the lowest risk (volatility)
fund, which primarily contributes to a high concentrations of bond funds with low inflation.
Minimum Correlation Portfolio: This mainly includes the Portfolio are securities groups
with small correlations and uncertainty compared to many other equities (Kim and et.al., 2018).
Thus in the final analysis, all financial asset groups have a net present value coefficient of
correlation to one another with the minimum variance
Most Diversified Portfolio: Instead of reducing the average deviation of the fund, the MDP
is based on the highest diversification gains by optimizing the variance measure, a ratio of a
weighted average variability of the investments towards its total volatility. Thus the profits from
MDP diversifying is to the greatest degree (Izotov, Rostova and Dubgorn, 2018). However, as
the total portfolio risk isn't an inherent feature of fundamental uncertainty, the total portfolio
does not include each investment vehicle in similar levels of danger.
5 bond funds and 5 investment funds:
Bonds:
Fidelity Capital & Income Funds (FAGIX): This bond invests in both debt or equity
securities which are low quality debt securities. These funds focus on those organizations which
face financial issues. As of November 2019, FAGIX has $ 12.8 billion in assets. Security and
exchange commission paid in 30 days of 3.75%. Average weighted maturity of fund's portfolio is
6.80 years and duration of 3.35 years which is lower one. It indicates that bonds have less
exposure related to interest rate risk. Reasonable expense ratio of this fund is 0.69 % and it was
providing last 10 years return of 8.31 %. FAGIX is an fixed income instrument income fund and
top three sector organization holding around 34.99% share of this, such as energy, technology
and banks. In this bond, there is no minimum requirement of invest and one investor can invest
as per their potential.
Vanguard High Yield Corporate Fund Investors Shares (VWEHX): This bond
focused on corporate debts which has low credit ratings. Fund managers of the company always
desired of high rated junk bonds. Vanguard High Yield Corporate Funds provide consistent
income through minimising defaults and other principle losses which generally organizations
bear. Vanguard bonds has low expense ratio of 0.23 % which decline around 0.13 % where
potential investors can afford $ 50,000 minimum for Full admiral Shares. Security exchange

commotion is 4.48 % and fund had around $ 26.2 billion net assets which has to pay 4.48 %. In
an portfolio, there were around 525 bonds and average mutuality time period is 3.7 and duration
were 3.0 years according to 2019 October. Average annual return of this bond is high in
comparison to last 10 years that is 7.25 %.
Vanguard High Yield Corporate Fund has around 19.9 % assets in communications
sector, 13.2 % in in consumer cyclical and 12.5 % in capital goods. In this portfolio, Ba3 rated
bonds has major share that is 20.7 % and Ba1 bonds at 16.1 %. In order to invest in this bond,
potential investor should required minimum $ 3,000 investment.
BlackRock High Yield Bond Fund (BHYCX): This bond start trading in 1988 that is
low rated bond which has 10 years or low maturity period. Around 80 % of company's assets are
invested with high yield bonds and that is convertible securities. In 2019, BHYCX fund had $
17.31 billion in AUM. Total commission was 3.93 % and it has to be paid with in 30 days.
Annual return of the fund from last ten years was 6.94 % according to 2019 of November.
Around 42 % of BlackRock funds acquire by B rated companies and another 33 %
holdings are in BB rated companies. More than 1,200 holdings are available in the portfolio of
this bond. Expense ratio was 1.64 % for single person as an investor 0.61 % for the organization
investors. BlackRock distributed yields every month in order to retain existing investors or
attract potential investors.
SPDR Bloomberg Barclays High Yield Bond ETF (JNK): Exchange traded funds are
invested in high yield bonds that is suitable for potential investors those are focused to pay fees.
Exchange funds avoid many expenses which helps in reducing additional charges which
associated with mutual funds. It has around $ 10.18 billion net assets which required to pay
within 30 day and yield of 5.20 %.
iShares iBoxx High Yield Corporate Bond ETF (HYG): It is the another ETF bond
which provide broad explores to corporate bonds of U.S. Net assets value of $ 18.99 billion
required to paid in 30 days and SEC yield is 4.83 %. There was 1006 holdings and expense ratio
is 0.49.%.
Types of investment funds
An investment group is a reserve of funds invested into by a number of possible
shareholders that is used to participate together in bond and stock. Investment fund is a kind of
mutual investment product in which all Investors fund invest heavily together. Mutual funds

become developed and operated by organizations that control investments. Funds control other
creditors resources and reinvest them in securities like shareholdings, stocks, government bonds
and other financial products. Such as like the bank deposits that any saving will give a future
return including the interest amount thus same as the concept of investment funds. It is observed
that when investment are made for more than 6 months that sub funds according to money
market are generally suggested which can provide higher results. Mutual gains in an investment
fund were neither known from the beginning, nor assured. It is not dependent on interest expense
but also on the increase in the valuation of shares and other investments the funds are invested in.
The more the valuation of shares rises, the increasing the gain. The valuation of the assets can be
constantly verified by measuring the performance of the respective funds units of involvement.
In the case of three-year investments stable growth funds are considered the right choice and for
investments of 5 or more year equity and balanced sub-funds. When the degree of risk
acceptability is small, stakeholders may calculate more risky assets which may, therefore,
generate higher yields, e.g. bond sub-funds. Whenever the degree of risk acceptance is small,
investing in sub-funds with reduced uncertainty is safer, even if the return on them would be
lower. Investors try to enter an investment company depending on the aim of the fund-generally
targeting country or region or particular segments of business.
Investment funds may take different forms from investment funds, exchange-traded
funds, and hedge funds. Which might be open ended or close ended. Usually, open-end
investments are by far the most common among shareholders. The price per share in the
company is far more flexible open-ended securities will offer and sell securities to satisfy
shareholder request at any moment. Stock could be purchased or shipped directly from the
company, too. Closed-ended securities receive a fixed amount of shares that can be purchased or
transferred on the exchange. Stakeholders may profit from a higher amount of funds when
spending as a group, broader sustainability of portfolios, risk distributed across a variety of bond
funds, and a professional money manager. There are basically different kind of investment funds
that available for investment and give higher in future. Some of these are discussed underneath:
TB Evenlode Income: TB Evenlode Income does have an impressive history of
surpassing both the FTSE All-Share benchmark as well as the IA UK Equity Profit market
average, exceeding both of these indices in each and every full month since its 2009
introduction. This has also demonstrated to be fairly conservative, delivering a decent return

