AF4S136 Investment and Portfolio Analysis

AF4S136 Investment and Portfolio Analysis

1. Investors Profile

1.1 Clarify and create a summary of an investor’s financial situations

Investor profile refers to understanding the overall summary of an investor’s financial goals, financial situations, analysis of time Horizon, and overall risk tolerance. This helps investors make authentic decisions when selecting appropriate investments. Moreover, in general terms, the risk that the investor is willing to take focuses more on the authentic investment. If investors decide to protect their money and have a short time horizon, they investors might follow and develop a more conservative portfolio. Investors might be focused on the policy that investors follow on a more aggressive equity-based portfolio.

Investors Profiles bought and depended on the Portfolio investment, which investors might be getting the offer of instant diversifications. Investors are working on portfolio solutions and custom portfolios that provide them with equitable selections and multiple portfolio segments that help them make decisions appropriately.

 In the below considerations, a proper road map of investors’ profiles is given in the context below.

• Evaluating Proper   Portfolio market segments and creating an adequate road map   for custom Portfolios
• Identifying all minimal risks and creating Optimal Portions of the investing parts
• Identifying conservative Investment options like investing in 30% equity or 70% fixed guaranteed portions
• Identifying moderate conservative   Options like 40% equity, 40%   fixed income, and 20% guaranteed potions are also considered shorter fluctuations in   Investment returns.
• Investors are mainly focused on investment Options, Like moderate tolerance for risk and loss of capital.
• Investors are mainly focused on medium-term investment time horizon, which helps them make short-term decisions and provide combinations of income and long-term capital growth.

1.2 Investment Time Horizon Analysis

 Investors’ time horizon refers to understanding how much time has been accumulated by the investors to achieve their financial goals. For instance, investors are making some decisions like Portfolio substitutes and aiming to maintain their   Portfolio before releasing their Portfolio securities for Profit. The investment horizon has been divided into three time horizons (Akbas et al., 2020). Those are short-term time horizon, Medium-term time horizon, and Long-term time horizon.

 Short-term time horizon

 In this section, the total period is 1- 3 years, and their investment strategy is minimal risk. As per these considerations, investors are using this period to invest in short securities. Many Portfolio sections are also associated with these short-term sections. As per considerations, Investors are willing to invest in those portions without making any threats.

Medium-term Time Horizon

 In this section, the total period of the medium-term time horizon is 3- 10, which is provided among the investors for the medium-term period. In this case, the investing strategy stayed at moderate risk, and the investors are taking those risks for a medium-term period. Portfolio substantiation is also added in that moderate risk section. In this update, those -time horizons only use the bullying investors in the market. Investors re-diversified many portfolio sections and tried to stagnate in the market.

Long-term time Horizon

Long-term time horizons are mainly associated with years of more than ten years and provide a high risk in the market. Investors, like huge portions, are using these account sheets and taking a lot of equity holding in a market. Investing strategy relies on high risk and is only dependable for the highly bulling shareholders of the market (Hedy, 2023)

1.3 Risk tolerance/ Perception / Preference analysis

The financial market term risk tolerance is a stable characteristic of the related investors, which refers to preparing them at the time of investing appraisal. This helps them to tackle and handle the risk and measure the level of risk factors. These considerations have also been divided into different risk factors like long-term planning risk and short-term and medium-range risk tolerances. As per the instructions, we know about risk tolerance and investiture and are taking proactive actions regarding the issues. The level of risk tolerance drives the entire portfolio investments, hoping the investors take the necessary measures to reduce this risk tolerance level (Sivarajan and De Bruijn, 2020). Risk tolerance measures by using the formula of market volatility and the investors’ boos which are willing to accept them. By risk tolerance, investors are identified in which types of investments should be made and which investments they might consider.

1.4 Identifying financial Objective goals

The primary financial objective for objective goals is to create and maintain a long-term plan for every investment that meets every individual goal in the financial term. Here are the different types of objectives that are included. Increasing the market value for every asset over a different period helps to increase the financial goal.

