GROUP ASSIGNMENT

COVER SHEET

COURSE CODE

International Capital Markets

COURSE NAME

ACCFIN5017

ASSIGNMENT
TITLE/NUMBER

GROUP NUMBER

58

STUDENT NAME

STUDENT ID NUMBERS

DEGREE UNDERTAKEN

Martina Giuliani

MFin International Finance

Xiaojin Zhou

MFin International Finance

Lin Zhu

MFin International Finance

Chong Li

MFin International Finance

Yawen Deng

MFin International Finance

DATE SUBMITTED:
WORD COUNT*:

22/11/2015
3

*excluding bibliography, references and appendices

I & C Investments
WEALTH CREATION & WEALTH MANAGEMENT
___________________________________

1152 Argyle Street

G3 8TE Glasgow

info@iandcinvestments.ac.uk
www.iandcinvestments.ac.uk
Tel. +44 (0) 141 332 2754

PORTFOLIO REPORT
Client: Mr Jay Brown

TABLE OF CONTENTS

Abstractp. 3

The present economic environment.p. 4

The fund structure.p. 6

Considerations about risk. p. 10

Future developments and concerns.p. 12

Conclusions.. p. 13
Bibliography. p.16

Appendix I (Costs details and Calculations)..p. 17

Appendix II (Group Proposal Document, Group Interim Report).p.20

This report presents the activity conducted by the investment team of I&C for Mr Brown.
All the specific aspects of portfolio management discussed in the following paragraphs refer to
the evolution of the position from the beginning until the closing date, which is the 11th of
November. Moreover, some changes have been produced on 23th of October and the report

will refer to them even if they are explained in detail in the GIR document attached at the end.
The team experienced a rearrangement of the tasks in order to perform efficiently the

investment operations and to be able to find the best solution for the clients needs. Since the

general asset allocation remained unchanged, Xiaojin Zhou, who was responsible for the bond
market, focused her work on the equity research and selection. In particular, each member of

the team developed his knowledge in a specific sector involved in the portfolio with also a

special attention to the AIM market, which has become always more relevant over the time for
the selected investment strategy.

The team is certainly satisfied about the portfolio performance achieved even if it is still not as

substantial as Mr Brown required. Nevertheless, the results obtained until now demonstrated

that the investment strategy that has been pursued until now has the prerequisites to achieve
brilliant results in the future.

THE INVESTMENT MANAGEMENT TEAM

Xiaojin Zhou

Partner - Investment Management

xiaojin.zhou@iandcinvestments.ac.uk

Martina Giuliani

Director - Investment Management

martina.giuliani@iandcinvestments.ac.uk

Yawen Deng

Chong Li

Partner - Investment Management

yawen.deng@iandcinvestments.ac.uk

Partner - Investment Management

chong.li@iandcinvestments.ac.uk

Lin Zhu

Partner - Investment Management

lin.zhu@iandcinvestments.ac.uk

THE PRESENT ECONOMIC ENVIRONMENT

Economic environment is often referred to as the situation that summarizes both internal and
external economic factors influencing todays business decision-making process between a

firms stakeholders and its clients, as well as the whole worlds macroeconomic environment
development.

Elements of economic environment (including macroeconomic influences such as interest rate,

inflation, credibility of co-operators and microeconomic components like market size

demand&supply chain analysis, competitors actual capacities and distribution channels) are

key points in evaluating a companys performance among other participants from the same

industry. They have become reliable and indispensable determinants for measuring an
enterprise success or failure in its overall operation according to financial managerial

behaviours, especially in terms of financial statement or portfolio investment, in order to

maximize the clients wealth and satisfy their needs.

