RUNNING HEAD: PORTFOLIO 1 "Current Economic Trends" Investing is a risk, and investors have no control in the cycle of the economy, all they can do is adjust their strategies to the changes that take place. Hence for investors, it is vital that they understand the relationship between various industries and the economy. Cyclic industries are industries whose share prices are highly correlated to the economy while non-cyclic industries have their shares stable about economic changes. Examples of cyclic industries include airlines, housing, and auto industries while examples of non-cyclic industries include: foods, pharmaceuticals, and utility industries. An understanding of the cyclic and non-cyclic industries and their changes can guide investors on where to invest it. In the airline industry, companies are taking more time to interact with their customers and build lasting relations. Companies are getting out of the corporate comfort zone to directly engage with the customers in a bid to make a brand name and to remain in the minds of customers. The implications of this trend will include the creation of a large resource pool to deal with customers’ complaints, queries, and tweets all round the clock. To mitigate any adverse changes, it will be prudent to partner with companies that can provide resources such as social media experts to curve an edge in the market before others. In the auto industry, there are an increasing number of cars on the road. Also, electric and hybrid cars are getting their way into the market. Hence, it is not clear what this trend could directly mean to the auto industry. However, the making of electric cars could bring about new opportunities for other industries to support this trend. This could be in the provision of parts and service. To mitigate any adverse effects, it would be prudent to have some focus on the electric car business. It could be either in producing the cars or in keeping them on the road. 2 Portfolio Construction Analysis In the housing industry, there is an expected growth of smaller cities. This is because the large cities have large populations that have put a strain on the cities' housing. Construction cannot keep up with the demands due to government bottlenecks and geographical constraints. As a result, smaller cities are growing up. This will mean a growth in finances in smaller cities and a slight drop in companies in larger towns. To mitigate these effects, it would be wise to use a watch and wait for approach, with a strategy towards investing in small towns with the option of continued investment in the major cities. One food trend that will dominate 2017 will be the integration of technology with the food industry. In 2016 alone, more than $1 billion was invested in startups relating to food and the amount is expected to rise this year. It is even estimated that the food opportunity is ten times that of software. The financial implications of this will mean an upward projection of the finances of companies who choose to invest. It would be a wise choice to invest in food technology, owing to the projection of the trends. The greatest trend in the pharmaceuticals industry is uncertainty mainly due to Brexit and Trump. Companies are using a wait and see approach, treading carefully as they await a full understanding of what will happen next. Most people are yet to understand the dynamics of the economy and how Trump could affect the industry. This trend is risky, and the future is left for speculation, Finances may suffer due to too much care and if decisions made will affect the industry negatively. To mitigate any adverse challenges, it would be prudent to look into the possible decisions that could be done by the government and pan around them, with the worst case scenarios in mind. 3 Portfolio Construction Analysis In the utility industry, one trend will dominate rising costs. The industry has been going through a transformation, and with the new administration, there could be further changes. The financial implications will more or less stable because the changed are continuous. There are two trends that have been helping cope with the rising costs and include: risk-based rate making and growth of behind the meter resources. I would adopt these trends to enhance decision-making and improve efficiency and resilience. Investment objective Investment options increase daily, and whichever option that a person seeks, it is notable that they bear one of three goals which include growth, income, and safety. The article picks on income objective as the underlying element that would determine the ultimate investment options that the report might venture. The article denotes that the safest investments would attract the least income yields. The research reveals that safe and yield capacity become inversely aligned, thus when safety increases, the income position reduces significantly. Investment Style Faerber, (2016) argued that investments that require yielding on potential income regarding the investment could pick on the preferred shares or corporate bonds because they bear rating that are relatively low. Bonds rated A and AA could become risky compared to AAA bonds. Similarly, the bonds generate income that is high compared to AAA bonds. The investment could invest bonds rated BBB for they portend medium investment, although, they bear a less income potential. Junk bonds could be investment options that are income oriented and is by far the greatest risk holder. The investment that is income aligned, therefore, could opt for junk bonds. 