Diversify the different kinds of investment portfolios for the different kinds of assets in the current market to reduce the risk and maximize the return amount (Kourou, 2020). They were focused on minimizing the risk and maximizing the amount of Profit by return on the investment by the investors. It was selecting the different mix of investments that matched the responsibility, objective, and return calculations for specific assets or investments. Reassigning the allocation of the assets and holding the cash according to the chosen goals increased the amount of return (Zhao et al., 2023).

2. Investment strategy

2.1 Investment Objective and Investment Strategy

An investment objective is a setting of a specific level of goal that helps to determine the financial portfolio of the investigative are also different types of objectives followed by an investor is

• Keeping the invested funds safe to invest in a long-term manner.
• Growing the funds in exponential ways
• Focused on reducing the income tax burden
• They are earning from a steady and additional income source to fulfil their financial goals.

Dividend growth investing strategy

Most investors follow the dividend growth investing strategy. It describes the buying shares of companies with a specific record of paying dividends and a regular increased rate of this dividend (Danila et al. 2020). Companies that provide constant development to their investors are famous to their investors. The company that provides this type of stock is indicated as low volatile, stable, and has a positive future for the organization (Onyshchuk et al.2020). Investors use these kinds of stocks for their passive income and also increase their portfolios by diversifying them.

 2.2 Discussed the rationale for the specific investment style

Dividend growth is the most common investing style that most beginner-level investors use. Dividend stocks do not have a high level of volatility in the market, which is the main reason this refers to the less risky stocks. These dividend stocks also provide two primary sources of return, including daily income from the dividend payment by the organization (Ali Taher and Al-Shboul, 2023). On the other hand, appreciation of the capital of the stock prices and total return comes from the stocks mixing up these two stocks’ prices. The dividend style provides a stable cash flow that generates stable Profit for every one of the investors and also helps them gain recurring revenue at the appropriate time. The dividend style diversifies the portfolio of the different kinds of stocks, reducing the risk of investment in the stocks and providing high yields in the long term (Gupta and Srivastava, 2023). This is the main reason this investment style is ideal for new investors.

2.3 Justification for the chosen strategy of investment

Dividend growth investing strategies have different kinds of benefits, including with

• A dividend growth investing strategy is ideal for every new investor for their passive income that helps to manage their lifestyles (Smith and Smith, 2024)
• The dividend growth strategy is less risky than other strategies because, in this strategy, the risk is diversified
• The dividend growth investment strategy also has a stable return on every investment by investors that reduces the level of loss.
• The dividend growth investment strategy provides two benefits to the investors: capital appreciation and also a stable regular income (Ukpong and Ukpe, 2023).
• This is beneficial for the time of inflation because, at the time of inflation, the management of stocks decreased.
• This strategy is not recommended for focusing on the growth and downfall of the stocks and also not to devote energy to the movement of the market. Dividend stocks are the most stable and robust companies in the market, so they provide specific dividends.

3. Portfolio construction

3.1 Giving a proper explanation of Decisions on asset allocations

Asset allocation is mainly an investment strategy that includes dividing the portfolio among the different kinds of classes of assets that help the investors choose the assets (Brunel et al. 2020). The main goal of asset allocation is to minimize the risk of the investment. The main asset classes included equities, fixed income, and cash. Factors that affect the asset allocation process are tolerance of the risk, time horizon, and risk that the investors consume (Aeknarajindawat, 2020). Every assert class has a different return and risk potential, and that will behave differently from the others of the organization or another market performance.

3.2 Discussion based on the Selection of the security for the stock sub-portfolio (15 Stocks)

Security selections

This section first evaluates the Selection of security based on the market. It analyses all market segments like S&P and Russell 200 and US Bond 30 years, as per this computation of the facts of standard deviations of all selection processes and market sections determined appropriately.

