Investment Portfolio Development and Analysis for Tennis Club

This report presents an investment analysis for a sporting club, focusing on the creation of an Investment Policy Statement (IPS) and the subsequent development and performance of a $250,000 portfolio. The IPS considers factors like risk, return, time horizon, liquidity, and unique constraints. The portfolio, constructed with equity, bonds, and cash, employs a value-based and passive management strategy. The report details the rationale behind asset allocation, provides profiles of selected equity investments (Appen Limited, REA Group, National Australia Bank, and Beach Energy Limited), and analyzes their performance over a six-month period from September 30, 2018, to March 31, 2019. It calculates the return on investment for various asset classes and the overall portfolio, concluding that the portfolio met the IPS objectives and achieved a 22% return during the period. The report also includes recommendations for portfolio maintenance.

INVESTMENT
ANALYSIS

Contents
EXECUTIVE SUMMARY...........................................................................................................................3
Analysis and Research for Investment and Creation of Investment Policy Statement..........................3
Conclusion...........................................................................................................................................10
Recommendation................................................................................................................................10
References...........................................................................................................................................11

Financial Management
EXECUTIVE SUMMARY
The report contains analysis of a sporting club whereby the Investment Policy Statement of
the sporting club has been created based on following parameters i.e. risk, return, time,
liquidity, unique constraints, tax, legal aspects of portfolio. In addition, the report presents
analysis of stock chosen, debt chosen etc for the purpose of creation of portfolio along with
the weight of the assets in the portfolio.
Also, the report presents the style of management i.e. value based and the passive strategy of
investment whereby the investment made is not churned continuously. The report is divided
in two parts:
Part A: Presents the Investment Policy Statement of the Sports Club
Part B: Presents the Creation of Portfolio based on the Investment Policy Statement along
with computation of Return for the period of 6 months starting from 30-09-2018 to 31-03-
2019
The creation of Investment Policy Statement has been presented below
Analysis and Research for Investment and Creation of
Investment Policy Statement
Investment Policy Statement
Name of Sporting Club: XYZ Sporting Club
Location of Club: Sydney, Australia.
Portfolio: $ 250000
Style of Management: Value Based (Only Large Cap Stocks) and Growth Based (Technology
Companies)
Strategy of Management: Passive Strategy
Asset Class: Equity, Debt and Cash. Alternative Investments have not been explored on
account of very low liquidity and high risk
Fees: Not considered for computation of Return
Tax: Not considered for computation of Return
Objective of Creation of Portfolio
The client, Sporting Club, has funds in its bucket to the tune of $ 250,000 and is seeking to
invest the same in an average risky asset to generate sufficient returns in order to protect the
capital against inflation, meet the special needs of the club to organise annual tournament and
to donate to other welfare clubs. Since, the club annual maintenance cost is generally met
with the receipts of the membership fees of the club, the risk bearing appetite of the club is a
bit an above average. Thus, the investment shall be made with the following three objectives:

(a) Protection of Capital;
(b) Payment for special needs;
(c) Donation to other welfare clubs.
There can be two types of return requirement. It can be absolute return based on a figure or a
relative return based on the benchmark. In the present case, absolute return has been
considered and the return in the range of 15-20% shall be more than enough to meet the need
of the sporting club.
Risk of Sporting Club
Post analysis of return, the second parameter which hold supreme importance for determining
the appropriate mix for investment. Since the sporting does not have any short term to
medium term need of funds and the funds of the portfolio can be invested for a long time.
Also, the sporting club expenditure needs are met by the receipts of membership, the club
risk appetite is a bit above average.
Liquidity Requirement of the Club
Since the sporting does not have any short term to medium term need of funds and the funds
of the portfolio can be invested for a long time. Also, the sporting club expenditure needs are
met by the receipts of membership, the club risk appetite is a bit above average. On the basis
of above, the liquidity requirements of the organisation are low. However, a certain portion of
the portfolio must be set aside to meet the liquidity needs in case of emergency
Legal Requirement of the Club
The club has no restriction on investment except the investment shall not be made in
alternative investment category. Also, club being an association of person does not have any
such legal compliances.
Tax Constraints
Not analysed
Time Horizon of investment
Since the sporting does not have any short term to medium term need of funds and the funds
of the portfolio can be invested for a long time. Also, the sporting club expenditure needs are
met by the receipts of membership, the club risk appetite is a bit above average
Unique Constraints of Investment
The Unique constraints especially related to cultural and social investing
Brief Snapshot
Sl. No Particulars Sporting Club Position
1 Objective 15-20% return
2 Risk Above Average
3 Liquidity Low
4 Time Long
5 Legal No such compliance
6 Unique Characteristics Cultural Investing