Although there has been a depression in the global economy over the past few years, resulting
from negative effects brought by the economic crisis in 2008, the current economic situation
has always provided sufficient background information for investors further comprehensive
analysis of implementation on practical manipulation in financial institutions such as stock

exchange market (Bruyn, 2000, pp. 113) . Moreover, present economic environment is the
foundation of discussion among financial planning on selection of industrial fields and

representative firms for portfolio investments. This mainly because the premium aim is to help

the meeting of clients requirements of achieving the maximum amount of profit which will
allow more clients to be attracted to the investment program. Therefore, what has been
mentioned above has always been taken as the most relevant consideration and criteria to

choose the nine corporations stocks and bond in the elaboration of the investment portfolio,
which will be discussed in detail in the following parts of this report.

The client is a young man who has just started his own firm with a limited amount of fund
inherited from his grandmother. Consequently, he needs to raise much more capital to keep a
sustainable growth of his company by seeking financing channel through portfolio investments
on enterprises from various industries.

Recent financial news reports show that global economic development is not optimistic with
bright outlook, especially in developed countries like United States and Great Britain due to
lasting effects of monetary fluctuation and economic recession over the past few years (Bianchi,

Labory, 2011). Moreover, Asian countries like China, India and Japan suffered a lot during
economic storm period, which makes staying in normal conditions much more difficult for the
whole worlds largest financial institutions and trading markets. Newly emerging industries

with enormous potential growth, such as high-tech and energy sectors, have led the trend even
more competitive than before. For the choice of stocks, the team made a selection from
insurance, pharmaceutical and utilities sectors in order to diversify the investment.
Along with the advanced expansion of the start-up companies, other three established
corporations risk and return are observed at each phase. A continuous overlooking has been

conducted to monitor the portfolio performance of all the chosen sectors; in addition, team
members adjusted regularly the portfolio risk level in accordance to the clients requirements.

The main body of the report consists in five parts. What has been previously discussed is a

thorough introduction about the reasons of the selected investment strategies based on the
actual global economic situation. Secondly, the fund structure presents details about how the

team planned the investment in equities and bond over five-years. Considerations about risks

are listed next, followed by further concerns about future developments, which include

suggestions for improvement and related factors to our investment portfolio performance. The
final part is the conclusion where results of the conducted investments are summarized.

THE FUND STRUCTURE

In the first stage, our portfolio consisted 70% of its capital over nine equities and the remaining
30% on one UK 5 years bond which met both the requirements of risk and return. The asset

allocation has been mainly focused on sectors selection; in particular, we initially chose energy,

high-tech, insurance, healthcare and utilities sectors. Two of the four energy/high-tech
companies were large companies, while the other two were interesting start up/new companies
that we believed to have a good potential growth.

Since the portfolio activity started at 2nd of October 2015, the team used data from 2/10/2014
until 2/10/2015 to calculate the arithmetic average rate of return, variance and standard
deviation of each equity (Table 1).

Table 1 Descriptive statistics

Name
ARM Holdings PLC
SAGE Group PLC
XCHANGING PLC
BP PLC
BG Group PLC
PREMIER Oil PLC
RSA INSURANCE Group
SHIRE PLC
NATIONAL GRID PLC

Code
ARM
SGE
XCH
BP
BG
PMO
RSA
SHP
NG

Arithmetic
average rate of
return (%)
-0.1258
0.1103
-0.2439
-0.1910
-0.2259
-0.6616
-0.0047
0.0861
-0.1216

Standard
deviation
1.5517
1.2897
2.2883
1.4148
1.9871
3.7285
1.2150
1.4884
0.8914

Variance
2.4079
1.6632
5.2361
2.0017
3.9486
13.9019
1.4762
2.2152
0.7946

Besides, the covariance and correlation coefficient between every two equities have been

calculated (Table 2). As Table 2 indicates, the correlation coefficients between different sectors
are small which means that the interaction effect among equities is weak. Thus, we chose this
portfolio structure to mitigate risk as much as possible.