The above figure showcases the total value proportions of different shares stocks of   S&P 500, Russell 2000, U S bond 30 years, and US   BOND 20 years. All these segments are taken for the years 2014 to 2019 value Proportions, which are almost disclosed every year.

In the above figure, it has been shown that the valuations of two segments of every segment of the market are computed. In the above cautions using the S& P 500, the first-year value is subtracted from the second year’s value and divided with the second year’s value, which shows the figure of the value of the distinction. The same has been followed in the other security exchange values.

 Valuations of the market interest rate of 14% are used to disclose the figures of the annual rate of return and standard deviations; the average rate of return is presented below.

 Table 1:  Computations of standard deviations and mean average rate

(Source: Self-Developed)

 In this section, all the market securities standard deviations are illustrated, and the average sections of every market are also evaluated. In this case, the S&P 500 standard deviation is 2.96%, which is almost as high as the other sections. A monthly rate of return of 14% has been used for the consideration of the individual segments. As per this, investors can choose S&P 500 market securities to invest in and use Portfolio segments of the related market securities.

Stock selections

  Table 2: 15 Stock -selections based on market growth investing and value   investing

(Source: Self-Developed)

In the above figure, different stocks based on the historical price earning segments and historical average value segments are identifiable. In the above considerations, revenue generated for the years 2020 to 2021 has been mentioned, which helps to identify the preferable stick valuation in regard to current market positions. There has been an apportioned with the value of growth investing and value investing market segments of the related security exchange. For instance, determining the revenue growth percentages and the value portions are identified with the relative market percentage rate.

3.3 Decision-making on benchmark and weighting scheme

Performance evaluation

In this case, assuming the weighting scheme and using the constant no of shares for the value-weighted portfolio has been identified. In this case scenario, first, choose some ratio sticks and then evaluate the results of the market portfolio.

Table 3: Listed Market Portfolio

(Source: Self-Developed)

Recognized the listed market for MS. N, RTX N, PHM N” and ” LDOS. N”. SWKS OQ, WRB N, TFC N, IVZ N, LRCX OQ, AMAT, OQ. This also showcased the value of $1238979 and $6904489   for key N. The above-selected portfolio segments are taken for Portfolio investments.

  Table 4:  Selected Portfolio market

(Source: Self-Developed)

In the below considerations, the selected portfolio market is used. The sum value of the total portions is computed, and the value of the weighted index of all the portfolio companies is evaluated.

In this consideration, the proper value of the weighted index can be found by dividing the total market capitalizations of all components and using the index by a particular divisor.

Index tracking Portfolio

  Final evaluations of Portfolio stock

Table 5:  Final evaluations of Portfolio stock

(Source: Self-Developed)

3.4 Make a specific discussion on the backtesting result

Backtesting results are considered a general method that discloses the overall trading strategy that can be played out in historical data valuations. Backtesting results remain viable and flexible in the trading market.

 Critical measures of backtesting results

Backtesting might be assed the valuations of the internal risk factors of the market. Abscessing results are decided on the basis of historical data valuations, which are played out in retrospective backtesting. Those are considered converse methods and work specifically in portfolio investments. Tested on the historical data valuations and taking a benefit for reserve timing and also taking the alternate periods of the four out of the different sample data Potential viability regarding the backtesting results can only be possible.

4. Critique for chosen portfolio construction method

Markowitz mean-variance optimizations

Henry Markowitz suggested the main variances optimizations model, which helps discover the active measures of the stock valuations, and this stoic model helps identify the proper meal deviations of a stock. In this aspect, modern portfolio theory works on these portfolio investment factors. McCrae, over a particular static, dynamic process, has been considered for portfolio investments to identify the pressures of stock valuations. In the above portfolio sections, use this method to identify the average sections and standard deviations of the portfolio sections.

4.1 Discussed the benefits and drawbacks of the backtesting method

Backtesting is the general method used by traders and analysts to identify the different kinds of areas and investment strategies that need to be improved. The backtesting method involves analyzing the historical data and also recognizing the patterns and trends that must be implemented initially. This method helps to improve the performance of the investors for investment, and the provided methods also evaluate the risk for the particular investment strategy.

