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FIN3CSF Case Studies In Finance

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FIN3CSF Case Studies In Finance

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FIN3CSF Case Studies In Finance

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Course Code: FIN3CSF
University: La Trobe University

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Country: Australia

Questions:
This case study requires the preparation of an investment portfolio proposal document to be provided to the client, which provides the following information:
 
1. Do market research and download relevant data from the following sources provided.2. An explanation of the underlying investment philosophy and strategy for the development of the portfolio, which is consistent with the indicated requirements of the client. Explanation and justification for this strategy, individually or relative to alternatives, should be provided.3. A description, in table or similar format, of the recommended portfolio components, indicating the selected assets / securities and the magnitudes of investment in each.4. A brief explanation of how each of the recommended investment components aligns with the overall investment strategy.

Answer:
Introduction:
The assessment aims in preparing an adequate portfolio, which could have the audacity to increase returns while reduce any kind of risk that is lured from capital market. The portfolio has been created with a certain philosophy of generating higher returns from investment with the help of technical analysis, while discarding any kind of external threats which could hinder its progress. The use of adequate technical analysis method has helped in drafting the portfolio which could sustain volatility in the stock market and improve the investment capital. The portfolio consists of equity shares, short selling, future contract, ETF and LIC, which adequately diversifies the portfolio created for investment.
Understanding the philosophy and strategy behind the creation of the Portfolio:
The investment philosophy mainly revolves around the Australian equities which are listed in small cap. The incremental growth that is seen in Australian equities during the past year has incited investors to increase their exposure in the sector for raising the level of returns from investment. Furthermore, the mining industry in Australia has been flourishing during the past one year, which can be considered and adequate investment opportunity for all the investors. Therefore, investments in the sector would eventually generate higher returns and have low risk from investment. The investment philosophy also instigates to use adequate hedging procedures that could minimise the portfolio risk and allow the investor to maximize its return. The exposure in ETF, LIC and Short selling also increases the level of diversity that is needed to formulate the portfolio. Hence, the major investment philosophy that is used for creating the portfolio is to select stocks, which have higher growth and return generation capability. Moreover, the technical analysis strategy has been used for creating the portfolio, where the short-term trend of the stocks is evaluated to detect the investment opportunity that could be utilised for investment purposes. According to Ahmad et al. (2017), creation of portfolio with adequate philosophy allows the investor to maximise the return from investment by selecting the appropriate stock, which have the highest probability to generate extra ordinary returns in future,
Recommendation for the investment in portfolio:

Data as on 16-07-18

Particulars

Price

 Number

Cost

Equity Shares – Purchases

 

 

 

WISETECH GLOBAL

17.65

         6,798

 $ 119,984.70

WESTERN AREAS

3.48

       34,482

 $ 119,997.36

SARACEN MINERAL HDG.

2.06

       58,252

 $ 119,999.12

ST BARBARA

5.01

       23,952

 $ 119,999.52

NRW HOLDINGS

1.655

       72,507

 $ 119,999.09

NAVIGATOR GLOBAL INVESTMENTS

5.47

       21,937

 $ 119,995.39

INDEPENDENCE GROUP

4.96

       24,193

 $ 119,997.28

IDP EDUCATION

10

       12,000

 $ 120,000.00

GATEWAY LIFESTYLE GROUP

2.28

       52,631

 $ 119,998.68

FREEDOM FOODS GROUP

6.06

       19,801

 $ 119,994.06

 

 

.

 $ 1,199,965.20

Equity Shares – Short Sales

 

 

 

RETAIL FOOD GROUP

0.43

     278,000

 $ 119,540.00

LICs and ETPs

 

 

 

FLAGSHIP INVESTMENTS

1.715

       65,005

 $ 111,483.58

BETASHARES CRO.IDX.ETF

19.43

       14,849

 $ 288,516.07

Hedged Position for ASX Equity Investments

 

 

 

Invest in settlement account (Future contract ASX 200)

4

       25,000

 $ 100,000.00

Cash Investment in Cash Management Trust

 

 

 

Cash Holding (minimum requirement $200,000)

 

 

 $ 419,575.16

Total

 

 

$ 2,000,000.00

The table represents the overall portfolio that has been created for investment purposes, where adequate financial instruments has been used to increase the returns and minimise risk from investment. The portfolio holds 10 small cap Australian equities, one short selling shares, ETF, LIC, and future contract, where 3 stocks listed in the Australian equities is from the mining sector.  selection of the above financial instruments has a relatively allowed the portfolio to maximize its return, while reduce the overall risk that could be generated from investment. Cervello-Royo, Guijarro and Michniuk (2015) indicated that use of portfolio allows the investors to diversify their investment, which helps in maximising the returns, while reducing the individual risk from each stock. On the contrary, Chandra (2017) argued that during the financial crisis the overall risk from each stock is higher, which nullifies the use of portfolio, as the value of whole capital market starts to deteriorate.

