Developing an Investment Portfolio

This report discusses the investment portfolio development for Kooyong Lawn Tennis Club. It covers the investment policy statement, capital allocation strategy, and portfolio preparation. The report also evaluates the performance of ASX all ordinaries shares.

Developing an
Investment Portfolio

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Formulation of Investment policy statement for Kooyong Lawn Tennis Club...........................1
PART 2............................................................................................................................................3
Capital allocation strategy of Kooyong Lawn Tennis Club........................................................3
PART 3............................................................................................................................................4
Preparation of portfolio that depicts the mix of capital allocation..............................................4
PART 4............................................................................................................................................6
Evaluation of ASX all ordinaries shares performance................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Investment portfolio can be defined as the collection of different types of financial assets
and instruments that are owned by an individual or a business entity (Investment management,
2017). Most of the portfolios are made up of various securities such as bonds, shares, debentures,
mutual funds, stocks, exchange traded and money market funds. Kooyong Lawn is a local tennis
club which is located in Melbourne and founded in year 1892. The management committee is
planning to make investment in share and asked to to build a portfolio of investments. For this
purpose, in this report various tasks are performed. These are preparation of investment policy
statement, determination of capital allocation strategy and selection of specific investment for
equity and debt. A report showing details of all the steps with time lines and tracking
performance of portfolio is also being generated under this assignment.
PART 1
Formulation of Investment policy statement for Kooyong Lawn Tennis Club
Kooyong Lawn is a tennis club which is mainly based in Melbourne Australia. Its
managing committee is currently planning to make investment in shares and other financial
instruments (Cao and Ward, 2014). It can help to achieve a higher return in future with the help
of an internet maximize account. The committee have asked to build a portfolio of finance and
also track the performance of it so that its success can be measured. The amount which has been
decided by Kooyong Lawn for the investment is $5,00,000. An investment policy statement for
the club is as follows:
Kooyong Lawn Tennis Club
Statement of Investment Policy
Purpose: The main purpose of this statement is to find the best options where the organisation
can make investment and attain higher returns. The aim behind investing in financial
instruments and shares is to enhance liquidity of the club. In this investment policy all the future
plans of Kooyong Lawn Tennis Club which is established in Australia are elaborated. When the
policies are framed then a copy of detailed statement is being distributed to all concerned
persons including managers, chief executive officers and other top authorities (Chandra, 2017).
Investment constraints: It consists detailed information of future plans of Kooyong Lawn
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Tennis Club in which data regarding investments can be analysed. It focuses on following key
areas:
 Liquidity requirements: As Kooyong Lawn Tennis Club is planning to make
investment of $5,00,000 in financial instruments. It has planned to keep 15% of total
amount in cash and also decided that 5% of overall investment can be withdraw by the
club in future for different purposes such as renovation.
 Return requirements: The management committee of Kooyong Lawn Tennis Club has
decided to invest its money in financial instruments. The estimated rate of return for the
organisation is 5% on total investment in upcoming period.
 Risk tolerance: It is very important to make the such portfolio which contains low risk
so that business entities should make sure that investment is made with debased hazard
tolerance. In Kooyong Lawn Tennis Club the decision of keeping 15% of whole
investment in cash is being taken to reduce the risk as cash accounts are maintain with
zero to very low risk (Chaudhuri and Mukhopadhyay, 2014).
 Time horizon: The management committee is planning to make investment for a long
period as it may result in higher return in future for the organisation. Managers have
estimated that the time horizon for this particular investment is 12 years.
 Tax consideration: Kooyong Lawn Tennis Club is tax exempted by the government
hence it the investments that are going to be made by the organisation will be in such
financial instruments that are suitable for tax considerations of the club. It is very
important for the Kooyong to focus on all the tax exemption related considerations to
make legal and appropriate investment.
 Regulatory and legal considerations: There are various sector where making
investment is being declared illegal by the government. Kooyong follows all the rules,
regulations and requirements of legal authorities of Australia.
 Unique needs and circumstances: It has also been planned by the management
committee of Kooyong Lawn Tennis Club that it may withdraw 10% of total investment
in future in the condition of critical situations (Dodds, 2017).
