Investment Policy Statement and Portfolio of Investment Instruments

Portfolio Construction
Name
Affiliation
Course
Instructor
Due Date
Portfolio Construction
Investment Policy Statement
Client 2, a 21-year-old recent art graduate, aspires to become a self-employed artist and purchase a studio space in London, while also aiming to pay off their student loan debt of £28,000. With a stable job as a trainee in an animation company, earning £21,000 annually, and a total wealth of £300,000, the client is keen to invest the full amount to achieve their financial goals. It is assumed that the client’s salary should be enough to cover for living expenses. Considering that Client 2 is a risk lover, and is seeking significant returns within a period of five years, the proposed investment strategy involves the combination of exchange traded funds (ETF) and equities. Therefore, 20 percent of the client’s wealth will be invested in the ETF while the remaining 80 percent will be invested in equities. The target asset allocation for Client 2's portfolio is well-suited for their investment goals, aiming to accumulate enough wealth to cover the purchase of a studio and six months of living expenses, totaling £350,000.
Given the investment time horizon of five years, the portfolio will be rebalanced semi-annually to ensure it aligns with the client's risk and return expectations. By adopting a mutual fund policy and diversifying investments across multiple companies, the portfolio seeks to achieve the client's financial objectives and support their aspirations of becoming a self-employed artist while securing a studio space in London. Client 2 is aware of the inherent risks associated with investments, but places a higher emphasis on potential returns. The investment manager recognizes that domestic equities present an attractive opportunity for short-term investment growth, aligning with the client's risk and return expectations. Throughout the investment journey, the investment advisor will maintain an active service relationship, providing guidance, support, and regular reviews to ensure the portfolio remains on track to fulfill Client 2's financial goals. With a clear investment philosophy and a strategic approach to asset allocation, the portfolio is designed to serve as a solid foundation for the client's aspirations and long-term success as a self-employed artist.
Investment Instruments
Assets

Name

Purchase price

Number purchased

Total cost

Weight

Exchange Traded Fund

Invesco Nasdaq 100 ETF (£EQQQ)

29,529

2

59058

20%

Equities

BA

927.4

18

16693.2

6%


BRBY

2244

10

22440

7%


AHT

5574

5

27870

9%


SPX

11045

5

55225

18%


CPG

2117

10

21170

7%


RIO

5140

10

51400

17%


CRH

4587

10

45870

15%





299726.2

1

It is assumed that the client will invest the entire 300,000 as the salary should be sufficient to cover his living expenses. The total cost of the developed portfolio is £299,726, which is within the money set aside for investment purposes.
Financial Instruments in the Portfolio: Equities
BA.L
BAE systems is a major player in the Aerospace and Defense industry with an employee base of 93,100. The company has a market capitalization of 27.92 billion and a price to book value of 2.49, which makes it a stable investment for the portfolio. A beta value of 0.58 means that the company’s share price is not highly volatile. According to Yahoo Finance, 79.17 percent of the company’s share are held by institutions highlighting the overall attractiveness of the equity. Further, the company has a profit margin of 7.48 percent and an annual dividend rate of 0.03 percent. Thus, the share will grow significantly within the five-year period.
BRBY.L
Burberry Group PLC is a luxury goods provider in the consumer cyclical industry, employing 9,201full time staff. The company has a market capitalization of 8.20 billion. Notably, the company stock has a high beta of 1.23 which means that the risk is high. However, the company return on equity of 31.18 percent highlights the effectiveness of the management team, with the profit margin of 15.84 percent highlighting the high likelihood that the company is able to recover generate revenues for its investors.
AHT.L
Ashtead Group PLC is a player in the rental and leasing services industry in the United Kingdom. Just like BRBY.L, the company has a highly volatile stock with a beta of 1.45. However, a profit margin of 16.73 percent and a return on equity of 29.30 percent means that the company is efficient in generating profits for the investor. The average five-year annual dividend yield for the company is 1.36, which means that the company stock will generate earning and experience growth within the investment period.
SPX.L
Spirax-Sarco Engineering PLC is a player in the specialty industrial machinery with 10,400 full time employees. The equity has a stable beta value of 0.59, which means that the stock price is less volatile compared to the market. A profit margin of 13.95 and a return on equity of 20.64 means that the equity is effectively position to achieve growth in the sense that the management can generate the funds required to drive growth. The company has a 5-year average dividend yield of 1.15, which highlights its value as a growth stock.
CPG.L
Compass Group PLC (CPG.L) is a company that operates in the Restaurants’ industry. Compass Group's position in the food services industry provides an added advantage. This industry has proven to be resilient and stable even during economic downturns, ensuring a steady revenue stream. The company's diverse presence across various sectors, such as corporate catering, education, healthcare, and sports events, further strengthens its growth prospects by tapping into multi...