Portfolio. Construction. and. Management. With. Special

Portfolio Construction and
Management
With Special Reference To Corporate
Sports Australia
Student Details

PORTFOLIO CONSTRUCTION AND MANAGEMENT
Contents
Introduction......................................................................................................................................3
Need of an Effective Investment Portfolio..................................................................................3
Corporate Sports Australia: Overview.........................................................................................3
Company’s History of Investment...............................................................................................4
Investment Policy Statement of the Company.................................................................................4
Effective Policy Statement..........................................................................................................4
Capital and Asset Allocation Strategy.............................................................................................6
Capital Allocation Strategy..........................................................................................................6
Capital Allocation Mix................................................................................................................7
Asset Allocation Strategy............................................................................................................8
Asset Allocation Mix...................................................................................................................9
Justification of Asset Allocation Mix..........................................................................................9
Investment Portfolio of Corporate Sports Australia Company........................................................9
Debt Securities in the Portfolio..................................................................................................10
Share of Equity Securities in the Portfolio................................................................................13
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Diversification in Investment Portfolio.....................................................................................14
Reason behind the Specified Portfolio......................................................................................15
Tracking the Performance of suggested Investment Portfolio......................................................16
Portfolio’s Performance as Per Weeks of August and September Months...............................17
Performance comparison with Internet Cash Maximiser..........................................................18
Conclusions and Recommendations..............................................................................................18
Bibliography..................................................................................................................................20
Figures
Figure 1 Pie Chart Showing Required Cash Allocation of the Company.......................................9
Figure 2: Bar Graph Is Showing the Asset Allocation of Corporate Sports Australia Company. 12
Figure 3: Showing Investment portfolio of Corporate Sports Australia........................................18
Figure 4: Showing performance of company’s portfolio in weeks of August and September
Month.............................................................................................................................................19
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Introduction
Investment is the deposition of excessive money in the best investment options that will give a
good profit to the company and bear the minimum risk. Available investments options mainly
include investment in stocks, insurance, bonds, mutual funds, and debentures.
The combination of different investment options in the right percentage that will give great
returns to an individual in minimal risk has called an effective investment portfolio (Chandra,
2017). It is different for every individual and for every organization, as it was based on the
capability and the risk-taking factor of the individual and entity.
Need of an Effective Investment Portfolio
Construction of a portfolio helps in planning to invest in the variety of funds that will work
together in order to meet all requirements of the investor at a time. It has always suggested that
the investee should analyze the elements of a portfolio before the actual investment (CFI, 2019).
It is so because this will help them in reducing the chances of risk and an increase in the
percentage of profits. The more involvement of risk in the portfolio gives the individual or
companies the more profits and vice-versa.
Corporate Sports Australia: Overview
The company is serving in Australia and has a market of leading the buying power of creating
the best and biggest experiences of hospitality (Australia, 2015). This attracts and reinvigorates
the company’s key business rewarding relationships with loyalty and outstanding performance.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Till now the company was investing in a internet cash maximize account offered by Regional
Australia Bank, however the rate of interest they are getting was very low.
Company’s History of Investment
The company is making a good amount of profits in the market and it was not having a good
option for investment purposes. Earlier the company was investing through an account of
internet cash maximizer, which is a part of Regional Australia Bank (Regional, 2019). However,
their rate of return was very low ranging from 0.65 % to 1.75 % per annum. This leads the
company to look forward to investment in an effective portfolio that may give the desired results
to the company. This report is going to identify the best possible options for the company by
providing it an effective investment portfolio and its pros and corns.
Investment Policy Statement of the Company
Corporate Sports Australia is in need of an effective portfolio that may give the desired results to
the company. This can also help the company to get a competitive advantage over other
competitive companies. An effective portfolio will help the company to get to know about the
working of various investment options and help them to relate it to their personal investment
objectives (Spears, 2010). This will help the investee to attain more profits and keep the risk
factor minimum. This can be done with the help of an effective investment portfolio option.
