Case Study Analysis: Investment Philosophy and Portfolio Strategy

This finance case study examines the development of an investment portfolio for a client with a high-risk tolerance, focusing on individual equity securities. The analysis begins with an explanation of the investment philosophy and strategy, emphasizing an aggressive approach and capital growth strategy. The portfolio components are detailed, including individual equity securities, listed investment companies, equity market options, and cash reserves, with specific allocations and company selections. The case study explains how the investment components align with the overall strategy, highlighting the importance of active management and regular rebalancing. It also discusses the rationale behind the selected companies and the role of cash reserves. The conclusion recommends an aggressive investment strategy with a focus on equity investments and a limited allocation to listed securities and future contracts, with cash reserves for portfolio reconstruction and potential market opportunities.

Case study in Finance

TABLE OF CONTENTS
Introduction................................................................................................................................3
Analysis......................................................................................................................................3
Explanation of investment philosophy and strategy for the development of portfolio..........3
Description of portfolio components.....................................................................................4
Selected companies for direct investment..............................................................................4
Explanation Regarding the Manner in which Investment Component Aligns With Overall
Investment Strategy................................................................................................................5
Listed investment companies.............................................................................................5
Investment in equity options..............................................................................................6
Cash reserves......................................................................................................................6
Conclusion & recommendation..................................................................................................7
References..................................................................................................................................8
Appendices.................................................................................................................................9

INTRODUCTION
Investment Philosophy and Processes are applied by the organization for achieving
the following goals such as understanding the behaviour of investor, managing investor
expectations, developing the procedure to be applied in Investment Portfolio (Achillas and
et.al, 2015). Present report revolves around explanation relating to Investment Philosophy
and Strategy in the case when investor have a high level of risk tolerance and an interested
investing major portion of the investment in individual equity securities. The further
presentation has been provided in the manner in which investment should be made in
accordance with specified nature of the investment. The report ends up with the explanation
regarding the manner in which investment component aligns with the overall strategy.
ANALYSIS
Explanation of investment philosophy and strategy for the development of portfolio
Portfolio management strategy assists in increasing profits by managing risk and
required returns (Powell, 2015). A forceful strategy of investment force capital approval as a
chief objective of investment, instead of principle’s income or safety.
Aggressive strategies of investment are appropriate in the current situation. It is
because their extended prospect of investment allows them to persist fluctuation in the market
far better for short prospects of horizons by investors (Walker, 2014). In the present scenario,
as the client is having high-risk tolerance and interested in investing a major portion of the
investment in the equity of high cap companies (Bodie, Kane and Marcus, 2014). Thus,
aggressive investment philosophy strategy will be applied for constructing the portfolio. By
applying the same, the expected objectives will be achieved in an appropriate manner.
Further, capital growth strategy will also be applied as it assists in maintaining the goal of
capital growth which consists mainly of equities (Gründl and Gal, 2016). Active management
is required by aggressive strategies of investment rather than conservatives, as it is possible to
get more unstable and requires constant adjustment to cope up with changing conditions of
the market. Regular rebalancing is also needed to maintain allocations of the portfolio to their
levels of the target (Yang, Narayanan and De Carolis, 2014). Thus, by applying the above
philosophy strategies, investors will be able to attain expected gains.

Description of portfolio components
Table 1: Table representing percentage allocated to different investments in the portfolio
Particular Amount Allocated %
Individual equity securities $800000 40%
Listed Investment Companies $400000 20%
Equity market options securities or Future
Contract
$500000 25%
Cash $300000 15%
Total $2000000 100%
Selected companies for direct investment
Table 2: Selected companies for direct investment
ASX
Code
Company
Name
GICS Sub-
Industry Name
Current
share
price
Percentage Amount to
be
invested
AGL.A
X
AGL Energy
Ltd GICS Sub-Industry
Name
25.00 30% $240000
CTX.A
X
Caltex Australia
Ltd Multi-Utilities 31.26 20% $160000
DOW.A
X
Downer EDI
Ltd Oil & Gas Refining
& Marketing
6.18 15% $120000
RMD.A
X
Resmed Inc Diversified Support
Services
10.11 5% $40000
IVV.AX iShares S&P
500 Health Care
Equipment
320.83 20% $160000
AGL.A
X
AGL Energy
Ltd US S&P 500 25.00 10% $80000
Total 100% $800000