4 Portfolio Construction Analysis Macroeconomic elements affecting portfolio returns According to Faerber, (2016), the return rate of a portfolio depends on many underlying processes such like the competition that exists in the industry has significant implications regarding the risk level of the investment. Other macroeconomic elements might affect the investment rate of return. Growing economy implies job creation, and availability would get on the rise, and employed people would spend much money than when not employed. Sander, and Bobo, (2017) depicted that increased spending results in increased sales, improvement in business processes through profits and acquisition of new equipment. Rapid economic growth implies interest rates might rise. Increased interests dampen consumer spending as credits get expensive. In turn, the profits become reduced and low employment rate, and therefore, stock prices would as well reduce. The stock market reduction might increase the prices of bonds because investors would pool their bonds towards safe bonds. Political impacts Siegel, (2014) argued that government regulations, fiscal policy, and political stabilities determine the return rates of investments. An extreme fiscal deficit lowers the flexibility that lies in the government spending, and leads to increased borrowing costs. Political stability could lead to higher confidence amongst investors and result in potential returns on investments. Investors shun nations whose governments have constant civil strife. Russell 2000 Index Benchmark portfolio The article might resort to the Russell 2000 Index as its main benchmark portfolio because it is known to weight the performance of at least 2000 small-cap companies comprising the most significant stocks in America. The Russell 2000 Index becomes the most appropriate benchmark serving the small-cap stock markets in America. 5 Portfolio Construction Analysis Six stocks Siegel, (2014) found that irrespective of whether the investor wants to hold the stocks forever or short term the article gives six of the best consideration list that might yield returns when bought. The research makes suggestions of six best quality of investment that a potential investor might choose. The article suggests that one to pick the Netflix (NFLX), organic producer WhiteWave Foods (WWAV). Other stocks that bear large investment options include Tesla Motors (TSLA), and PespsiCo (PEP). Other two investment options might include Chipotle Mexican Grill (CMG) and Under Armour (UA) brands. Initial holding and Market value Siegel, (2014) argued that the article found that Netflix traded its stock for 141.37 USD; therefore the article might suggest 1000 stocks from the company. WhiteWave Foods sold its shares for 54.98 USD, and the article might pick 1000 stocks from the firm. PepsiCo on sold its shares for 109.43 USD, from which the company might pick 1000 stock shares. Tesla Motors sold its shares for 249.17 USD which the article might suggest at least 1000 shares as well. Whereas Under Armour sold its stocks for 179.99 and the article suggested at least 1000 stocks, and the article might suggest 1000 stocks, and lastly, Chipotle Mexican Grill had its stocks going for 404.31, which the report suggests 650 stocks. Risk involved Implementation of the unique combination would give nearly any sort of investor value for their investment. The stocks got picked from different industries, and even if one industry becomes affected, the article indicated that a person might bear relatively medium risk and high income from the chosen investment. 6 Portfolio Construction Analysis Netflix, Inc. is one of the leading entertainment network providing its viewers, TV shows and movies including Netflix original series, documentaries, and films. This file provides the ratios of the balance sheet of the company of the year 2016. These balance sheet and information have been collected from NASDAQ and other stock agencies. Current Assets at the end of 31st December 2016 = $5720, 291. Total Assets = $13, 586, 610. Intangible Assets = $7, 274, 501. Current Liabilities at the end of 31st December 2016 = $ 4586, 657. Total Liabilities = $ 10, 906, 810. Total Stockholder’s Equity at the end of 2016 = $13, 586, 610. Stock Price at the end of 2016 = $123.8. Earnings per Share = $0.44. Current Ratios = Current Assets/ Current Liabilities. Current Ratio at the end of 2016 = 5720, 291/ 4586, 657 Current Ratio = 12.472. Equity Ratio = Total Liabilities/ Stockholder’s Equity. Equity Ratio = 10, 906, 810/ 13, 586, 610. Equity Ratio = 0.803. 