Current Valuation of the Portfolio - Assignment Example

Group Report Objectives of the portfolio “The ultimate objective of the investment portfolio is to maximize the returns and minimize the risk involved.” Keeping this in mind, the following objectives have been set: Amount to be invested With the current 10 investment decisions, the amount invested in the securities comes up to 1499700. The monthly repayment mortgage for the house is 4666. His income is 70,000 p.a. His total ROI comes up to 147.9%. Thus, he should invest 75% of his portfolio amount i.e. 75% of 3718150 which is 2788612.5 in moderate risk shares with stable returns. The rest, which is 25% of 3718150, should be invested in high growth sectors. Returns on investment The returns he expects after considering his mortgage repayment should be about 15% more than 1499700 which is the actual amount invested. That means the returns should be 1724655. Requirement of Money Here, three factors are taken into consideration- Since Mr. Fortunate’s children are aged 2 and 3, he will soon need money to fund their education. Hence, returns are expected within a period of 2 years. This should also consider the fact that he doesn’t have any pension provisions. Finally, he requires continuous money for his mortgage repayment. Risks involved Mr. Fortunate can manage to bear moderate risk and invest a part of his portfolio in high growth sectors. Statement showing current valuation of the portfolio S.No. Security Name EPIC Code Sector Volume Price of Purchase Investment Amount Bid Price Latest Value Return on Investment* 1.   MORRISON (WM) MRW Food & Drug Retailer 1000 159 159000 345.25 345250 117.13 2.   PUNCH TAVERNS PUB Information Technology Hardware 600 250 150000 1281 768600 412.4 3.   CADBURY- SCH CBRY Food Producers & Processors 500 330 165000 678 339000 105.45 4.   BP BP/ Oil & Gas 400 362.5 145000 569 227600 56.96 5.   UNITED UTILITIES UU/ Water 300 476 142800 750 225000 57.56 6.   BRITISH AIRWAYS BAY Transport 500 178 89000 496.5 234750 163.76 7.   SCOTT & STH ENERGY SSE Electricity 300 611 183300 1489 446700 143.69 8.   HENRY BOOT GROUP BHY Construction 250 540 135000 1270 317500 135.18 9.   LAND SECURITIES GROUP LAND Real Estate 200 903 180600 2007 401400 122.25 10.   RECKITT BENCKISER RB/ Personal Care & Household Products 150 1000 150000 2749 412350 174.9   TOTAL     1499700 3718150 * Return on Investment: (Latest value- Invested amount)/Invested Amount * 100 therefore, ROI (Total) = 147.9% Transaction summary In this investment portfolio, Mr. Fortunate has sold three shares which are: S.No. Security Name EPIC Code Sector Volume Price of Purchase Investment Amount Bid Price Latest Value 1. ANGLO IRISH BANK CORP ANGL Bank 300 592 177600 17.07 5121 2. NATIONAL GRID TRANSCO NGT Electricity 300 380 114000 777 233100 3. BAT INDS BAT Tobacco 200 610 122000 1586 317200 TOTAL 413600 555421 This gives him a return of 34.28% which he will use to fund his short-term money requirements. Assessment of the current position The current position of the portfolio will be assessed keeping in mind the objectives of Mr. Fortunate. This will be done by assessing each of his shares: 1. MORRISON (WM) This share belongs to the Food and Retailer sector and records a Return on Investment of 117.13% which is very high. Food and Retailer sector recorded a growth of +5.02% in the previous month. This will help Mr. Fortunate in funding his long term and mid term payments such as pension requirements. 2. PUNCH TAVERNS This share belongs to the Information Technology Hardware sector and records a Return on Investment of 412.4% which is extremely high. Information Technology Hardware sector recorded a growth of +11.81% in the previous month. This will help Mr. Fortunate in funding his long term payments such as pension requirements. 3. CADBURY- SCH This share belongs to the Food Producers & Processors sector and records a Return on Investment of 105.45% which is extremely high. Food Producers & Processors sector recorded a growth of +4.34% in the previous month. This will help Mr. Fortunate in funding his short term payments such as children’s education. 4. BP This share belongs to the Oil & Gas sector and records a Return on Investment of 56.96% which is high. Oil & Gas sector recorded a growth of +5.43% in the previous month. This will help Mr. Fortunate in funding his short term payments such as children’s education. 5. UNITED UTILITIES This share belongs to the Water sector and records a Return on Investment of 57.56% which is high. Water sector recorded a fall of -2.58% in the previous month. Mr. Fortunate should not sell of this share in the near future and wait for sometime until the water industry grows and then use it for funding his long term payments such as children’s education, mortgage repayment etc. 6. BRITISH AIRWAYS This share belongs to the Transport sector and records a Return on Investment of 163.76% which is extremely high. Transport sector recorded a growth of +1.27% in the previous month. This will help Mr. Fortunate in funding his short term payments such as children’s education. 7. SCOTT & STH ENERGY This share belongs to the Electricity sector and records a Return on Investment of 143.69% which is extremely high. Electricity sector recorded a growth of +0.78% in the previous month. This will help Mr. Fortunate in funding his short term payments and moderate term payments such as children’s education and mortgage repayment. 8. HENRY BOOT GROUP This share belongs to the Construction sector and records a Return on Investment of 135.18% which is extremely high. Construction sector recorded an all time growth of +14.93% in the previous month. This share records the highest growth as compared to any other share. Hence investment in this share will lead to very high returns. This will help Mr. Fortunate in funding his long term payments such as children’s education, mortgage repayments and pension requirements. 9. LAND SECURITIES GROUP This share belongs to the Real Estate sector and records a Return on Investment of 122.25% which is extremely high. Real Estate sector recorded a growth of -3.21% in the previous month. This sector recorded the biggest fall out of all the other sectors. Hence, Mr. Fortunate should sell of this share immediately and use the money for funding his short term payments. This will help Mr. Fortunate in funding his short term payments such as children’s education. 