Diversification: It is very important for the club to keep a detailed portfolio so that all the
members of top management can analyse overall potency of the organisation. Total investment
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in marketable securities does not exceeds 5% of the portfolio.
PART 2
Capital allocation strategy of Kooyong Lawn Tennis Club
The management committee of Kooyong Lawn Tennis Club have planned to make
investments in debts and equities (Erdal and Göçer, 2015). They have also planned to keep a
particular percentage of total amount in cash that can be used to operational activities. As the
total amount which is going to be invested by the club is $5,00,000 and the combination of total
investment is 30% equities, 55% debts and 15% cash. The managers have decided that from
cash, 5% of total portfolio will be invested in marketable securities and remaining 10% will be
kept as liquidity.
Equities includes different types of financial instruments such as preference and equity
shares. The organisation has planned to invest 30% of whole amount in equities which will be
worth 150000. As such type of securities have higher risk hence the club has taken to invest less
in them as compare to debts because interest on a predetermined rate is received on debentures.
It is very important for the business entities to make less investment in shares from external
liabilities in order to meet debt to equity ratio. It helps to maintain profits and save internal funds
for consequences that may take place in future (Forsyth, 2014). Dividend on securities is
acquired on yearly basis and if the company is in loss then the shareholders won't get profits
hence it is riskier for Kooyong Lawn Tennis club.
Managers of Kooyong have planned to invest 55% of whole amount in debts. It is the
amount which is taken on credit from external parties. A fixed interest is provided by the
organisation on debts it will be very beneficial for the club as it may increase its income by a
fixed percentage every year. An amount of 275000 is going to be invested by Kooyong Lawn
Tennis Club in exchange traded treasury bonds in order to increase profits every year.
Management Committee of Kooyong Lawn Tennis Club has decided to keep 15% cash of
whole portfolio which is 75000. From this amount 5% of total investment will be endowed in
marketable securities which is 25000. 50000 are going to be kept in cash so that it can be used to
execute operational activities and deal with consequences that may take place in future and result
negatively for the organisation. The plan will help the club to achieve all its future goals and
objectives by properly managing the portfolio.
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The combination which is made for Kooyong Lawn Tennis Club for the investment of
$5,00,000 is 30% in equities, 55% in debts and 15% cash. It will help the club to minimise the
risk because a higher percentage of portfolio is going to be invested in bonds (Garg and Dua,
2014). Interest on a fixed rate is going to be attained on them which will result in increased
profits of the club. 5% of total amount is going to be invested in marketable securities which is a
short term investment and organisation may sale them in difficult situations such as lack of
monetary resources.
PART 3
Preparation of portfolio that depicts the mix of capital allocation.
Capital allocation: In accounting term, it is defined as the process of distributing
financial resources into different investment such as equity, debts etc. in order to grow efficiency
and increase profit during an accounting year (Hamdi and Jlassi, 2014). Thus it is support the
management of company to accomplish accomplish the objective in optimising capital allocation
so that more wealth can be generated for external shareholder. In general, allocation of capital
between debt, equity and money securities will be such that is decrease the risk of the portfolio's
and increase the diversification advantage to company.
So diversified portfolio is a kind of portfolio that involves sorted kind of securities that
help to calculate the weight, time period of security that help to dhimmis the entire risk of
portfolio (Jenner, 2016). It is observed that a well varied portfolio could be developed after
understanding the concepts of systematic and unsystematic risk to the investment. As Australian
market is regulated ASX and provide benchmarks for the complete Australian share market. The
S&P/ ASX 200 is referred to be legal authorised benchmark for equity performance in Australia
(Hoesli and MacGregor, 2014).
Reduction of Portfolio Risk through Diversification:
It is determined that Kooyong uses the concepts of diversification in order to decrease the
overall risk through well justifying the unsystematic risk without decreasing the return of group
of investment. Thus in order to demonstrate the influence of correlation on portfolios risk so
following three cases are needed to be considered by Kooyoung Lawn Tennis Club:
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 Perfectly Positive Correlated: The situation mainly happens when correlation among two
or more securities is +1. Therefore, diversification deliver only risk averaging and
company is not able to reduce the risk for the portfolio (Inderst and Stewart, 2014).
