Report on Elements Considered While Constructing a Portfolio Management

            Investors wants to invest in such stocks securities & funds from which they can earn significant amount of return. It is always said that “don’t put your eggs in one basket” it means that investing only in one stock can create financial loss for the investor. Therefore to minimize the risk and increasing return on investment the investors create portfolio and investment in number of stocks, bonds & funds. For constructing the portfolio several things are considered which include the amount of return that the stocks provide along with the level of risk that persist in the market. Therefore all those elements which the investors should consider while constructing portfolio are discussed as follows

Goals of Portfolio of Elements Considered While Constructing a Portfolio Management

    Before constructing the portfolio it is important to establish goal which the investor want to achieve through investing into different asset classes. Here the investor wants to achieve significant amount of return. The aim of the investor is to maximize the Sharpe ratio which means that investor wants to create tangency portfolio. The Sharpe ratio shows how well the portfolio is performing. Overall the goal of the investor in creation of this portfolio is to maximize the Sharpe ratio so that maximum amount of return can be earned from the level of risk that exist in the market.

Risk Profile of Elements Considered While Constructing a Portfolio Management

        Several risk factors have been considered while constructing the portfolio. The risk factors that have been considered include Inflation rate, Standard deviation, Variance and drawdown. In portfolio management risk & return play significant role and determine the performance of the portfolio.

Investment Style of Elements Considered While Constructing a Portfolio Management

    The investor wants to take high return which shows that the investor wants to take risk. The overall scenario indicating risk taking behavior of the investor.

        The decision for asset allocation is made by keeping the level of risk & return in mind. 35% of the allocation is made in the REIT Stocks & ETFS. The decision for investment in REIT (Real Estate Investment Trust) is made because of their favorable tax status and significant amount of return on individual stock & ETFs. 25% of the Asset Allocation is made in the MLP (Master Limited Partnership). These are actually mutual funds having MLP tax arrangement. MLPs provide high percentage of return and does not have higher correlation with bonds or stocks. It means that if interest rate increases they can be estimated efficiently. 25% of the allocation in made in High yield corporate bonds. The corporate bonds have low risk profile and provide guaranteed return. In the last 15% investment is made in equity (Atrill 2014).

        In the above table the return on the asset classes can be seen. It can be seen that the return shows fluctuations which means that the level of risk in the market is higher. In the previous years the portfolio have generated significant return however in recent years the performance of portfolio decline up to lot of extent (Atrill 2014).

        The Volatility of the portfolio is 13.83% the beta of the portfolio is 0.78 along with the alpha of -3.62%. The Sharpe Ratio of the provided portfolio is 0.22. The arithmetic mean of the provided portfolio is 3.52%. The market correlation is 0.87. After evaluating risk matrices it can be said that the level of risk in the market is higher (Higgins 2007).

        The above table s showing the performance of the portfolio. It can be seen that Compound annual growth rate is 2.49%. The portfolio is providing 4.23% return. The standard deviation of the portfolio is 13.83%. The performance of the portfolio is indicating that the portfolio is not generating as much return as the level of risk (Pandey 2015). 

References of Elements Considered While Constructing a Portfolio Management

Atrill, Peter. 2014. Financial Management for Decision Makers . 7. Pearson Higher Ed.

Higgins. 2007. Analysis for Financial Management. Tata McGraw-Hill Education.

Pandey, I.M. 2015. Financial Management. Vikas Publishing House.