each year, as well as in 2018 and 2011, when the FTSE All-Share index or IA UK Stock Income
market average yields were low. The funds soft ended on May 1, 2018, before when it paid a 5
per cent initial payment to retail investors, to curb inflows and prevent it from becoming too big,
and to encourage its managers to continue to invest according to the same strategy. However,
trading sites that sell the fund before that are listed as existing investors, so if you purchase this
fund from one of these, you won't pay the original 5 per cent tax.
MI Chelverton UK Equity Income: MI Chelverton UK Interest Income matches the
FTSE All-Share and FTSE 250 indexes and the IA UK Equity Income market average for 3, 5
and 10 years. In accordance with its target of paying a large and increasing cash dividend as well
as the promise of good long-term capital appreciation, it has an enticing yield of more than 5 per
cent. This focuses primarily in mid-cap stocks, while having a limited approach than UK stock
profit funds focused on bigger companies. This ensures that its performance can be relatively
unpredictable year by year but it will produce very good returns over the long term.
Rathbone Income: Rathbone Income provides stable good returns in many other fiscal
years, but in tough years continues to exceed the FTSE All-Share Index as well as the IA UK
Equity Value market average so is a great defensive choice. This surpasses both of those metrics
over longer average spans and enticing yield of almost 4 %. This have been focusing on high-
quality earnings businesses has culminated in a lower risk level for this investment than for the
British stock market. Although no sector constraints remain, manager can controls the danger of
a single business by limiting the sizes of the place. Is one of the best performing British equity
funds with returns well above the FTSE All Share benchmark. This has also shown to be a
strategic option, having a marginal loss or a good gain in years when the all-share FTSE and
other stock income investments have dropped, as in 2018 and 2011.
Finsbury Growth & Income Trust: This is one of the top performing UK investment
fund trusts with earnings well above the FTSE All Share benchmark. This has also shown to be a
protective option, allowing a marginal loss or a positive gain in years because the all-share FTSE
and other investment income investments have dropped, as in 2018 and 2011. At the end of its
last accounting period, the company had a continuing fee of 0.67 per cent which is quite
appropriate given its excellent performance. And this could get even smaller whenever the
market cap of the company reaches £ 2bn because it has changed the tiered pricing structure. The
fund had a market valuation of almost £ 1,79billion in mid-August.

Diverse Income Trust: Diverse Investment Trust is distinct from several UK stock
investment trusts is that it can participate in businesses of all types, rather than relying on
conventional large-cap paid income. The exposure to Achieve and small firms implies it's greater
risk and even more risky than conventional equity profit funds that concentrate on secure large-
caps. But this risk ensures it could generate higher annual returns over longer term than funds
focusing on more secure, bigger firms.
TASK 3
Stock value from February 1st, 2019 to February 1st, 2020 of same companies which taken from
task 1.
An individual who is responsible in making a decision relevant to entire international market
about the operation of hedge resources. It is liable for the execution and operation of its market
commercial activities of an investment strategy company (Jovanovic, 2018). In order to make
meaningful decision the hedge fund manager can implement the useful techniques which help to
grow the results for the company as well as potential customers. Some of these techniques are:
Global macro investing: The goal is to collectively participate in economies which are
faced with international economic and financial conditions with substantial shares or a major
role. The sort of tactic used by managers in hedge funds allows them the requisite stability, but
the plan depends heavily on decent timescales.
Event-driven strategy: This suggests that executives search for broad possibilities in a
business environment to build on. Types cover fusions and deals, bankruptcies and buyback
programs by creditors. Managers operating on this approach capitalize on business contradictions
comparable to the strategy to value investment (Kahn, 2018). Managers of hedge funds usually
follow this path because of their vast resources.
Portfolio composition
Investment growth: The primary reason for owning an investment portfolio is because
equities tend to generate more investment income over most of the longer term than other
investing options. As stocks have great potential returns, equity investment will improve the
chances of income growth, given inflationary effects.
Mitigating risk: As a method for reducing financial risk, retail investors hold several
different stock investments. The maintenance of a portfolio of multiple stocks in various sectors

lower the risk and, if company have to make few risky investments, it does not allow to lose a
large part of your net wealth (Henriksson and et.al., 2019).
Tax benefits: The profits from stock investments benefit from a deductibility that is
beneficial. In case company have a standard tax level of 15 % to keep the shares more than a
year before trading. In comparison, interest earned on a saving account is called ordinary
income, which may be taxed at rates up to 35%. Moreover, if company hold an investment a year
or less, the total capital gains are subject to normal income tax rate.
CONCLUSION
In the end of this report, it has been concluded that the process of investment management is
accountable for managing large sums of money as well as generating them. Most importantly for
great numbers of financial transactions worldwide the more accurate investment portfolio is
beneficial to make higher results. Investment management facilities involve investment
collection and inventory selection aspects, financial reporting and constant investment tracking,
and expansion plans application.

REFERENCES
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