2/26/2010
6/25/2010
10/22/2010
2/18/2011
6/17/2011
10/14/2011
2/10/2012
6/8/2012
10/5/2012
2/1/2013
5/31/2013
9/27/2013
1/24/2014
5/23/2014
9/19/2014
1/16/2015
5/15/2015
9/11/2015
1/8/2016
5/6/2016
9/2/2016
12/30/2016
4/28/2017
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
Share prices trend
AGL Energy Ltd Caltex Australia Ltd Downer EDI Ltd
Resmed Inc iShares S&P 500
Figure 1: Share price trend for selected companies for investment
Explanation Regarding the Manner in which Investment Component Aligns With Overall
Investment Strategy
Active management is required by aggressive strategies of investment rather than
conservatives, as it is possible to get more unstable and requires constant adjustment to cope
up with changing conditions of the market (Fischer and Schlütter, 2015). Regular rebalancing
is also needed to maintain allocations of the portfolio to their levels of the target. Thus, cash
has also been kept in balance so that in case any requirement regarding purchase or sales of
shares occurs for rebalancing the portfolio could be accomplished without any obstacles.
Listed investment companies
Listed Investment companies are referred as a viable and well-established alternative
to managed funds as the same have considerable advantages. In the present scenario, six
companies have been selected for the purpose of direct investment (Jagric and et.al. 2015). It
can be observed from the graph represented above that all the companies have either
increased or stable trend. As the companies belong to high cap group, the company will be
able to attain higher profits. The company will also be able to achieve market diversification
through investing in LIC’s.
Investment in investment companies refers to providing funding to mutual funds as
they are highly qualified and can make better investment decisions. Thus in order to get good
returns, part of portfolio contains investment companies having a good reputation in Australia

(Ferreira and et.al. 2013). For this purpose top, five companies are selected in which equal
investment will be made of concerned category i.e. 20% in each company of $400000.
Company
Symbol Last Price 10-Year
return
Carlton Investments Limited (ASX: CIN) $31.49 9.7
WAM Capital Limited (ASX: WAM) $2.26 9.4
Australian Leaders Fund Limited (ASX: ALF) $1.52 9.3
Mirrabooka Investments (ASX: MIR) $2.82 8.2
WAM Research Limited (ASX: WAX) $1.52 6.7
Investment in equity options
Investment in this option is wise strategy to protect, grow and diversified share
portfolio to maximise wealth of shareholders. By considering this factor, 25% of portfolio
amount is invested in equity market options securities and Future Contract. In this option, full
value of contract is not to be paid on upfront basis and at the time of maturity of contract
difference is price is to be paid (Bodie, Kane and Marcus, 2014). Investment will be done in
Sydney Futures Exchange (SFE) in S&P 500 E-Mini (Sep '17) and 3 year Bond futures to
ensure price stability and secured returns.
Cash reserves
Cash can be said as a key variant in the well-diversified portfolio, and a variety of
objectives can be accomplished with same. These objectives comprise greater stability,
potential inflation protection and diversification. Cash plays an important role in investor’s
portfolio as it assists in creating liquidity as investors can withdraw it the same in a situation
of market insolvency or closed stock exchanges, as making asset insolvency unattainable.
Cash is kind of insurance policy; through which investor is independent to purchase assets
and to pay out the bills when they are outstanding (Duchin and et.al. 2017). One more role of
cash in investor’s portfolio which is considerably psychological. It can attach investor to the
investment strategy by all kind of political and market conditions through offering peace to
mind (Cardella, Fairhurst and Klasa, 2016). In situation; investors take a look at data sets;
they can examine thoroughly historical instability outcomes for various compositions of the