Part B: Presents the Creation of Portfolio based on the Investment Policy Statement
along with computation of Return for the period of 6 months starting from 30-09-2018
to 31-03-2019
Based on above discussion the proposed portfolio allocation has been detailed here-in-below:
Equity 35%
Bond 55%
Cash 10%
Rationale for above allocation
Equity has been chosen at 35% based on following reasons:
(i) Risk Capacity is high;
(ii) Return requirement is high;
(iii) Low liquidity needs;
(iv) Time horizon is long.
Bond has been chosen at 55% of the portfolio based on following reasons:
(i) Time horizon is high;
(ii) Coupon returns;
(iii) Stability;
(iv) Maintaining average risk;
(v) Low liquidity needs
Cash of 10% has been maintained to meet any unforeseen circumstance.
Analysis of Equity Portion of Portfolio
For the purpose of investing 60% of the portfolio, the following 4 companies have been
chosen:
(a) Appen Limited;
(b) REA Group;
(c) National Australia Bank;
(d) Beach Energy Limited.
Brief Profile of the companies
Appen Limited
The Appen Limited is listed on Australian Stock Exchange. The beta of the company is 1.13
and is a risky stock. The company is engaged in providing various services to global
technology and agencies related to government. The principal segment of the company
includes Content Relevance and Language Resources. The company is large cap with a
market capitalisation of $ 2916 Million. Also, the company has strong fundamentals with a
Return on Equity at 37.49 % which is higher than the industry. Also, the ROI of the company
is higher than industry which is 35.06% (Reuters.com, 2019)

Reason for Selection
(a) Market Cap is very much large;
(b) Greater Return on Equity and Return on Investment;
REA Group
REA Group is listed on Australian Stock Exchange. The beta of the company is 1.12 and is
more risky stock. The company is engaged in advertising property related services on
websites and mobile applications in Australia, Europe and Asia. The principal segment of the
company includes Australia, Europe, North America and other corporates. It also operates
many commercial and property related sites such as realestate.com.au. The company is large
cap with a market capitalisation of $ 12249 Million. Also, the company has strong
fundamentals with a Return on Equity at 14.08 % which is lower than the industry. Also, the
ROI of the company is good at 10.31% (Reuters.com, 2019)
Reason for Selection
(a) Market capital is very much large;
(b) Greater Return on Equity and Return on Investment;
National Australia Bank Limited
National Australia Bank Limited is listed on Australian Stock Exchange. The beta of the
company is 1.36 and is a riskier stock. The company is engaged in varied business of
providing various banking related services and business banking related services to its client.
The company has segment of business which includes Business and Private Banking,
Corporate and Institutional Banking, Consumer Banking, Wealth Management. The company
is large cap with a market capitalisation of $ 84,162 Million. Also, the company has strong
fundamentals with a Return on Equity at 11.78 % which is lower than the industry.
(Reuters.com, 2019)
Reason for Selection
(a) Market Capital is very much large;
(b) Greater Return on Equity and Investment;
Beach Energy Limited
Beach Energy Limited is listed on Australian Stock Exchange. The beta of the company is
1.71 and is risky compared to ASX 200. The company is occupied in the business of
exploration of mineral oil and gas. The entity is also engaged in the business of
hydrocarbons. The main segment of the company comprises of Cooper Basin. The company
is large cap with a market capitalisation of $ 1934 Million. (Reuters.com, 2019)
Reason for Selection
(a) Market Capital is very much large;
(b) Greater Return on Equity and Investment;

Bonds
For the purpose of bond investment, 10 years investment in bond has been selected which is a
very good form of investment and also provides a good return to the bond holders of the
company.
Cash
Cash shall be kept in bank or other liquid securities and shall address the liquidity concerns of
the company.
Investment Position
No Company Name Percentage Amount
1 Appen Limited 9% 21875
2 REA Group 9% 21875
3 National Australia Bank 9% 21875
4 Beach Energy Limited 9% 21875
5 10 Year Treasury Limited 55% 137500
6 Cash 10% 25000
The diagrammatic representation of the above investment strategy has been presented as
under:
9%
9%
9%
9%
55%
10%
Portfolio Detailed Breakup
Appen Limited REA Group National Australia Bank Beach Energy Limited
10 Year Treasury Limited Cash
The purchase price of shares of the company has been presented as under:
Sly No Particulars Price
1 Appen Limited 10.62
2 REA Group 71.14
3 National Australia Bank 23.45
4 Beach Energy Limited 1.75

