Assume that you are working as a financial analyst in a financial consulting firm. Your company mainly offers support to individual investors who invest their money in the capital market. For simplicity, assume that all the investments are made in financial assets listed and traded mainly on the London Stock Exchange. You are requested to offer specialist investment advice to a client who has a total of £100,000 cash to invest. As a financial analyst you are required to prepare a report making suggestions as to the selection of appropriate financial assets to buy with the £100,000. In preparing your report with detailed suggestions to the client you should note the following requirements apply:
1. You have to invest a total of £100,000 or any fractional amount as close to £100,000 as possible (considering the indivisibility of investment in some cases).
2. You have to form a portfolio rather than investing money in one single financial asset.
3. The minimum number of financial assets that you should include in the portfolio is five and the maximum is ten financial assets.
4. You have to make an assessment of the risk attitude of your client at the beginning of your report and set out an appropriate investment strategy to follow.
5. You may include a risk-free security in the portfolio. The proportion of investment in risk-free assets should be determined by you and based on your assessment of the risk attitude of your client.
6. You have to include common stock in the portfolio. However, the proportion of investment in stock should be determined by you based on your assessment of the risk attitude of your client.
7. You may assume that short selling is allowed.
8. Your target is to maximise return and minimise risk. However, the combination of risk and return should follow be based upon your assessment of the client’s risk attitude.
9. You must write the report in a professional manner.
10.You need to compare the performance of your portfolio with the return of a selected index (FTSE 100) for a period of the past 12 months to justify the selection and construction of your portfolio.
11.You must provide relevant explanations concerning the selection of each asset and also provide appropriate explanations concerning the construction of the portfolio. You must show appropriate calculations of asset values and returns of individual assets and the portfolio, along with risk calculations to justify your decision in constructing the portfolio and the inclusion of any assets in the portfolio.
12.Any argument you provide in your explanations must be supported by appropriate literature. Please note that you should follow an appropriate format for your report.
Please see below for a guide:
1. The report should start with a letter of transmittal.
2. You must provide an executive summary of your report.
3. You must provide an introduction in your report setting out the context and purpose of your report.
4. Please provide a detail analysis for your client indicating the choices and preferences, and relevant investment strategy based on these choices and preferences.
5. You must provide a description of available financial assets for investment purposes and provide relevant arguments in support of forming a portfolio of assets rather than investing in single assets.
6. You must clearly describe your choice of assets to invest in and provide both quantitative and qualitative arguments in support of the selection of each individual asset.
7. If you have used any model in your analysis, please provide a critical analysis for each model used.
8. You should show the superiority of your portfolio by comparing it with selected market index. You may also use any relevant qualitative arguments to support your position. Please note that you are not obliged to create a portfolio which must perform better than the selected index return as long as you can defend your choice for any future possible gain.
9. You must include relevant concluding comments.
10. Any references that you used in the report must be shown at the end of the report along with all the calculations used to support your decision. It is important to note that you should create your portfolio based on your own views and calculations. As there is always a difference in views among investors, it is highly unlikely that two individual investors will come up with portfolios consisting of the same assets with same weights. Therefore, any two submitted reports with same portfolio (same assets with same weights) will be viewed critically by the examiner.
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