Particulars

7/10/2017

7/16/2018

Return

ETF and LIC

 

 

 

FLAGSHIP INVESTMENTS

1.54

1.715

11.36%

BETASHARES CRO.IDX.ETF

12.71

19.43

52.87%

Equity Shares

 

 

 

WISETECH GLOBAL

6.7

17.65

163.43%

WESTERN AREAS

2.09

3.48

66.51%

SARACEN MINERAL HDG.

1.135

2.06

81.50%

ST BARBARA

2.75

5.01

82.18%

NRW HOLDINGS

0.64

1.655

158.59%

NAVIGATOR GLOBAL INVESTMENTS

2.4

5.47

127.92%

INDEPENDENCE GROUP

3.17

4.96

56.47%

IDP EDUCATION

4.98

10

100.80%

GATEWAY LIFESTYLE GROUP

1.97

2.28

15.74%

FREEDOM FOODS GROUP

4.4801

6.06

35.26%

Short Selling Stock

 

 

 

RETAIL FOOD GROUP

4.52

0.43

-90.49%

The technical analysis calculation has been presented in the above table, where historical prices has been used for the above stocks to calculate the returns that has been generated within the time frame of one year. From the calculation it could be detected that the investments that has been conducted in Australian equities, ETF, and LIC is based on the positive returns that has been generated by the above financial instruments. However, the decline in retail food group has a relatively allowed the portfolio to increase the exposure in short selling, as the company has been experiencing higher losses due to the increment in online purchases in Australia. Therefore, shorting the retail group would eventually help the portfolio to maximize the returns from investment. Hoffmann and Shefrin (2014) mentioned that with the help of technical analysis investors are able to understand the short-term trend of a stock, which helps in making investment decisions.
Conclusion:
The portfolio that has been created in the above assessment mainly has majority of the financial instrument that can be used by the investor to maximize its return from investment. the diversification method that has been used for creating the portfolio has adequately allowed to formulate an investment opportunity, which could generate higher returns while have the least risk from investment.  the use of Technical Analysis has relatively help in detecting stocks, which have the possibility and probability of higher returns in future. Hence, the use of the portfolio would eventually generate higher returns from investment, as it utilizes the Australian equity, which are trending and has provided higher returns in the last fiscal year. Therefore, using the above portfolio would eventually allow investors to increase their exposure in the Australian market and banking on the progress that is been portrayed by the capital market.  
Reference and Bibliography:
Ahmad, M.I., Guohui, W., Rafiq, M.Y., Hasan, M. and Sattar, A., 2017. Assesing Performance of Moving Average Investment Timing Strategy Over the UK Stock Market. The Journal of Developing Areas, 51(3), pp.349-362.
Asxhistoricaldata.com. (2018). ASX Historical Data – Free Downloads. [online] Available at: https://www.asxhistoricaldata.com/ [Accessed 15 Aug. 2018].
Barroso, P. and Santa-Clara, P., 2015. Beyond the carry trade: Optimal currency portfolios. Journal of Financial and Quantitative Analysis, 50(5), pp.1037-1056.
Cervelló-Royo, R., Guijarro, F. and Michniuk, K., 2015. Stock market trading rule based on pattern recognition and technical analysis: Forecasting the DJIA index with intraday data. Expert systems with Applications, 42(14), pp.5963-5975.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hoffmann, A.O. and Shefrin, H., 2014. Technical analysis and individual investors. Journal of Economic Behavior & Organization, 107, pp.487-511.
Kang, Y.Q., Xie, B.C., Wang, J. and Wang, Y.N., 2018. Environmental assessment and investment strategy for China’s manufacturing industry: A non-radial DEA based analysis. Journal of Cleaner Production, 175, pp.501-511.
Lambarraa, F., Stefanou, S. and Gil, J.M., 2015. The analysis of irreversibility, uncertainty and dynamic technical inefficiency on the investment decision in the Spanish olive sector. European Review of Agricultural Economics, 43(1), pp.59-77.
Li, Y., Zheng, B., Chen, T.T. and Jiang, X.F., 2017. Fluctuation-driven price dynamics and investment strategies. PloS one, 12(12), p.e0189274.
Tam, P.H. and Cuong, N.T., 2018. Effectiveness of Investment Strategies Based on Technical Indicators: Evidence from Vietnamese Stock Markets. Journal of Insurance and Financial Management, 3(5), pp.55-68.
Wang, J. and Zhao, T., 2017. Regional energy-environmental performance and investment strategy for China’s non-ferrous metals industry: a non-radial DEA based analysis. Journal of Cleaner Production, 163, pp.187-201.

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