Investment Portfolio

University Degree Business and Administrative studies

Client: Mr Joseph Fourier

Investment Amount: £500,000

Investment Period: 15 Years (2008-2023)

Introduction

Markowitz

The portfolio theory tries to reduce risk by spreading funds over several investments.

Portfolio theory allows investors to estimate both the expected risks and returns for their investment portfolios

‘It is not possible to reduce the variance by investing in several securities. At the same time avoiding investing in securities with high covariance. Markowitz has used his observations and experience in stating that the diversifications across industries with different characteristics have a lower covariance than firms within an industry.

‘The Portfolio theory of Markowitz makes people to describe and solve the optimisation question of a portfolio by the numbers.’ In other words Markowitz theory shows how the investors ought to behave. Markowitz has used mathematical analysis to assist in relating and implying a diversification strategy for range assets of expected value and variance.

Background

This report is analyzing your investment priorities which consisted of the following points:

The amount being invested is £500,000
‘Uncomfortable’ with the idea of ‘Very risky’ investments but is acceptable if there is adequate compensation in the form of increased returns.
Keen to invest in up to three equity securities and three debt securities
Only willing to invest in European or US securities
At least 10% of investment is held in some form of deposit account, in order to receive regular income from this portfolio.

Before looking at the securities, it is important to look at the market or economy where the intended investment will be made. In this case Mr Fourier intends to invest his money in either European or US securities.

Economic Conditions

Europe is beginning to exhibit positive signs of economic growth, with low inflation and unemployment at its lowest level for seven years and an increase in productivity.

Klaus Regling, Director-General of DG Economic and Financial Affairs, European Commission, said that the EU’s Annual Progress Report showed that the euro zone and the EU-25 had seen more growth than forecast, with economic improvement driven by domestic demand “desaving.”

Inflation is nearly down to 2% and public finances have steadily improved, as governments have used the good times to consolidate their position, with euro-zone deficits at 2%, compared to 3% in the US, many investors have substantial concerns about the future prospects for returns from broad equity indices in the US. They are concerned that future growth in the will be sufficiently lower than historical averages primarily due to housing bubble resulting in a lower overall GDP growth.

Inflation figures from Italy, France and Germany earlier this month confirmed the falling inflation rate trend in July, which was ...