 Perfectly Negatively Correlated: This condition happens when correlation between two
securities is equal to -1. Thus is observed that diversification may reduce the relevant risk
connected with securities that help company to make following investment.
 Returns are uncorrelated or independent: In this kind of situation, two or more securities
are either unrelated or give zero return (Ito and Park, 2014). Then the process of
diversification helps to decrease the risk in situation like uncorrelated securities.
Thus, it is observed that portfolio's manager of Kooyong will invest the amount in
following item of various companies in order to take the advantage of diversification.
Equity(30%) Company Name Sector Amount Invested
($)
Purchase Price
per share ($)
Equity Australian
Pharmaceutical
Industries (API)
Pharmaceutical,
Healthcare
50000 10.32
Equity Adelaide Brighton
(ABC)
Real estate sector 50000 4.27
Equity AGL Energy
Limited (AGL)
Energy Sector 50000 20.6
Debt (55%)
Debt Exchange Traded
Treasury Bonds
Government Bonds 275000
Apart from traded treasury bonds, tennis club has also kept an amount in cash investment
such as money market securities that are being founded by Federal Government assertion
strategy that support to modify on investment and deliver grantee by the government holding
(Low Yao and Faff, 2016). So in accordance to the newly formed investment policy, Kooyong
maintain 5% of in marketable securities and keep other 15% as reserve that help to perform
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different business operation and recommended to meet the working capital requirement of the
Kooyong Lawn tennis club.
Explanatory statement:
It is crucial for as an investor to select right kind of investment options before making
any kind of capital investment. It will help them to take an idea about total return they are going
to get in coming period of time. Like shares are considered as one of the best option that can help
Tennis club company to earn valuable amount of profit in coming period of time. Changes of
getting maximum return in high. Whereas as bond are considered as one of the debt which will
have to be repay after the maturity period. The other options are related with the cash related
investment which is avoided in planning process. The cash is riskier as compare to other options.
PART 4
Evaluation of ASX all ordinaries shares performance
This part of the project report consists of specific information about the investment
portfolio of “Kooyong Lawn Tennis club” under which all the initial capital investment details
are mentioned accordingly as per weekly basis. It was seen that the allocation of the funds is
done in the starting phases of December. Because of which combine investments is being
decided in the middle of the month in equal proportion of 55% in debts, 30% in equity and 15%
in cash. Henceforth, at the closing of December, 2018 (Low Yao and Faff, 2016). In accordance
with the motive of diversification advantage, investment in different industries of other sector,
debenture and cash. The overall performance of capital investment portfolio has been made by
Kooyong Lawn Tennis club that would be measures on weekly basis starting from January
2019 to February 2019 on an estimation basis. The table is mentioned below:
WEEK Australian
Pharmaceutical
Industries (API)
Adelaide Brighton
(ABC)
AGL Energy Limited
(AGL)
JANUARY Price per share ($) Price per share ($) Price per share ($)
1 week $1.37 4.28 20.61
2nd week $1.41 4.25 20.58
3rd week $1.43 4.23 20.65
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4rth week $1.44 4.26 20.49
February
1st week $1.48 4.32 20.69
2nd week $1.52 4.28 20.88
3rd week $1.55 4.27 21.2
Last to 3rd march $1.34 4.19 21.11
From the above table, it has been seen that categorization of equity, debenture and cash of
various companies on weekly basis (Melina, Yang and Zanna, 2014). The benchmark is taken
into account for evaluating the overall performance which was followed by the stock that are
listed on the ASX all ordinaries:
Stock code: API (Australian Pharmaceutical industries).
Australian pharmaceutical sectors tend to deliver appropriate technology data solution for
software companies as well as government (Mikesell and Whitney, 2017). The weekly
performance of API which is mentioned over ASX all ordinaries are given below:
From the above chart, the performance of API is more candlestick pattern which can be
taken into account as growth of 1%- 2% attainment to a price of $1.40.