The movement of prices for the analysis period has been presented here-in-below:
Appen Limited- Growth
Date Open High Low Close Adj Close Volume
30-09-2018 13.9 14.5 9.6 10.6 10.6 16560887
31-10-2018 10.7 14.1 10.2 13.9 13.9 20048361
30-11-2018 14.1 14.4 11.3 12.8 12.8 11358001
31-12-2018 12.8 16.4 12.1 16.0 15.9 13782427
31-01-2019 16.0 24.1 16.0 23.4 23.4 19962389
28-02-2019 23.1 25.6 21.6 22.3 22.3 24774272
31-Mar-19 22.2 26.0 22.1 25.3 25.3 12039653
REA Group- Growth
Date Open High Low Close Adj Close Volume
30-09-2018 85.8 86.24 69.32 71.62 71.14 8118884
31-10-2018 72 82.34 70.9 76.07 75.56 6634761
30-11-2018 76.93 78.1 69.23 73.98 73.48 4212230
31-12-2018 73.98 78.44 71.8 75.72 75.21 3820176
31-01-2019 75.62 81.84 71.54 81.54 80.99 7209496
28-02-2019 82.18 82.83 72.42 74.7 74.20 5480582
31-03-2019 75 82.2 73.87 79.9 79.90 4700227
Commonwealth Bank of Australia- Value Stock
Date Open High Low Close Adj Close Volume
30-09-2018 27.71 27.78 24.52 25.21 23.45 133280512
31-10-2018 25.5 26.05 23.32 24.64 22.92 177945230
30-11-2018 24.96 24.96 22.52 24.07 23.28 130647292
31-12-2018 24.07 25.03 23.47 23.86 23.08 95357109
31-01-2019 23.67 25.36 23.51 25.13 24.31 140049042
28-02-2019 25.13 25.82 24.68 25.27 24.45 132781015
31-03-2019 25.4 25.76 24.4 25.35 24.52 115201346
Beach Energy Limited- Value Stock
Date Open High Low Close Adj Close Volume
30-Sept 2.15 2.23 1.515 1.76 1.751373 240573677
31-Oct 1.74 1.77 1.437 1.525 1.517524 318872474
30-Nov 1.565 1.66 1.275 1.345 1.338407 230911085
31-Dec 1.345 1.85 1.29 1.8 1.791176 206849427
31-Jan 1.81 2.11 1.622 2.08 2.069804 249472774
28-Feb 2.08 2.2 1.965 2.06 2.06 195234660
31-Mar 2.08 2.27 1.977 2.13 2.13 113388501

Computation of Margin earned on each asset class
The margin earned has been computed by taking the change in price of share and dividend
earned during the period. The computation of margin earned has been presented as under:
No Name of the Company Return (%)
1 Appen Limited 139%
2 REA Group 13%
3 National Australia Bank 9%
4 Beach Energy Limited 22%
Appen Limited REA Group National Australia Bank Beach Energy Limited
0%
20%
40%
60%
80%
100%
120%
140%
160%
Return %
Further, the computation of mean return from the above stated investments have been
computed at 46% as the portfolio is equal weighted in stocks
Bonds- Return
Rate of Returns on bonds have been taken at 10% for analysis
https://us.spindices.com/indices/fixed-income/sp-australia-5-10-year-investment-grade-
corporate-bond-index
Cash- Return
Rate of Returns on cash have been taken at 1.5% for analysis (Pannett, 2019)
Return on Investment
The computation of Return on Investment has been presented here-in-below:
Component of Portfolio Return Weight Weight* Return
Return on Equity (Avg) 45.7% 0.35 16%

Bond Return 10% 0.55 5.5%
Cash Return 1.50% 0.1 0.15%
Total 22%
Conclusion
On the basis of above, it can be inferred that mean return from the investment shall be 22%
which is sufficient return in term of IPS. Also, the said return is for a period of 6 months.
Thus, the Portfolio has been able to meet the IPS.
In addition to above, 6 months’ time frame is a short period to analyse the true impact of the
portfolio and accuracy of IPS.
PART 4: Since the portfolio was created on 30-09-2018 closing price, no analysis has been
done for prior period.
Recommendation
Portfolio is ideal and in case of any drastic change, new stock shall be added.
Portfolio shall be balanced on specific dates.

References
Pannett, R., 2019. Australia’s RBA Leaves Cash Rate Unchanged at 1.5%. [Online]
Available at: https://www.wsj.com/articles/australias-rba-leaves-cash-rate-unchanged-at-1-5-
11554177094
[Accessed 22 May 2019].
Reuters.com, 2019. Appen Ltd (APX.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/overview/APX.AX
[Accessed 23 May 2019].
Reuters.com, 2019. Beach Energy Ltd (BPT.. [Online]
Available at: https://www.reuters.com/finance/stocks/overview/BPT.AX
[Accessed 23 May 2019].
Reuters.com, 2019. National Australia Bank Ltd (NAB.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/company-profile/NAB.AX
[Accessed 22 May 2019].
Reuters.com, 2019. REA Group Ltd (REA.AX). [Online]
Available at: https://www.reuters.com/finance/stocks/company-profile/REA.AX
[Accessed 22 May 2019].