7 Portfolio Construction Analysis Netflix is a one of the leading entertainment company with market value of $62M. Comparing with the other companies in the industries such as Best Buy Co, Inc. Conn’s, Inc. and Trans World Entertainment Corp. As the market value of Conn’s, Inc. and Trans World is $262, 302 and $75, 842 respectively. Netflix is earning more profit as compare to these companies. Below we have calculated some other elements from the balance statement of 2016 of Netflix. The Price earnings ratio or P/E ratio is used to calculate the market value of the stock relative to the earnings that stock makes. The P/E ratio of Netflix for 2016 is as under. P/E Ratio = Stock Price/ Earnings per share. P/E Ratio = 123.8/ 0.44 P/E Ratio = 281.3636. Price to book ratio is used to compare the value of the stock with its value in the book. This ratio is necessary for company’s portfolio to make an assessment of the stock value. Price to Book Ratio = P/B Ratio = Stock Price/ Assets – Intangible Assets P/B Ratio = 123.8/ (13, 586, 610 - 7, 274, 501). P/B Ratio = 123.8/ 6312109. P/B Ratio = 0.0000196. The stock beta of the company describes the volatility of the stock in the market. If the beta is less than 1 then the stock is less volatile and if the beta is greater than 1, the stock is more volatile. To know the volatility of the stock and analyze it through company`s portfolio can bring some positive outputs in company`s performance. 8 Portfolio Construction Analysis Expected Market Rate of Return = 10.03%. Expected Stock Rate of Return = 8.90%. Risk-free rate of Return = 2.53%. Stock’s Beta = β = (8.90-2.53)/ (10.03 – 2.53). Stock’s Beta = β = 6.37/ 7.5. Stock’s Beta = β = 0.85. Profit margin is actually a measure of income against every dollar a company spends. Dividend yields measure how much a company pays out to its shareholders each year. Both can be calculated as follows. Total Revenue at the end of 2016 = $8, 830, 669. Gross profit at the end of 2016 = $2, 800, 768. Profit Margin = Gross profit/ Total Revenue. Profit Margin = 2, 800, 768/ 8, 830, 669. Profit Margin = 0.32. Dividend Yield = Current Dividend at the end of 2016/ Stock price at the end of 2016. Dividend Yield = 0.00/ 123.8. Dividend Yield = 0.00. 9 Portfolio Construction Analysis The annual compound rate of growth of the company is called earnings growth rate of the company. It is measured by EPS of the company for a current year and EPS of the prior year. Earnings per Share (EPS) at the end of 2016 = 0.44. Earnings per Share (EPS) at the end of 2015 = 0.28. Difference between EPS = 0.44 – 0.28 = 0.16 Earning Growth Rate = (0.16/ 0.28) × 100 Earning Growth Rate = 57.14% Conclusion P/E Ratio, price to book ratio, Profit margin, Stock’s Beta and Earning Growth Rate provides information about stock and market value of the services a company provides. Listing these elements in the company’s portfolio assessment can bring out fruitful outcomes. Portfolio Analysis Portfolio analysis is a systemized way to analyze company’s products and services and make an evaluation which projects should be feasible for the overall performance of the company. Adding a weekly performance record in the portfolio will bring more improvements in the performance of the company. Macroeconomics is a field of economics which tells how a person can use resources to create a value. This is the branch of economics which concerns with the market system and focused on choices an individual made. Netflix carries out its operations in three different segments. These segments are Domestic, Streaming and International Streaming. Netflix has become leading internet Entertainment 10 Portfolio Construction Analysis Company. A report showed a recent development in the business that 79% of the consumers said that they want to cancel their cable package and they will pay for TV online. This is due to the high cost of the cable networks. Reassessment of the assets at the company will make an overall improvement to access maximum revenue. Calculation of Beta and Expected Return To determine the portfolio beta, the individual beta for each stock must be calculated first. The tables below show the beta for each stock in the portfolio (Ryan, 2006). Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 13/3/2017 Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 13/3/2017 Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 Calculation for Netflix Beta Closing prices in USD (Yahoo Finance, 2017) % Returns Netflix Russell 2000 Netflix Russell 2000 145.11 1,391.52 (0.0050) (0.0039) 144.39 1,386.03 0.0060 (0.0023) 145.25 1,382.83 (0.0142) (0.0148) 143.19 1,362.38 0.0023 0.0058 143.52 1,370.28 (1.0000) (1.0000) Beta 1.00106 Calculation for White waves foods Beta Closing prices in USD (Yahoo Finance, 2017) % Returns White wave foods Russell 2000 White wave Russell 2000 54.58 1,391.52 0.0007 (0.0039) 54.62 1,386.03 0.0040 (0.0023) 54.84 1,382.83 (0.0013) (0.0148) 54.77 1,362.38 0.0005 0.0058 54.80 1,370.28 (1.0000) (1.0000) Beta 1.00459698 Calculation for PepsiCo. Beta Closing prices in USD (Yahoo Finance, 2017) % Returns Pepsi Russell 2000 Pepsi Russell 2000 111.39 1,391.52 (0.0022) (0.0039) 111.14 1,386.03 (0.0003) (0.0023) 111.11 1,382.83 (0.0159) (0.0148) 109.34 1,362.38 0.0006 0.0058 11 Portfolio Construction Analysis 13/3/2017 109.41 1,370.28 Beta Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 13/3/2017 Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 13/3/2017 Date 17/3/2017 16/3/2017 15/3/2017 14/3/2017 13/3/2017 (1.0000) 0.99931 (1.0000) Calculation for Tesla Beta Closing prices in USD (Yahoo Finance, 2017) % Returns Tesla Russell 2000 Tesla Russell 2000 246.25 1,391.52 (0.0022) (0.0039) 245.70 1,386.03 (0.0204) (0.0023) 240.70 1,382.83 (0.0127) (0.0148) 237.65 1,362.38 (0.0280) 0.0058 231.00 1,370.28 (1.0000) (1.0000) Beta 0.98749 Calculation for Under Armour Beta Closing prices in USD(Yahoo Finance, 2017) % Returns Under Armour Russell 2000 Under Armour Russell 2000 18.08 1,391.52 0.0050 (0.0039) 18.17 1,386.03 (0.0187) (0.0023) 17.83 1,382.83 (0.0118) (0.0148) 17.62 1,362.38 (0.0034) 0.0058 17.56 1,370.28 (1.0000) (1.0000) Beta 0.996383947 Calculation for Chipotle Mexican Grill Beta Closing prices in USD (Yahoo Finance, 2017) % Returns Chipotle Russell 2000 Chipotle Russell 2000 402.58 1,391.52 (0.0040) (0.0039) 400.95 1,386.03 0.0000 (0.0023) 400.96 1,382.83 0.0053 (0.0148) 403.10 1,362.38 0.0069 0.0058 405.87 1,370.28 (1.0000) (1.0000) Beta 1.00562 The table shows the overall portfolio beta and the expected return on each stock. The portfolio beta is 0.99803. This indicates that the portfolio is just as risky as the benchmark of Russell 200. Benefits of Stock Diversification 12 Portfolio Construction Analysis Investing in different stocks from different industries reduces the risk involved, helps in preserving capital and also gives the investor ability to hedge the portfolio (Ryan, 2006) Calculation of the Portfolio Beta Stock Price No. Of Stocks 1,000 1,000 Netflix $141.37 White wave $54.98 foods Pepsi Co. $109.42 1,000 Tesla Motors $249.17 1,000 Under $179.99 1,000 Armour Chipotle $404.31 650 Mexican Grill Totals Portfolio expected return Value Of Stock $141,370 $54,980 Portfolio (%) 0.1417 0.0551 Individua l Beta 1.0011 1.0046 Portfolio Beta 0.1418 0.0554 Expected Return 2.45% 2.46% $109,420 $249,170 $179,990 0.1097 0.2497 0.1804 0.9993 0.9875 0.9964 0.1096 0.2467 0.1798 2.44% 2.43% 2.44% $262,801.50 0.2634 1.0057 0.2649 2.46% 0.998 14.68% 2.45% $997,731.50 Investment Objective The investment objective of this particular portfolio is income and therefore the expected return, the portfolio is in line with the personal investment objective. Relative Percentage Change Both the portfolio and the benchmark average percentage change is 0.2 Weekly Portfolio Performance RUSSELL 2000 Netflix Inc. White Waves Foods Pepsi Co Tesla Motors Under Armour Chipotle Mexican Grill 13/3/2017 + 5.02 +2.99 - 0.14 - 0.18 + 1.55 - 0.19 - 0.19 14/3/2017 - 7.9 - 0.33 - 0.03 - 0.07 + 6.65 + 0.06 + 0.06 15/3/2017 + 20.45 +2.06 + 0.07 + 1.77 + 3.05 + 0.21 - 2.14 Background Information Unemployment Rate 16/3/2017 + 3.2 - 0.89 - 0.22 + 0.03 + 5.00 + 0.34 - 0.01 17/3/2017 + 5.49 + 0.72 - 0.04 + 0.25 +0.55 - 0.09 + 1.63 13 Portfolio Construction Analysis The level of unemployment as at 2016 was 4.9% (Bloomberg, 2017). There has been a significant reduction in the level of unemployment over the years since 2013. This increases the economic output which in turn raises the price of securities. Gross Domestic Product (GDP) The GDP has also grown over the last years making the prices of most securities in the market to rise (Bloomberg, 2017). This also influences a high trading of stocks. Reassessment of Asset Investment Stock Netflix White wave foods Pepsi Co. Tesla Motors Under Armour Chipotle Mexican Grill TOTALS Recalculation of Portfolio Beta No. of Value of Portfolio Individual Portfolio Price stocks stock % beta beta $141.37 1,000.00 $141,370.00 0.1421 1.0014 0.1422 $54.98 500.00 $27,490.00 0.0276 1.0000 0.0278 $109.42 1,000.00 $109,420.00 0.1200 0.9993 0.1099 $249.17 1,100.00 $274,087.00 0.2754 0.9875 0.2720 $179.99 1,000.00 $179,990.00 0.1809 0.9964 0.1802 $404.31 650.00 $262,801.50 $995,158.50 0.2641 1.0056 0.2656 0.9976 KEY Stock reduced Stock increased Rationale The prices of White waves Foods have been reducing over the last week leading to their sale. Those of Tesla Motors, on the other hand, have been increasing hence the decision to increase the stock. Review of changes in the Portfolio Risk Due to the poor performance of White Waves Food, the investor sells 500 of this stock and increases Tesla stock by 100. This buying and selling of stock reduce the beta by 0.001 meaning it makes the portfolio less risky compared to the benchmark. Comments on Trading Activities The general annual turnover of stocks in the United States has remained high. This means there a lot of buying and selling of securities making this market extremely speculative. 