4.2 Discussed the flaws in choosing the Benchmark

In this aspect, I identified all the flaws in choosing a benchmark and discussed all of these flaws below.

 Improper Time management and insufficient measures of data can cause issues in selecting benchmarks. Not only that, but Irrelevant information also creates a massive drawback to finding out the actual. The Improper balances of the ups and sticks also created a massive setback for the financial analysis. Implement more Focus on metrics, and instead, the process is also creating a massive setback for the Benchmark. Different segments of improper market incompetency also create a huge setback

4.3 Discussed the critical factor when selecting the securities

In these sections, critical factors have been identified below at the time of selecting the securities. Relevant risk measures can create a massive problem at the time of selecting securities. The Derivatives of the market balances are also causing a massive setback at the time of selecting the securities. Not only are these two issues causing trouble, but some other factors promote influences as critical factors. Variations change rapidly and also face problems at the time of selecting the stocks. In this case, time considerations also create a massive challenge at the time of selecting portfolio values. Risk tolerances also make for a huge challenge at the time when selecting a portfolio stick in the different measures. All those issues have an impact on the process of selecting the securities and making investments.

References

Aeknarajindawat, N., 2020. THE COMBINED EFFECT OF RISK PERCEPTION AND RISK TOLERANCE ON THE INVESTMENT DECISION MAKING. Journal of security & sustainability issues, 9(3).

Akbas, F., Jiang, C. And Koch, P.D., 2020. Insider investment horizon. The Journal of Finance, 75(3), pp.1579-1627.

Ali Taher, F.N. and Al-Shboul, M., 2023. Dividend policy, its asymmetric behavior and stock liquidity. Journal of Economic Studies, 50(3), pp.578-600.

Brunel, J.L., Idzorek, C.T.M. and Mulvey, C.J.M., 2020. Principles of Asset Allocation. Portfolio Management in Practice, Volume 1: Investment Management, 1, p.211.

Danila, N., Noreen, U., Azizan, N.A., Farid, M. And Ahmed, Z., 2020. Growth opportunities, capital structure and dividend policy in emerging market: Indonesia Case Study. The Journal of Asian Finance, Economics and Business (JAFEB), 7(10), pp.1-8.

Gupta, V. And Srivastava, S., 2023. Risk and return dynamics in portfolio theory. In Analytics in Finance and Risk Management (pp. 300-309). CRC Press.

Hedzyk, V., 2023. ‘Identifying and quantifying high probability trading strategies in the stock market/forex/indexes/etfs: Key success factors. Univ. Finance Admin., Prague.

Kourou, G.B., 2020. Diversification and portfolio theory: a review. Financial Markets and Portfolio Management, 34(3), pp.267-312.

Onyshchuk, S.V., Onyshchuk, I.I., Petroye, O. And Chernysh, R., 2020. Financial stability and its impact on national security state: Organizational and legal aspects. International Journal of Economics and Business Administration, 8(1), pp.353-365.

Sivarajan, S. And De Bruijn, O., 2020. Risk Tolerance, Return Expectations and Other Factors Impacting Investment Decisions. The Journal of Wealth Management.

Smith, G. And Smith, M., 2024. The 9 Pitfalls of Investing. In The Power of Modern Value Investing: Beyond Indexing, Algos, and Alpha (pp. 147-175). Cham: Springer Nature Switzerland.

Ukpong, E.G. and Ukpe, E.A., 2023. Assessment of dividend policy practices and the performance of firms: Evidence from listed Nigerian companies. European Journal of Business, Economics and Accountancy, 11(2), pp.54-68.

Zhao, J., Wang, M. And He, Q., 2023. Cash holdings, the internal capital market, and capital allocation efficiency in listed companies. Economic research-Ekonomska istraživanja, 36(1), pp.827-844.