Report on Developing an Investment Portfolio for Fund Managers

This report provides a detailed analysis of investment portfolio development, specifically tailored for Australian fund managers. It identifies and evaluates various asset classes, including Australian equities, fixed interest, property, overseas securities, cash, and gold. The report discusses the risk and return profiles of each asset, providing justifications for their inclusion in a diversified portfolio. It emphasizes the importance of diversification to mitigate risks and outlines a recommended asset allocation strategy, including percentages for each asset class. Historical performance data is referenced to assess portfolio efficiency, and the report offers financial advice based on the analysis, aiming to assist fund managers in making informed investment decisions. The report underscores the need for a balanced approach, considering both high-return and low-risk investment options to meet the specific demands of investors. The report is a contribution to Desklib, a platform offering AI-based study tools for students.

DEVELOPING AN
INVESTMENT
PORTFOLIO

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Investment portfolio is set of various assets which are gained by an investor to earn
profit. Developing an effective investment portfolio is crucial task to perform due to which fund
managers of Australia are seeking for advise of consultant. In this essay, various assets are
identified and then evaluated so that reliable advice to fund managers can be provided. Risk and
return involved in an asset is discussed in this project along with its reasons of including in this
portfolio. The main aim of this essay, is to provide an understanding about investment portfolio
so that accurate and effective advice can be provided to fund managers. Historical performance
of identified assets is also being discussed in this report in order to evaluate efficiency of the
portfolio investments (Bhattacharya and Kojima, 2012).
MAIN BODY
An investment portfolio is a collection of assets owned by a particular individual or an
organisation. It is a pool of investments from which an investor makes profit from the return on
all the available assets. Collection of investments are diversified in order to minimise the risks
involved in those assets. The main aim behind investment portfolio is trade off the risk. The
process of trade-off is referring to the procedure where investment is collected in such a way that
it will ensure that minimum risk has to bear by investor.
The most important trait of an effective investment portfolio is diversification.
Investments should be spread across variety of assets having diverse nature and some of the
assets can be named as equity, debt, cash and gold. An asset is something that holds hope to
build profit in future. These assets are collected in such a way that risk in one stock can wave of
by the return of other stock (Chandra, 2017).
As a financial advisor to the Australia's leading fund managers, there are numerous assets
are advised below which are selected for investors who wish to balance their portfolio and wish
to bear moderate risk but with high return. Some of these types of assets are discussed as follows
along with their nature. The historical perspectives of making investment in equity is known
from its past so many years because, it is more profitable for the company. The only issues
related with this is the risk factor which is more high for the investors. The first assets class
which is suitable for this type of investment portfolio is Australian equities. Equities are a type of
securities which can allows an investor to gain ownership in a company by purchasing their
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equities of its stock. Equities are often referred as equity shares of an organisation. Equity is an
asset class which can itself be known as portfolio if investing in different companies. This asset
class is considered as the most profitable investment as it provides various benefits and rights.
By investing in equities, an investor is automatically considered as a shareholder of company of
which shares are purchased. Australian equities are the equity shares of Australian companies
which are listed on Australian securities exchange. These asset class is important for the factor of
diversification as its nature is different from other assets. Characteristics of Australian equities
includes capital appreciation and dividend in which they are entitled to receive dividend as a part
of profit against their shareholdings. Liquidity is a characteristic of Australian equities as these
stocks are easily converted into cash because they are highly traded around the globe. Historical
performance of equities is sound as they are typically result in profit and also offers voting rights
(Garg and Dua, 2014).
Another class of assets which is considered as suitable for the type of investors who wish
to bear less risk but higher returns is Australian fixed interest. This class of assets includes fixed
interest funds and securities which are issued either by public companies or government
companies. This companies are listed on Australian securities exchange and that is why these
securities are known as Australian fixed interest. The historical terms rate with the fixed interest
is entirely impose on the mortgage among a company take from the banks and other financial
institution. It is more economical to for the business to get it from the institutions. The main
benefit of selecting this asset for investment portfolio is that it ensures fixed amount of interest
against security holdings. Interest which is received by these securities are fixed in nature.
Despite of the losses and capital expenditures faced by company, they have to provide fixed
interest which was promised at the time of issue of securities. These securities are considered as
safe in nature as they ensure fixed interest and is also helps in generating income over medium or
long term. This type of securities holds fixed interest due to which level of risk is way low than
other securities and assets (Hallam, 2011).
Australian property is also a class of asset which is considered as suitable for investors
which are tend to invest in safe investments so that they can attain high return from low risk.