Effective Policy Statement
One can also select the portfolio according to the extent until they can bear the risk and enjoy
higher profits. One should take care of some factors, which are mentioned bellow.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Source: Some Basic Requirements of an Investment Portfolio (Dannemiller et al., 2017)
a. Liquidity Requirements: It is a quick and easy availability of cash or liquid asset of the
company. While deciding a portfolio, it is the responsibility of the company to identify such a
portfolio, which is able to maintain an adequate level of cash availability whenever required.
b. Return Requirements: The appropriate amount of return an investor required to deposit in his
account. At the time of investment when an investor invests in some kind of portfolio, its main
requirement is to get maximum return from the portfolio by involving minimal risk factor.
c. Risk tolerance: The investor should take care properly of another factor that is risk tolerance. In
this, the investor after taking care of required return it identifies the involvement of risk in the
portfolio (Dannemiller et al., 2017). The investor should measure the amount of risk involved in
the investment through portfolio before only.
d. Time horizon: The return and risk level both indirectly is connected to the period. More is the
period less is the risk and return may depend on types of investment. Time horizon sets the
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
required period of investment in which the invested amount be increased based on some fixed or
variable interest.
e. Tax considerations: The money someone earns is always taxable. Some investment options
allow a user to invest in them and get tax rebate up to some extent. Tax rebate is fixed by the
concerned government depends upon the types of deposits.
f. Regulatory and legal considerations: There are many laws and regulations implied by the
concerned government and other regulatory bodies on the investment decision to be made by an
individual or a company. These regulations are there to protect the interest of the investor so that
in any circumstance the interest of investor and investee cannot be compromised or neglected.
g. Unique needs and circumstances: Some unique circumstance exists in some investment
options. It can be related to investment in a combination of the right amount to equity and debtor
in long-term securities will help the investor to earn more.
Capital and Asset Allocation Strategy
There are some capital allocation strategies that a company can follow and can decide upon their
best investment portfolio. Capital allocation strategies involve Mergers and Acquisitions,
Investment in organic growth, purchase, and sale of shares, mutual funds investments, etc
(Hoesli & Macgregor, 2014). on the other hand there are also some asset allocation strategies
that allow an individual to invest in debt and equity based on some percentage classification of
companies assets.
Capital Allocation Strategy
The money that is earned by the company is decided to be invested in some option then it is
known as capital allocation. It is the important allocation process as it deals with the completely
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
earned capital of the business (Institute, 2015). It is a very big deal for businesses to invest in
such a place, which can give them good returns and involves minimal risk.
The capital allocation strategy suggests that the investing company or an individual should
follow some set steps to get maximum returns from their investment. These steps measure the
capital to be invested, identify available allocation options, measure the involved risk factor,
distribute the investment according to available options, allocate capital in selected options,
measure the standard amount with the investment plus interest amount, earn profits in the end.
Capital Allocation Mix
Figure 1 Pie Chart Showing Required Cash Allocation of the Company
It is advised to organizations and individuals not to invest the complete amount in a single
investment option. It is always said that one should invest in a combination of investment options
in order to minimize the risk level and increase in the profit margins. In this study, an attempt is
9
Particulars
Debt: 50%
Equity: 30%
Cash: 20%

PORTFOLIO CONSTRUCTION AND MANAGEMENT
made to provide a statement for capital allocation strategy for the selected company that is
Corporate Sports Australia.
Capital allocation for Corporate Sports Australia is suggested to be the appropriate combination
of equity and debt in some particular percentage. As per the company’s profit margins and
monitory conditions of dealing with a moderate level of risk, then the best combination of capital
allocation can be more of debt and less of equity (Omisore et al., 2012). The company can
choose to allocate its capital partially in debt, equity and rest as direct cash in the ratio of 5:3:2
respectively. It means debt can be 50%, equity has to be 30% and the remaining will be invested
as a liquid amount in banks or other financial institutions (Pastor & Stambaugh, 2010). The
decision is based upon prevailing economic conditions and implemented government policies
and laws.
Asset Allocation Strategy
When a company decides upon the right measure of its capital allocation, it is important for the
company to select an appropriate asset allocation strategy. Corporate Sports Australia has
selected such type of capital allocation strategy that involves moderate risk as the large amount is
going to be invested in debt. Debt gives a fixed amount of interest and involves less risk. Then
for more return purpose, more amount is suggested to be deposited in equity as compared to keep
as liquid cash. The ratio between debt, equity and cash were 5:3:2. These margins of debt and
equity based on the amount of risk a company can manage and the level of profit it is expecting.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Asset Allocation Mix
Non-liquid assets of the company further need to be distributed in a fixed amount between debt
and equity purely. It is based on the need of the company, the capability and caliber of the
company to bear the level of risk involved in the investment and the last thing however a most
important one is the urge of the company to earn from its investments. It does not include liquid
cash as investments.
