Evaluation of the security transaction, the consistency of the portfolio construction and management with client's profile

Acepublisher .

Order the writing of a tailor-made Finance Term papers

Free quote online

Thesis Format .doc

Evaluation of the security transaction, the consistency of the portfolio construction and management with client's profile

Download

Read an extract

Reader
Abstract
Contents
Extract

Abstract

This year, Pro Fund is very proud to have a new client, Mr Lucent who is 47 years old. He sold his firm during the summer and received 1,000,000€ for it. He doesn't really need this money but he wanted to have a new challenge in another sector. He wants to keep the money for the future (children' studies and retirement). Therefore, we get his trust to manage his fortune. In terms of return expectations, Mr Lucent wants to receive a better income as in a bank placement (2.75% of interest rate). He also doesn't want to take too much risk. Given that he has a long-term strategy, he will need liquidity only in 6-7 years. His aim is to follow the market or beat it by 2%.

Regarding to our client's expectations we decided to build a portfolio and invest 874,985.7 euros equally shared in five different shares listed in Euronext Paris (see initial report). We kept the rest, 125,014.3, to transactions costs and management fees. Given that we took only stocks from the industrial sector, we chose a benchmark according to that. There is an index listed on the Paris Stock Exchange (Euronext Paris) with all stocks from the industrial sector. It is called CAC industrials.

After 2 months we could already put two and two together: This report details the returns and variability in value of the portfolio in a first part. In the second part, we explain how and why we did a security transaction. In the third, you will find an ex-post evaluation of the consistency of the portfolio construction and management with our client's profile.

Introduction
Portfolio's return and variability in value
1. Portfolio returns
2. Comparison with its benchmark
Details of the security transaction
1. Which security do we get rid off?
2. Which security do we choose to improve the diversification of our portfolio?
3. How did we the transaction?
Evaluation of the portfolio construction and management with our client's profile
1. How did we choose our stocks?
2. How could we do better?
Conclusion
Sources
Appendix

Get this table of contents for free after login.

Extract

[...] Strengths: Market leadership Lafarge is one of the leaders in the construction business and enjoys strong business positions in various business segments. The company is the world's largest manufacturer of cement and roofing products offering a range of cements, hydraulic binders and roof binders. The company is the second largest producer of aggregates and concrete and is the leading manufacturer of Gypsum. The company is present continent-wide, which allows it to limit and smooth cyclical or temporary problems. The market positioning gives Lafarge a strong brand name. [...]

[...] In the third, you will find an ex-post evaluation of the consistency of the portfolio construction and management with our client's profile. I. Portfolio's return and variability in value Portfolio returns We managed the portfolio for 8 weeks, from the to After having invested euros on the we have on the an amount of euros. It represents an increase of of our first invested amount, i.e. a gain of euros. Regarding the evolution of each stock included in the portfolio, we obtained: - An increase of of Carbone Lorraine, i.e. [...]

[...] The company works closely with institutes like the Massachusetts Institute of Technology, Princeton University, the University of California and CNRS, on projects for scientific research. The company is currently working on innovative projects like applying nanotechnology to cement and concrete products. The company's focus on research and development allowed it to introduce differentiated products in the market. Successful financial restructuring Thanks to its financial prudence, control on capital expenditure and sale of unrelated non-core businesses, the company has been successful in changing the profile of its capital structure. [...]

[...] Evaluation of the portfolio construction and management with our client's profile How did we choose our stocks? At the beginning, we didn't have any idea about asset allocation. We choose stocks in the same market only thanks to a company and industry analysis. Then we looked at the betas of these stocks. Given that our client didn't want to take too much of a risk, we chose betas between 0.75 and i.e. a portfolio's beta of We chose stocks based on value, we chose firms which give money back to the shareholders. [...]

[...] On the following graph, we can see the evolution of the portfolio (blue line) and the benchmark (red line) on the 8 week. Except two times, it can be said that when the benchmark increases or decreases, the portfolio increases or decreases too. II. Details of the security transaction Which security do we get rid off? We analyze the evolution of Schneider Electric. On the chart above, we can see the evolution of Schneider Electric stock price over the period 05.09 .2005- (blue line). [...]

doc