Here, property refers to the block of a vacant land, building or a part in a building. Australian
Property is investment which related with real estate. Plenty of historical change in accordance to
the assets are documented in case of change in status of the company. Risk in this type of
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investment is low when compared to other assets due to high value of Australian real estate.
Nature of return in Australian Property is uncertain as this is related with real estate market.
According to historical performance of these assets, risk involvement in properties are higher and
there are more chances of losses as well as risks (Hoesli and MacGregor, 2014).
Another important class of asset which should be included in this type of investment
portfolio is overseas securities. This class of assets includes various overseas securities such as
overseas fixed interest, shares and property. The reason why these overseas securities are
included in investment portfolio is their distinctive nature. Overseas securities are influenced by
global affairs. In the case where, Australian stocks and assets are underperforming, profit from
overseas assets can balance the investment portfolio. Nature of this class of asset is different
from domestic stocks. Global issues such as world inflation, recession and depression impacts on
the return on overseas assets. Historical performance of this type of assets reflects high risk and
high return relationship.
Cash is the most important asset which should be included in a sound investment
portfolio as this type of asset is highly liquidate. For investors who want high return on lower
risk, it is important for them to invest in few assets which are risk free such as cash. Cash are
liquidating and can be used at any point of time. Cash investments are short term obligations
which generally offer a low return compared to other investors but it is important to invest a part
in these assets too as they can be used whenever needed. According to historical performance,
there is no risk or negligible risk involvement in this class of asset (Mercado and Park, 2011).
Apart from above investments, the most important assets which offers high returns in low
risks is gold bars. Gold should be an important part of diversified investment portfolio because
its price increases in response to events that cause the value of paper investments such as stocks
and bonds. Typically, gold investment is considered as safe investment as they are largely
demanded in industry. Nature of this type of asset is long term as gold can result in high profit
when invested for longer time period.
The above class of assets should be included in an investment portfolio in order to
maintain the diversity of investments. Different types of investments are selected for this
portfolio as all the assets has different nature due to which their risk involvement is different.
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The above class of assets should be invested in such a way, that investor can ensure
profitability. Percentage of each asset is described below which reflects the amount in which
securities should be invested:
Particulars Percentage
Australian equities 26.50%
Australian fixed interest 8.50%
Property 9.50%
International equities 24.90%
Cash 8.20%
Others (Gold) 16.50%
26.50%
8.50%
9.50% 24.90%
8.20%
16.50%
Asset allocation in investment portfolio
Australian equities
Australian fixed interest
Property
International equities
Cash
Others (Gold)
Classification of above securities and their percentage which shows the volume of
securities in investment portfolio are mentioned above. The above segregation has few reasons,
these securities are allocated according to their expected returns. The first class of assets that is
Australian equities should has maximum volume in investment portfolio and that is 26.50%.
From the above pie chart, it has been observed that Australian equities should hold maximum
value in investment portfolio as this portfolio is for kind of investor who wish to earn high return
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on low risk. The reason behind allocating equities as on it highest is that in Australia, equities are
considered as assets which has high return and high risk approach. In order to balance the
allocation of investment portfolio, Australian fixed interest funds and cash are also being
included in this portfolio. According to economic environment of Australia, fixed Australian
funds and cash are considered as assets which holds low return and low risk approach. These two
classes of assets are included in this portfolio to balance the investments (Moran, 2011).
Fixed Australian funds and cash are assets which hold low risk because these types of
funds hold fixed rate of interest and cash are highly liquidate. By observing above chart, it can be
ascertained that 8.50% of assets are allocated as fixed interest funds which can provide fix
interest every year or month. In the case of “Cash”, 8.20% of total assets are allocated. These
two securities are considered as assets which provides low return but also has low risk. These
investments can help in maintaining the balance of investment portfolio. Cash which holds
8.20% in this investment portfolio plays an important role within a well-diversified investment
portfolio and it serves several purposes including greater stability, diversification and potential
inflation protection. This type of investment helps to provide a stable foundation within an
overall asset allocation that includes other assets such as equities, bonds and commodities (Reilly
and Brown, 2011).
Another asset which is included in this investment portfolio is Austrian property. This
asset is related with the real estate sector of Australia. In this investment portfolio, where
demands of investors are to earn high profits and returns by bearing low risk. From the above
chart and table, it has been observed that this asset is allocated such a way that it can maintain
the risk and return variable appropriately. This property is allocated as 9.50% in above portfolio
so that if the real estate market experiences any decline than also investors can be able to manage
their risk from the fixed return of other assets. The main reason behind selecting this investment
is real estate market of Australia which is considered as profitable for various years but also
holds reasonable risks. Expected return from this type of assets can be considered as the ratio of
70:30.