In this way, the company will be able to earn good investment returns. It is advised to the
company to invest in such a portfolio, which has more ratio of debt as compared to equity. As
investment in debt involves low or no risk on the other hand investments in equity involves high
risk. Corporate Sports Australia Company can invest in a portfolio that will be a combination of
70% debt and 30% equity.
Justification of Asset Allocation Mix
It can be seen from the point of view of Corporate Sports Australia Company that the company is
earning an appropriate amount of profit and looking forward to investing in some high yielding
options that must be involving a moderate amount of risk. The risk the factor is moderate as the
company is an earning quite well however it is not making a high margin of profits. According to
the company’s market conditions and prevailing economic situations, it is best for the company
to invest in such a portfolio (70% debt and 30% equity) that involves low risk and high or
moderate profit margins.
Investment Portfolio of Corporate Sports Australia Company
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Debt Equity
0
10
20
30
40
50
60
70
80
Investment
Investment
Figure 2: Bar Graph Is Showing the Asset Allocation of Corporate Sports Australia
Company
As in the above lines, the percentage distribution of debt and equity has already identified that is
70% of debt share and 30% of equity share. This section of the study is going to look into the
distribution of available investment options in debt and equity as per the required investment
percentage. There are various options available in both types of investments. For particularly
Corporate Sports Australia Company a brief explanation of investment options in debt and equity
are going to be discussed in the following lines.
Debt Securities in the Portfolio
In the company’s investment portfolio, it is suggested that the portfolio should contain 70% of
debt securities; on the other hand, the proportion of equity is fixed to be 30%. From 70% of debt
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
share Corporate Sports Company is suggested to invest in following mentioned debt instruments
as per given respective percentage (Dhanorkar, 2014).
Table 1: Showing Considered Debt Instrument with Their Percentage in the Company’s
Portfolio
Sr.No. Name of Debt
Instruments
Information about Debt
Instruments
Percentage (to be
invested in)
1 Gilt Funds These are the funds and bonds
issued by the central and state
government of the country.
These funds carry zero amount
of risk as they are government
trusted funds
These bonds require a long
period to give moderate profits,
as the risk factor is very low.
20 %
2 Short Term Funds These funds related to
investment in short-term
securities.
It includes investment in
10 %
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
commercial papers, certificate
of deposits and bonds that have
the maturity of 3 to 6 months.
These are short-term funds,
which matures before 1 year
and involves a very low risk.
3 Income Funds These funds are a mixture of
short term and long-term bonds.
They involve both low and no
risk factors based on the
selection of funds
They include bonds,
government securities, and
corporate debentures.
They vary from 1- 2 years to
15-20 years.
30 %
4 Fixed Maturity Plans These plans are the type of
funds that are for a long period
and posses no risk factor.
30 %
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Their time of maturity is fixed
and is usually withdrawal after
the completion of the time
horizon.
5 Liquid Funds These funds are based on liquid
market debt instruments.
The instruments are treasury
bills, inter-bank call money
market, etc.
Return in these funds is most
stable as compared to other debt
instruments.
10 %
According to the details are given in the table it can be identified that the company can invest in
their 70 % share of debt the instruments have given above as the percentage mentioned. Fixed
maturity plans and income funds have the highest proportion, which is 30%, however, the share
of gilt funds is 20 % and of liquid funds and short term, funds are of 10 % each.
Share of Equity Securities in the Portfolio
As has already suggested that the portfolio of the company should contain 70% share of debt and
30 % share of equity in order to avoid risk and uncertainty. The company is suggested to invest
in following equity instruments according to their share in 30% part of equity.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
The instrument of equity is mainly investment in different types of shares. The other name of the
shares is actually equity (Sussholz et al., 2018). Shares are the equally divided capital units of a
company that purchased by the public in order to gain profits from their increased prices. The
purchase rate of share is highly variable in the short span and large span of time. Share price
fluctuates daily and according to it the rate of invested share can go down drastically and also
can go up to give high profits.
This equity option of the investment involves high profits however; the level of risk is also
considerably high. With this view, the share of equity in the investment portfolio is given very
low. In the current portfolio of the company, the share of equity is suggested as 30% of the
whole.