14 Portfolio Construction Analysis Calculation of the stocks values by using the divided valuation model (DVM) including constant growth, and variable growth: To begin, it is important to note that securities with great risk are required to paying a great rate of returns as a way of inducing investors to purchase securities. The capitalization rate also referred to as rate of return is defined as the rate of returns that is required by potential investors to compensating them for risk of security ownership. Capitalization rate is usually used to pricing stocks as the sums of current value of its future cash flow. On the other hand, divided discount model is a way of pricing stocks by the sum of future cash flow discounting by the needed rate of returns (Hurley, 2014). It should be noted that DDM price is considered as the stock’s intrinsic value. Then, intrinsic value = present value of stock sale prices + sum of present value of dividends Three models are used in DDM. a) Constant-growth model b) Zero-growth c) Variable-growth model Zero-growth rate: With the zero-growth rate, it is usually assumed that the dividends stay the same. In this case, price of our stock is considered to be equal to the annual dividends divided by rate of required returns. Hence, 15 Portfolio Construction Analysis Intrinsic value of stocks = required rate of return/annual dividends Consider this, If dividends per year on preferred stock shares are $1.89 with the required rate of returns for the same stocks being 9%, then the intrinsic value is: IV = $1.89/0.09 = 21 Constant-growth rate With the constant-growth rate, it is assumed that dividends increase by a certain percentage annually. Often, the constant-growth model is used to valuing stocks of the big companies that increase their dividends over the years (Hurley, 2014). To illustrate, Consider that the company’s stocks pay $4 dividends on this year with the dividend growing at the rate of 6 percent yearly, then, if the required rate of return stands at 12 percent, the prices of the stocks next year will be calculated by this formula: Price of the stock next year = $4 x 1.06 / (12 -6 percent) = $70.7 Stock price this year = 4 / 0.06 = $66.7 Hence, the growth rate = 1.06 ($70.7/66.7), which is the dividend growth rate. Variable-growth rate Most companies enjoy many periods of continual growth. These periods can result to introduction of new technology, new product or innovative market strategy. It should be noted 16 Portfolio Construction Analysis that the period of continual growth, however, cannot continue indefinitely. Consequently, the market competitors can enter the market and hence start competing with the firm (Hurley, 2014). The constant growth rate cannot be used to value these firms, and hence variable-growth rate. The difference between current market value and DVM value: The CMV is the valuation resale that is usually attached to securities that are held long in margin account of the investors. It is often taken as closing prices for bid prices or securities that offered for OTC (over-the-counter) securities. On the other hand, DDM is the valuing method of a firm’s stock prices basing on theory that stocks are worth sum of payments on future dividends (Griliches, 2013). Point-and-figure chart: Upon constructing the point-and-figure chart, I have found that is the easiest and simplest method of determining solid exit and entry points in stock trading. The system is highly effective in monitoring demand and supply of every issue while keeping a close look on developing marketing trends. Analyzing how my portfolio returns can be affected if I placed moving stop-loss orders at prices 10 percent below market price of my securities: It is important to note that the stop-loss order is an order that is usually placed with the broker(s) to selling and buying once the stocks have reached a specific given price. Essentially, the stop-loss is purposely designed to limiting the investors’ loss on securities’ position. It is important to note that my stock can be lost up to 10 percent if I set the stop-loss order for 10 percent, which is comparatively below the price I purchased the price. For instance, if I purchase 17 Portfolio Construction Analysis Microsoft (MSFT:Nasdaq) at $20 per every share and after I have bought it I enter a stop-loss order for $19. This means that if the stock will fall below $19, my shares will be sold at the current market price (Dhaene, 2016). 