The other stock name is ABC (Adelaide Brighton Ltd) is a huge manufacturer of cement.
Lime and dry blended products (Schindler, Armstrong and Reed, 2015). The share prices of this
company is shown through using a column chart.
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From the above column chart, it has been clearly seen that in the end of January and starting
of February is maximum increment in the share prices. As the bars are maximum at some of the
week’s such as 4.32 and 4.3.
AGL is the other company which is also one of the best Australian listed public company
that is associated with both generation and retailing of electricity as well as gas for residential
and commercial utilization (Seyoum, Wu and Lin, 2015). The performance of the company is
analyses through using share price changes mentioned below:
According to the chart of AGL performance of share price movement it has been seen that in
the starting phase of January the value gets increase at fast rate and in the mid-term goes on low.
After that it again get started from the month of the February (Tyson and McKinley, 2014).
Thus, the overall performance of the company is more reliable as compare to other companies so
it is crucial to make investment under this to earn maximum profit in coming time.
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CONCLUSION
From the above mention project, it has been observing that investment manageable is
considers to be one of the most significant aspect for an organisation that support to make future
plans and check the efficiency of assorted project. It also supportable for company in order to
ascertain the complete risk and make sure that these project will give better result in the future
condition. It is also concluded that in there is a well arranged portfolio of investment for
company that support to trace the execution and performance during a specific time period.
Manager of company also applies the capital allocation strategies by considering the future and
current market situation in order to allocate the investment. The performance of portfolios is also
calculated in the last part that help to prepare the explanatory statements.
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REFERENCES
Books and Journals:
Cao, X. and Ward, M. D., 2014. Do democracies attract portfolio investment? Transnational
portfolio investments modeled as dynamic network. International Interactions. 40(2). pp.216-
245.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Chaudhuri, S. and Mukhopadhyay, U., 2014. Foreign direct investment in developing countries.
Dordrecht: Springer. CrossRef Google Scholar.
Dodds, J. C., 2017. The investment behaviour of British life insurance companies. Routledge.
Erdal, L. and Göçer, İ., 2015. The effects of foreign direct investment on R&D and innovations:
Panel data analysis for developing Asian countries. Procedia-Social and Behavioral Sciences.
195. pp.749-758.
Forsyth, T., 2014. International investment and climate change: energy technologies for
developing countries. Routledge.
Garg, R. and Dua, P., 2014. Foreign portfolio investment flows to India: determinants and
analysis. World Development. 59. pp.16-28.
Hamdi, H. and Jlassi, N. B., 2014. Financial liberalization, disaggregated capital flows and
banking crisis: Evidence from developing countries. Economic Modelling. 41. pp.124-132.
Hoesli, M. and MacGregor, B. D., 2014. Property investment: principles and practice of
portfolio management. Routledge.
Inderst, G. and Stewart, F., 2014. Institutional investment in infrastructure in developing
countries: introduction to potential models. The World Bank.
Ito, T. and Park, Y. C., 2014. Developing Asian Bondmarkets. ANU Press.
Jenner, S., 2016. Transforming government and public services: realising benefits through
project portfolio management. Routledge.
Low, R. K. Y., Yao, Y. and Faff, R., 2016. Diamonds vs. precious metals: What shines brightest
in your investment portfolio? International Review of Financial Analysis. 43. pp.1-14.
Melina, M. G., Yang, M. S. C. S. and Zanna, L. F., 2014. Debt sustainability, public investment,
and natural resources in developing countries: the dignar model (No. 14-50). International
Monetary Fund.
Mikesell, R. F. and Whitney, J. W., 2017. The world mining industry: Investment strategy and
public policy. Routledge.
Schindler, D. E., Armstrong, J. B. and Reed, T. E., 2015. The portfolio concept in ecology and
evolution. Frontiers in Ecology and the Environment. 13(5). pp.257-263.
Seyoum, M., Wu, R. and Lin, J., 2015. Foreign direct investment and economic growth: The case
of developing African economies. Social Indicators Research. 122(1). pp.45-64.
Tyson, J. and McKinley, T., 2014. Financialization and the developing world: Mapping the
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