Diversification in Investment Portfolio
Diversification is the process of enlarging and varying the range of components in a group. In
terms of a diversified portfolio, it means adding various investment options containing different
risk level, profit margins, time horizons, and other factors (Briere et al., 2015). It is always
preferable to make a diversified portfolio. It is so because the appropriate amount of
diversification in a portfolio can bring a greater amount of benefits to respective person or
company. The benefits of diversification are listed below:
· Reduction in Amount of Risk: the risk factor involved in equity funds and some debt
funds are reduced as other funds can overcome that level in a diversified portfolio.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
· Preservation of the Capital: the invested capital of the person can be preserved for a long
time however; the degree of rate of return is ignored in this case. Higher returns can only be
possible in more risky investments.
Reason behind the Specified Portfolio
Source: Risk and Reward Portfolio Management (CFI, 2019)
It can be clear from the above paragraph that a diversified portfolio is more beneficial as
compared to a less diversified portfolio. The portfolio suggested in this study, for the Corporate
Sports Australia Company, is highly diversified, as it is the combination of all types of
investment, which range from higher risk and higher profits to lower risk and low profits. The
share of low risk and moderate profits is more in this portfolio (Sharpe, 2011). This the reason
due to which suggested amount of debt and equity portfolio is made for the company.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Tracking the Performance of suggested Investment Portfolio
The suggested the investment portfolio of the company is the main combination of equity and
debt and then further the debt option is divided into more secured and high yielding fund types
(Salo et al., 2011). It is displayed below by using a pie chart.
14%
7%
21%
21%
7%
30%
Investment Portfolio
Gilt Funds
Short Term Funds
Income Funds
Fixed Maturity Plans
Liquid Funds
Shares
Figure 3: Showing Investment portfolio of Corporate Sports Australia
The distribution of funds in the pie chart is the mixture of debt and equity in the percentage as
specified in the above paragraphs. It can be clear from the distribution that the company’s
portfolio is the mixture of funds, which can give a high rate of return in the moderate level of
risk (Shi & Chang, 2011).
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Portfolio’s Performance as Per Weeks of August and September Months
The performance of the above-mentioned investment portfolio of Corporate Sports Australia
Company is measures and monitored for the weeks of August and September in the following
chart.
1st Week (1st to
7th) 2nd Week(8th to
14th) 3rd Week (15th
to 21th) 4th Week (22st to
28th) Remaining Days
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$18,000
$22,000 $21,000
$25,000
$23,000$23,000
$25,000
$20,000
$23,000
$26,000
August September
Figure 4: Showing performance of company’s portfolio in weeks of August and September
Month
The table is showing the performance of the company’s investment portfolio for the weeks of the
month of August and September. It can be seen that the designed portfolio of the company is not
varying much; its range of earning is varying from $ 18000 to $ 26000 from the month of August
to September.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
Performance comparison with Internet Cash Maximiser
Until now, the company was investing through internet maximization account offered by
Regional Australia Bank (Australia, 2010). The returns company was getting through investing
in internet cash maximizer was very low. The interest rates they offered were varying from 0.65
% p.a. to 1.75% p.a. It is a very low rate of return on the investment made by the companies in
the program offered by Regional Australia Bank (Regional, 2019).
When the company is offered to invest in a well managed and analyzed portfolio, the interest rate
of return were comparably so high then the rate of returns offered by the internet cash
maximizer. The company also managed to earn higher profits by investing in the prescribed
portfolio (Reilly & Brown, 2011).
Conclusions and Recommendations
Corporate Sports Australia is a sports event management company and its main objective is to
provide productive results by hosting sports events efficiently. The company earlier was
investing its money on internet maximize account provided by Regional Australian Bank,
however, the results were not productive enough. This gives rise to the shift of the company from
internet cash maximize to a well-managed portfolio.
The amount invested by the company in the portfolio was increased annually due to the
increased rate of return the company was getting. The portfolio adopted by the company was a
diversified one. It involved the low-risk factor and on the other hand, the profit margins are high
enough. It can be clear from the tracked performance of portfolio from August to September and
the comparative analysis between internet cash maximize option and balanced portfolio. It is
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
further recommended to the company that it can further make some changes in its portfolio
according to the degree of risk and extent of profits it urges. It can also diversify its portfolio of
investment more by considering other factors also that are not included in the current portfolio of
the company.
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PORTFOLIO CONSTRUCTION AND MANAGEMENT
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