Analysis and Construction of an all-Australian shares equity portfolio

Running head: INVESTMENT POLICY
Investment Policy
Name of the Student:
Name of the University:
Author Note:

INVESTMENT POLICY1
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Risk and Return Profile of the client:.....................................................................................2
Portfolio monitoring and Feedback:.......................................................................................3
Assumptions in the portfolio construction:............................................................................4
Risk due to the assumptions:..................................................................................................4
Constituents of the Portfolio and their characteristics:..........................................................5
Portfolio Construction:...........................................................................................................6
Caveats in the rise in value which should be considered:......................................................7
Measurement of performance metrics:...................................................................................8
Portfolio Comparison with index:........................................................................................10
Recommendation:....................................................................................................................11
Conclusion:..............................................................................................................................11
References:...............................................................................................................................13

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Introduction:
The following report contains the analysis and the construction of an all Australian
shares equity portfolio. The portfolio management process involves the consideration of the
risk and the return of the client for whom the portfolio is constructed. The report contains the
stocks which are being considered for the construction of the portfolio, along with the risk
associated with the stocks (Arena and Krause 2019).
In the first part of the report an analysis of the risk profile of the client is represented
based upon which the asset allocation of the stocks is being considered. It highlights the
tolerance of risk level of the client and the required return which is desired by the client. The
assumptions which are undertaken in the construction of the portfolio is presented in the first
part of the report.
In the second part of the report the construction of the portfolio which is suitable for
the client along with the measurement of performance of the client’s portfolio is presented.
The analysis of the portfolio is taken for a period of ten years beginning in the year 2010 and
till the year 2019. The performance of the portfolio is measured using various statistics and
compared with the individual stock returns and the index. A recommendation and conclusion
is provided at the end of the report which consists of the brief analysis of the report.
Discussion:
Risk and Return Profile of the client:
The risk profile of the client along with the return requirements from the portfolio is
highlighted in this point. The client has an average risk tolerance level which is highlighted
by the client in the meeting which was conducted with the client. The client has provided

INVESTMENT POLICY3
$900000 to be invested in stocks which are trading in the Australian stock exchange. The
client wants the stocks to be invested in stocks which are established companies and each
stock belong to different industry. The client as is involved in the mining industry has advised
to choose a mining stock, along with a consumer discretionary stock. The third industry has
been left at the discretion of the portfolio manager. The client has stated to not having any
liquidity requirement in the short term and the long term. The returns from the portfolio will
be used to fund the retirement of the client which is after 35 years from the initiation of the
portfolio. The client has no other requirements and the client is expected to receive a lump-
sum amount from a deceased relative which would increase the clients risk tolerance level
(Dolan, Stevens and Zucker 2017).
The return requirement of the client is to fund the retirement of the client and no other
requirement by the client has been highlighted. However, the client is willing to invest in the
only equity asset class, as the client believes equity asset class over a long time horizon
provides abnormal returns. All other asset classes are to be avoided as per the client’s
requirement (Kinuthia 2018).
Thus the client has a risk tolerance level which is above average due to no liquidity
requirement and a long time horizon. The ability of the client to take a high level of risk is
due to the amount which is due to be received from the deceased relative. Thus the risk and
return profile of the client is above average with high returns (Minh and Tam 2017).
Portfolio monitoring and Feedback:
The portfolio of the client will be reviewed annually and rebalancing to the portfolio
will be done on a dynamic basis. The dividends which would be received would be reinvested
to purchase the stocks for the client portfolio. Thus any changes in the investment policy
statement if needed would be done on an annual basis.