18 Portfolio Construction Analysis References Hurley, W. (2014). A realistic dividend valuation model. Financial Analyses Journal, 50-54. Griliches, Z. (2013). Market value, R&D, and patents. Economics letter, 7(2), 183-187. Dhaene, J., & Goovaerts, M. J. (2016). Dependency of risk and stop-loss order Ryan, T. P. (2006). Portfolio analysis: advanced topics in performance measurement, risk, and attribution. London: Risk Books. Bloomberg (2017.). Stocks. Retrieved March 17, 2017, from https://www.bloomberg.com/markets/stocks Yahoo Finance. (2017). Business Finance, Stock Market, Quotes, News. Retrieved March 17, 2017, from https://finance.yahoo.com/ Constable, Simon. “Price/ Earnings Ratio”. The Wall Street Journal. 2013. Web. 2017. Retrieved from: https://www.wsj.com/articles/SB10001424127887323277504578189803847508428 Constable, Simon. “In Translation: Earnings per Share”. The Wall Street Journal. 2012. Web. 2017. Retrieved from: https://www.wsj.com/articles/SB10000872396390443768804578034840294240774 Campbell, Ryan. “Profit with the Power of P/E Ratio”. Investopedia.com. Web. 2017. Retrieved from: http://www.investopedia.com/articles/basics/10/profit-with-pe-power.asp Traver, Evan. “How to Analyze Netflix Balance Sheet”. Investopedia.com. 2015. Web. 2017. Retrieved from: http://www.investopedia.com/articles/investing/080315/how-analyze-netflixsbalance-sheet.asp Faerber, E. (2016). All about stocks: The easy way to get started. New York: McGraw-Hill. 19 Portfolio Construction Analysis Sander, P. J., & Bobo, S. (2017). The 100 best stocks to buy in 2017. Siegel, J. J. (2014). Stocks for the long run: The definitive guide to financial market returns and long-term investment strategies. New York: McGraw-Hill. • An investment portfolio is a collection of assets designed to meet one or more investment objectives (for example, growth or income). This course provides you with an opportunity to simulate experience in constructing and analyzing an investment portfolio, over the duration 6 weeks. You will set up a mock portfolio using your own research on real-world organizations to inform your choice of securities. You will acquire background and firm-specific information for the organizations by accessing their Web sites. You will also use research tools and information from free Internet resources (such as Yahoo! Finance, StockTrak, and Bloomberg) to assist you in acquiring and measuring your portfolio progress. Note: Stock-Trak provides both free and subscription services. You are not required to use this site for your project, but it is recommended. As a prerequisite for constructing and evaluating your portfolio, you will conduct a fundamental analysis (a combination of economic, industry, and company analyses). You will develop a broad overview of the economy, describing current trends with respect to: • • • • • • • • • Inflation. Deflation. Taxes. Interest rates. Employment rates. Budget deficits. Consumer spending. Corporate spending. Stock market activity. Based on this information, you will identify and analyze six industries—three cyclical and three noncyclical—as potential targets for your investments. Next, based on this research, you will select six stocks—three from cyclical and three from non-cyclical industries—to form a portfolio that is consistent with your investing objective (such as income or growth). You will analyze the stocks' performance weekly, and adjust your portfolio accordingly. Weekly Analyses In the analysis assignments in Units 3–5, you will incorporate the following: • A weekly performance record of your portfolio, in comparison with a selected benchmark. • The background information on macroeconomic, industrial, financial market, political, or other news events that might affect the risk and return of the portfolio. You are encouraged to keep a weekly journal of these events. Note: You will be required to provide a summary of these events in an appendix of your final paper. • A reassessment of asset investments, accompanied by detailed analysis and rationale. • A review of the changes in the risk of the portfolio and recalculation of the portfolio's beta, based on your buying and selling of securities. • Your comments on trading activity (or turnover), including any contemporary factors (fiscal, economic, industry- or sector-specific, and political issues). Toward the end of the course, you will recalculate the portfolio's market value and compare it to its value at the beginning of the period, to determine if any change has taken place. If changes are observed (either positive or negative), you will investigate the causes and suggest revised techniques for achieving your declared goals and objectives. At the end of the course, you will submit a formal analysis of your portfolio, in the form of an executive summary. Executive Summary For the final project assignment, provide an executive summary for your analysis of your portfolio's performance. Present your selections, results, and recommendations, based on your research and analysis throughout the duration of the course. Summarize your conclusions