portfolio. Meaning full cash allocation provides stability for decreasing the down side risk. In
the present scenario, appropriate 15% of investment has been kept as a cash reserve for
accomplishing these objectives.
CONCLUSION & RECOMMENDATION
It can be depicted from above analysis that aggressive strategy is appropriate in case
the company has high-risk tolerance capability. Further, in compliance with strategies of
Donald Trump as it is expected that US economy has bullish nature; a major portion of
investment has been made in equity investment so that maximum returns from same can be
achieved. Further, a limited portion has been invested in listed securities so that some fixed
profits from same can be attained. Investment has also been made in Future Contract; the
amount invested so is safe and will be applied only in case higher returns are expected. A
portion of investment amount has remained available as cash, and the same will be applied
for reconstructing portfolio. It can also be utilized for attaining benefit by selling or
purchasing shares.

REFERENCES
Achillas, C., Aidonis, D., Iakovou, E., Thymianidis, M. and Tzetzis, D., 2015. A
methodological framework for the inclusion of modern additive manufacturing into the
production portfolio of a focused factory. Journal of manufacturing systems, 37, pp.328-339.
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Cardella, L., Fairhurst, D.J. and Klasa, S., 2016. What Determines the Composition of a
Firm's Total Cash Reserves?.
Duchin, R., Gilbert, T., Harford, J. and Hrdlicka, C., 2017. Precautionary savings with risky
assets: When cash is not cash. The Journal of Finance, 72(2), pp.793-852.
Ferreira, M.A., Keswani, A., Miguel, A.F. and Ramos, S.B., 2013. The determinants of
mutual fund performance: A cross-country study. Review of Finance, 17(2), pp.483-525.
Fischer, K. and Schlütter, S., 2015. Optimal investment strategies for insurance companies
when capital requirements are imposed by a standard formula. The Geneva Risk and
Insurance Review, 40(1), pp.15-40.
Gründl, H. and Gal, J., 2016. The evolution of insurer portfolio investment strategies for
long-term investing. OECD Journal: Financial Market Trends, pp.1-55.
Jagric, T., Podobnik, B., Strasek, S. and Jagric, V., 2015. Risk-adjusted performance of
mutual funds: some tests. South-eastern Europe journal of Economics, 5(2).
Powell, R., 2015. Takeover prediction models and portfolio strategies: a multinomial
approach.
Walker, S.T., 2014. Understanding Alternative Investments: Creating Diversified Portfolios
that Ride the Wave of Investment Success. Palgrave Macmillan.
Yang, Y., Narayanan, V.K. and De Carolis, D.M., 2014. The relationship between portfolio
diversification and firm value: The evidence from corporate venture capital activity. Strategic
Management Journal, 35(13), pp.1993-2011.

APPENDICES
Equity shares Purchases
Price of
secuirit
y
No. of
security Cost
AGL Energy Ltd $25 9600 $240,000
Caltex Australia Ltd $31 5118 $160,000
Downer EDI Ltd $6 19417 $120,000
Resmed Inc $10 3956 $40,000
iShares S&P 500 $321 499 $160,000
AGL Energy Ltd $25 3200 $80,000 $800,000
Listed investment companies
Carlton Investments Limited $31.49 2540 $80,000
WAM Capital Limited $2.26 35398 $80,000
Australian Leaders Fund Limited $1.52 52632 $80,000
Mirrabooka Investments $2.82 28369 $80,001
WAM Research Limited $1.52 39474 $60,000 $400,000
Equity options
S&P 500 E-Mini $25 8000 $200,000
3 year Bond futures $50 6000 $300,000 $500,000
Casn reserves $300,000 $300,000
Total $2,000,000