Sample Report On Finance

A man who has crossed four decades of his life, Mr. Armani is the only economically active individual in his family and is indulged in an employment, which pays him pretty well. From his savings, Mr. Armani made a financial decision to invest in a portfolio with a maturity period of ten years, a total sum of $100,000.
Various options needed to be disclosed to MR. Armani gave the high investment margin and our Company ‘Investment Solutions’ did the same in a discussion with him. The best decision seemed to be a portfolio that contained Australian stocks and a couple of exchange-traded funds (ETFs) in the ratio of 7:3. The diversity of the Australian stocks across various sectors was a good investment opportunity and also the market capitalization was luring. Further diversification of the portfolio is ensured by the other two ETFs, given that they are based on indices and for the same indices, can track the performances.
Since the salary of Mr. Armani, our client was regular and was the reason for a comfortable living that his family was enjoying, there was a minimal likelihood of liquidity problems. There was exceptionally low probability that Mr. Armani would face the situation of a stock sale.
The option is however available to the client largely, since both the investments in the portfolio have liquidity and will be able to sell easily in the future, in case an emergency arises and the client needs quick money for relief. The annual earning of the client is $220,000 and thus, the marginal tax rate is 45%, which is the highest range.
Given the taxation position that he holds, the stable payments in the form of dividends will be of particular advantage to him. The advantage is credited to the franking credit benefits of the process. The choice of the client towards a ten-year long investment horizon is an indication of his awareness of the volatility of the stock market. The risk adversity of the client is moderate, meaning that he is capable of handling some level of uncertainty in the portfolio. The well-diversified portfolio construct provides for the probability of achieving and delivering the targets of investment, being within the range of acceptable risk by the client.

Initial Investment strategy

Every client has unique needs and expectations regarding his/her investments. Keeping this in mind, the philosophy at ‘Investment Solutions’ has been identified as customized and unique portfolios as per client specificity. Our aim is to maintain a diverse client portfolio; catering the specific wants and needs of highly risk averse to risk tolerant investors considerably.
Given a certain level of risk, the target of our specialists in investment management is the achievement of the highest return on an investment. We have a philosophy that the aim of a portfolio should not be to attain the highest return possible by any means or at all costs. Rather, the objective is to attain and present the growth that has been achieved on the investments in the client’s portfolio. The high investment horizon that Mr. Armani has chosen is a wise choice in terms of the long period of time capable of adding value to the decided portfolio.
The objectives of the client have been kept in consideration while adopting the passive approach of investment in this case. Buy and hold strategy can be effectively utilized as there is the presence of high diversity, in terms of coverage of ETFs in the portfolio. The objective of the client is not to excel in the market. In fact, he is quite satisfied by the return on indices.
The adoption of a passive approach will be beneficial in the sense that it will help in the reduction of the transaction costs as a whole and the holding cost of portfolio in terms of management fees will be reduced. Another advantage is the minimization of tax on capital gains.
The specific strategy that was applicable in case of Mr. Armani’s objective of investment was the selection of a finely diversified portfolio. The right mix of investment products in terms of profitable stocks and ETFs was a prerequisite for delivering the desired returns at the rate if the risk that was acceptable. This objective was successfully adjusted by selecting diversified stocks from varied market capitalization areas and sectors. The international indices need was addressed by including the two ETFs in the portfolio, which would keep a track of the indices.

Morningstar approach

The Morningstar approach was found to be the most suitable for the creation of the Morningstar Style Box for the determination of the client, Mr. Armani’s investment style.
Each stock was given a Value score based on the fundamental measures, five in number, in order to manage the stock classification process. The weights and components for the respective stocks have been presented in the table below, that have assisted in the determination of investment style for each stock.
This step is followed by the net style score calculation. The process of obtaining this figure is to subtract the value score from the given score of growth. If the result shows that a stock has negative score strongly on net style, then the classification of the stock is Value. If the case is the complete opposite, meaning that there is a strongly positive score, there is the stock classification as Growth. An in-between result means that the classification of the security is identified as Core or also called Blend for funds, which means:
The graph above clearly depicts how the chosen portfolio is in line with Mr. Armani’s strategy on investment. There is a majority of the core stocks, as will be best suited for the investor. Appendix 2 contains the calculation in detail, regarding the net style scores of the stocks in the portfolio.

PART B: Calculating Returns

The log returns taken from the return index of individual stocks is the main resource used in the calculation of the given tables. The date from last two years has been chosen to suffice the inadequate overall calculations obtained as a result of the global financial crisis and recovery phase. ‘250’, to annualize the calculations, replaced the actual number of days in a year.