and rationale for constructing the optimal portfolio, from both a short-term and a long-term investment perspective. Use the feedback you receive from your instructor, and insights you have gained through other course activities, to improve your analyses. Synthesize all of these components for your final summation. The executive summary should comprise two parts: a written summary and a brief PowerPoint presentation. Written Summary Your written executive summary report should be 5–10 pages in length and include the following elements: • A description of the market trends over the duration of the course: Discuss the latest problems and trends affecting your portfolio. Focus on relevant industries and companies, and the role they play in social and economic life at the local and national levels. Your detailed research should include current and future factors. • A report on economic data pertinent to each industry and each company in your portfolio: The Wall Street Journal is one potential source for this kind of information. Use this data to draw conclusions about the current and future health of the industries and companies in your portfolio. Include a brief chronicle of major events, with their associated effects on trading decisions, in an appendix. • Calculations of performance measures: These can usually be summarized in several tables and graphs, which should also be included in an appendix. • Comments on what you learned: What you have learned by managing this portfolio, and what your future strategies might be, from both a short- and a long-term investment perspective. As a portfolio management consultant you have an ethical and regulatory responsibility to the investors you serve and the financial profession. As you prepare your final report, reflect on your ethical responsibilities and incorporate those responsibilities in your report. This is not a section on ethics but an integration of ethics built in to your analysis, validation, and selection process. Keep in mind that a good consultant supports his or her work with relevant and current sources. Your project should do so as well. Cite all references as per APA sixth edition guidelines. PowerPoint Presentation Create a 10–15-minute PowerPoint presentation of your portfolio management results, analyses, and recommendations. The intended audience for this presentation is a (fictitious) upper-level management team. Demonstrate your ability to tailor the analysis for formal presentation to that audience. Review the presentation for flow and content, so it efficiently—yet competently—presents significant investment and portfolio management analysis elements. Submit your slides and complete notes pages, documenting the narration you would use with each slide. (Notes pages are a view format provided in PowerPoint. If you are unfamiliar with the use of PowerPoint, you may visit the iGuide resource Microsoft Tutorials.) Effective Presentations Use the following guidelines for preparing a professional PowerPoint presentation: • Consider the audience and objective. If you are presenting a financial report, stick to the facts. If it is a company picnic recap, you can have some fun. Remember that your presentation is a reflection on you and your professionalism. • Use a consistent design throughout the presentation. An easy way to do this is to use one of the templates provided in PowerPoint. • Enhance text-only slide content, when applicable, by including relevant images in your presentation. • Use consistent horizontal and vertical alignment of slide elements throughout the presentation, leaving plenty of space around images and text. • • Use bullets, unless showing rank or sequence of items. Use simple tables to show numbers, with no more than four rows by four columns. Reserve more detailed tables for the written summary. • Use sans-serif fonts, such as Arial or Verdana, and font sizes no smaller than 28 points. • Use no more than five bullet points and eight lines of total text per slide. • Use animations only when needed to enhance meaning. If used, use them sparingly and consistently. Project Objectives To successfully complete this project, you will be expected to: 28. Describe the nuances of the investment environment, including key market trends and their driving forces. 29. Analyze the risk-return trade-offs associated with various investment alternatives. 30. Evaluate both return and risk considerations in a portfolio performance, using benchmarks or required returns, such as capital asset pricing model and other measures. 31. Analyze and calculate the return of, and practical implications for, various derivative investment vehicles for both hedging and speculating. 32. Evaluate the investment portfolio performance. 33. Assess the investment practices that impact global and domestic investment analysis and portfolio management. • Project Requirements Toggle Drawer
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