Investment Portfolio Proposal for Australian Market

Investment Portfolio Proposal
1

Introduction
Portfolio of investment comprises different types of investment components such as
equity shares, bonds, exchange traded funds (ETFs), pension funds, listed investment companies
(LIC) etc. The main purpose of construction of portfolio is to optimize the risk and return for the
investor. An investor always looks for higher returns with the minimal risk. However, when the
return rises, the risk also goes high and therefore it is crucial to strike out a proper balance
between the risk and return (Mack, 2014). This document presents an investment portfolio
proposal being prepared for a client based on his specific risk and return requirements. A
portfolio of investments has been prepared in this proposal for a client looking to invest an
amount of $1,500,000 in Australian market for longer term view point.
Investment Philosophy and Strategy
The investment philosophy refers to the set of principles and beliefs that provide the basis
for selection of investment alternatives and strategy formulation for optimization of the risk and
return. There are various investment philosophies such as value investing, growth investing,
fundamental investing etc. In the current case study, the investor is looking to invest to fund his
retirement with a longer term view point. The investor is willing to take risk and looking for
capital growth stocks that can provide high returns in the long term. The investor is not
concerned about the regular income flow and tax savings. Thus, based on the risk, return, and the
time horizon requirements of the investor, there are various alternatives available for investment
such as equity shares, LIC, ETF.
Among the equity shares, the investor is particularly interested in the medium sized firms
which showcase the potential of capital growth in long term. However, the investor would want
2

to keep minimum investment in the resource sector firms as the same seems to be highly volatile
during part few years. Australia is one of the biggest exporters of the natural resources,
particularly coal and iron ore, and the biggest importer of these resource has been China.
However, during past few years, the demand of coal and Iron ore from China has been declining
which is causing downfall in the stocks of resource companies in Australia (Regan, 2018).
Therefore, considering the risk and return preferences and market conditions, the investor
wants to keep not more than 50% of the total funds in equity shares. Further, in order to achieve
good diversification so as to reduce the risk, it has been decided not to invest more than 10% in
any individual stock. Further to enhance the diversification, it has been decided to invest up to
20% in LIC and ETFs. The investment in LIC and ETF would compensate with the volatility of
the stock market of Australia and USA. Apart from this, it has also been decided to hedge 75%
of the equity risk exposure using future and option contract derivatives. The investor is also
willing to go for short selling to gain from exploiting the market inefficiencies. However, a sum
up to 20% of the total funds would be required to be kept in cash to meet the margin
requirements.
Recommended Portfolio Components
The portfolio components have been identified in the table given below. The portfolio
components have been identified considering the risk and return requirements of the investor. In
order achieve the best diversification; the components have been selected from different sectors
and industries.
3

Assets Code
Price (26th
Feb 2018) Nos Cost
Equity- Buying positions (Total
50% to 55%, individually not
more than 10%)
BHP BILLITON BHP.AX 29.82 2,515.00 74,997.30
AUS.AND NZ.BANKING GP.
A:ANZX(P
) 28.84 5,201.00 149,996.84
ARISTOCRAT LEISURE A:ALLX(P) 23.41 6,408.00 150,011.28
BAPCOR A:BAPX(P) 5.73 26,178.00 149,999.94
CHALLENGER A:CGFX(P) 12.32 12,175.00 149,996.00
SEEK A:SEKX(P) 20.29 7,393.00 150,003.97
QANTAS AIRWAYS
A:QANX(P
) 5.66 2,635.00 14,914.10
839,919.43
Equity Shares – Short Sales
BHP BILLITON BHP.AX 29.82 1,000 (29,820.00)
AUS.AND NZ.BANKING GP.
A:ANZX(P
) 28.84 500 (14,420.00)
(44,240.00)
LICs and ETFs Units (20% of
total)
GLOBAL MASTERS FUND A:GFLX 2.23 22,000 49,060.00
AUTHORISED INVESTMENT
FUND A:AIYX 0.03 4,545,455 150,000.02
Vanguard Australian Fixed Interest
ETF (VAF.AX) 48.57 2,000 97,140.00
296,200.02
Hedged Position (75% of equity
investment)
Future sell-ASX Index ASX 144,162.50 3.00
4