10. RECKITT BENCKISER This share belongs to the Personal Care & Household Products sector and records a Return on Investment of 174.9% which is extremely high. Personal Care & Household Products sector recorded a growth of 3.14% and 1.22% respectively in the previous month. This will help Mr. Fortunate in funding his long term payments such as children’s education, pension requirements etc. Individual Report Introduction Water, water everywhere! The latest news stating that Insight's multi-manager team has now invested in iShares S&P global water (DH20), clearly signals that Insight expects a very good growth from the water industry. S&P global water is the first exchange-traded fund to track water stocks in Europe. More than a third of the world's population is suffering from shortage of water. China alone has plans to use up $125 billion for recycling and water treatment over the subsequent five years and is also opening up to foreign investment. This is in spite of the fact that the current worth of the water industry is $400 billion globally. On the other hand, estimates are as high as $1 trillion over the next 20 years for the replacement of the aging infrastructure in the US. As well as critical water shortages resulting from global warming and population explosion are other factors which have led to critical water shortages. There has been an increasing demand for water for agricultural activities, such as for growing wheat or to produce ethanol. There is growing need for a certain degree of pure water for food-processing and electronics manufacturing, even for power generation, latter being UK's biggest consumer of high purity water. There has been a centered investment on complicated water treatment technologies in order to deal with various problems like aging equipment, tougher waste water quality legislation and continued contamination from pollution. Such technologies which are being used are called membrane-based technologies which include solutions like water purification, membrane bioreactor waste water treatment and seawater desalination with the help of which alternative sources can be turned into potable water, and also help in generating higher purity water. Past Record of the Sector Time Sector performance(%) Today -0.31 Previous Month -2.58 Previous year +30.66 This shows that the Gas Water and Utilities sector has shown a very high growth rate in the previous year taken combined. Though the last month has shown a fall in the prices, which might be due to several reasons such as low demand, weather conditions etc. It is clearly visible from this that in the long-term, the Water industry is going to do very well and proves to be very profitable as well. Market leaders In the UK as of now there are 10 water and sewerage groups and 13 other smaller companies which deal only with water supply. However, one of the drawbacks has been the pick up rate of these companies as far as new technologies are concerned. This has been due to a highly regulated water industry and high subsequent penalties for any wrong doing. Ones that have had a tougher time are the membrane water treatment technologies due to the high capital cost and application failures. However improvements in operational efficiency and design have decreased both capital cost and operating costs and therefore the end-user confidence has improved. The biggest challenge now is the competitive pricing. General Electric (GER) Hendrx Corp (HDRX) are some of the water-technology companies which are focusing on answering the needs of other developing countries. Other smaller companies include AIM-listed Spice (SPI) and Itron (ITRI) in the US, which was recently purchased by a UK metering company Actaris. These companies are basically involved in meter installation business and membrane-based water treatment. The Bigger, the better In the market, the bigger, the better. The costs linked with distributing and treating water continue to rise, thereby pressurizing the larger organizations to have the financial resources in order to make upfront investments and to be able to spread costs over a much greater revenue base. Certain companies such as the Giant Veolia Water, which is the water division of the company Veolia Environment (VIE), has special services for municipal authorities and provides focused designs of technological solutions. There also lies an advantage of consolidation which is demonstrated by Recent M&A activity. Not only have there been a raft of acquisitions in the United States, but even in UK , AWG, the UK water utility, has been purchased by a collection of Australian and Canadian pension funds. While another German Utility, has gone to Kemble Water Limited, led by European infrastructure funds. Security Name EPIC Code Sector Volume Price of Purchase Investment Amount Bid Price Latest Value Return on Investment UNITED UTILITIES UU/ Water 300 476 142800 750 225000 57.56 In this case, Mr. Fortunate has invested in the United Utilities Company’s shares amount worth 142800. The current value of the share is 225000. Clearly, the value of the share has gone high. It gives a Return on Investment of 57.56% which is very high. This will be very helpful for Mr. Fortunate as it will help him pay off his long term payments which are: The yearly mortgage repayment for his house. Funds for his children’s education. Provision for his retirement Make arrangements for his short term payments and working capital. Mr. Fortunate can wait until the Water industry reaches its boom and then sell off his shares. Currently, the shares are growing at a rate of 130.2%. Even if the same rate is taken into consideration for the next one year, then the new value of share becomes 1106.7. This means the ROI for Mr. Fortunate comes up to 132.5%. This would mean a very high growth rate and high return on investment which would help Mr. Fortunate to fund his long term payments easily. Sources: 1. Market report: Water, water everywhere, ‘Interactive Investor’, 2007 http://www.iii.co.uk/articles 2. Real Story: Rest and Resilience, 2006 http://www.thestreet.com/ 3. Wealth Management solutions, 2006 https://www.fadvisors.com/ 4. Closing out a winning week, 2006 http://www.nashuatelegraph.com/ 5. How to Create an Investment Portfolio, 2007 http://www.ehow.com/ 6. Water Stocks, 2007 http://www.water-stocks.com/Water-Stocks/ 7. Global Investment Institute, ‘How To Make A Well-Balanced Investment Portfolio’, 2006. http://www.global-investment-institute.com 8. Investment Portfolio, Wikipedia, 2007. http://en.wikipedia.org/wiki/Investment_portfolio Read More