Besides all the above assets, the another investment which is the most important part of
an investment proposal is International securities which includes global equities, shares and
properties. The main reason behind including these securities are their distinction environment.
In case where market of Australia fluctuates, these investors can still get benefited by these
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internal equities. International securities are the global equities, bonds and properties which are
issued in international market. From the current market situation of international securities it can
be said that including these securities in portfolio is a wise decision (Vaaler, 2011).
All the above securities are the most important part of a investment portfolio specially
when portfolio is prepared for the aim of diversification. Diversification in a portfolio is ideal for
this case scenario as the investors in this case wish to receive high returns and low risk which can
only be attained by diversification. Besides all the above securities, there are few other assets
also which can help in gaining profit. These assets are gold bars and bonds. From the above chart
it can be ascertained 16.50 percent is allocated for other securities mainly gold bars and bonds.
The reason behind including these other securities in this portfolio is that these assets can
provide diversification (Willcocks, 2013).
Risks involvement in all the above securities or assets are different due to which their
composition in the portfolio is also different. Risk and return has an adverse relationship. For
example: If a assets is highly profitable than there are high chances of high risk as well. A chart
which is showing risk and return relationship of the above assets is depicted below:
From the above chart of risk and return relationship it can be said that the asset which is
highly profitable holds equal amount of risk and the asset which has low return also has low
chances of losses. For example: Cash is a asset which is observed to be of low risk in above chart
but also from cash securities, an investor can only limited amount of return. The above chart is
reflecting the history performance analyses of all the securities which are included in this
portfolio. Maintaining a balance in an investment portfolio is very significant. Property, equities
and international securities are growth assets which can help in attaining high profit. In order to
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maintain the risk involved in these three assets, cash and fixed interest stocks are also included
so that a balance of risk and return can be maintained (Relationship of risk and return, 2016.).
After analysing all the assets and classes of assets which should be included in an
investment portfolio along with their risk involvement and reasons for expected return.
Classification of these securities is developed below in order to identify expected return of these
investments to investors if the inflation rate is 3%.
Particulars Amount Percentage
Initial investment 10000000000
Australian equities 2650000000 26.50%
Australian fixed interest 850000000 8.50%
Property 950000000 9.50%
International equities 2490000000 24.90%
Cash 820000000 8.20%
Others (Gold) 1650000000 16.50%
Inflation rate 3.00%
From the above calculation it can be ascertained that which assets is expected to generate
how much value for investors. The total of 1 billion Australian dollars are invested in all these
assets which was available to fund managers. As an advisor to these fund managers it can been
advised that the above securities and their ratio of allotment is perfect for this portfolio whose
investor has demand of earning high return from low risk. The above mentioned
recommendation is developed by considering nature of all the assets and their expected returns.
CONCLUSION
From the above essay, it can be said that developing an investment portfolio is a crucial
task to perform in order to which every assets and classes of assets should be analysed and
interpreted so that suitability and relevancy of information and advices to fund managers can be
ascertained. In this essay, various assets are analysed such as properties, cash, securities and
internal securities using graphs and charts. The main aim of this essay is achieved by this
analysing expected return of every asset which is required to be included in the investment
portfolio.
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REFERENCES
Books and Journals
Bhattacharya, A. and Kojima, S., 2012. Power sector investment risk and renewable energy: A
Japanese case study using portfolio risk optimization method. Energy Policy. 40. pp.69-
80.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Garg, R. and Dua, P., 2014. Foreign portfolio investment flows to India: determinants and
analysis. World Development. 59. pp.16-28.
Hallam, D., 2011. International investment in developing country agriculture—issues and
challenges. Food Security. 3(1). pp.91-98.
Hoesli, M. and MacGregor, B. D., 2014. Property investment: principles and practice of
portfolio management. Routledge.
Mercado Jr, R. V. and Park, C. Y., 2011. What drives different types of capital flows and their
volatilities in developing Asia? International Economic Journal. 25(4). pp.655-680.
Moran, T., 2011. Foreign Direct Investment and Development: Launching a Second Generation
of Policy Research: Avoiding the Mistakes of the First, Revaluating Policies for
Developed and Developing Countries. Columbia University Press.
Reilly, F. K. and Brown, K. C., 2011. Investment analysis and portfolio management. Cengage
Learning.
Vaaler, P. M., 2011. Immigrant remittances and the venture investment environment of
developing countries. Journal of International Business Studies. 42(9). pp.1121-1149.
Willcocks, L., 2013. Information management: the evaluation of information systems
investments. Springer.
Online
Relationship of risk and return. 2016. [Online]. Available through:
<https://www.tradejini.com/blog/jiniversity/understanding-the-relationship-of-
riskreturn/>
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