ARM
SGE
XCH
BP
BG
PMO
RSA
SHP
NG

ARM

1
0.3405
-0.0047
0.0785
0.0016
-0.0326
0.1516
0.2407
0.1794

Table 2 - Covariance and Pearson Correlation Coefficient

SGE

0.6789
1
-0.0172
0.1263
0.1128
0.0919
0.2259
0.1159
0.2046

XCH

-0.0165
-0.0505
1
0.1065
0.0462
0.0656
0.0607
0.0485
0.1508

BP

0.1718
0.2296
0.3434
1
0.6819
0.5994
0.2637
0.1528
0.4024

BG

0.0049
0.2879
0.2093
1.9099
1
0.5821
0.1355
0.0229
0.3047

PMO

-0.1879
0.4405
0.5579
3.1499
4.2967
1
0.1527
0.0355
0.2091

RSA

0.2846
0.3526
0.1680
0.4515
0.3259
0.6893
1
0.0622
0.2793

SHP

0.5537
0.2215
0.1647
0.3204
0.0675
0.1960
0.1121
1
0.1528

NG

0.2472
0.2343
0.3064
0.5056
0.5378
0.6922
0.3013
0.2019
1

Note: Figures in the lower-left of the table are correlation coefficient; figures in the top-right of the table are covariance.

In the second stage, we increased the risk level as Mr. Brown mentioned, in order to get a higher

return. For this purpose, more attention has been paid to the Alternative Investment Market from
which the team chose several start up/new companies equities in the sectors of hardware and
software technologies.

Four equities selected at the beginning were sold because the initial prediction did not meet the
actual conditions of growth, and the expected scenarios illustrated a decreasing trend in the stock
price (Table 3.1).

Table 3.1 - Sale

ASSETS

CODE

SECTOR

% ASSET SOLD

Na onal Grid Plc

NG.L

U li es

50%

Shire Plc

SHP.L

Xchanging Plc

XCH.L

Bg Group Plc

BG.L

Healthcare

100%

Services

100%

Basic Materials

100%

NO.
OF SHARES
SOLD

(at
23/10/2015)

22

4445.00

902

163.50

53
50

PRICE
929.40

1082.00

Since the good performance of IT sector, the team picked up two more small companies from
this field. They are Cloudbuy plc and Cap-xx ltd. Meanwhile, the other five equities were

prospected to view their share price to continue to grow, both considering some positive news
for those companies and a technical analysis of the share price (Table 3.2). One factor that
supports the belief in its constantly growing concerns a pair of multibillion-dollar energy deals

which are just be signed by BP company and Chinese companies during Chinese President Xi

Jinpings visit to United Kingdom. In this context, focusing on Energy sector has become more
and more notable.

Table 3.2 - Buy

ASSETS

CODE

SECTOR

Boohoo.com Plc

BOO.L

Consumer
Discre onary

ODX

Healthcare

Cello Group Plc

Omega Diagnos cs Group Plc

CLL.L

Cap-xx Limited

CPX.L

Greenko Group Plc

GKO.L

Cloudbuy Plc

CBUY

Informa on
Technology
Electricity

% PORTFOLIO
WEIGHT

NO.
OF SHARES
BOUGHT

PRICE
(at 23/10/2015)

5%

685

84.00

5%
5%

1587
4184

5%

11574

5%

640

5%

8522

36.75
13.75
5.15
6.88

89.50

The position was closed at 11th November 2015. On that day, the portfolio consisted of one
government bond and 12 equities (Table 4). Table 4 indicates the weight of every sector, the
market value, positions and close price of every stock at that day. Figure 1 shows the rate of

return of different sectors and of each equity. Information Technology sector achieved the

highest rate of return and it contributed the most in the total portfolio return, while the Utilities

sector had a less satisfying performance. Energy sector ranked second with 1.1% rate of return,

which is similar to the percentages of Health Care and Financials sectors. Four of the six equities
we bought at the portfolio adjustment made on 23th of October performed very well and
contributed considerably in the final total return.

Table 4 - Main view of holdings

Total

Bonds

UKT 3 09/07/20

Consumer Discretionary
BOOHOO.COM PLC
CELLO GROUP PLC
Energy
BP PLC

PREMIER OIL PLC

# of
Instruments
13
1
2
2

% Wgt

Mkt Val

100.00

1,095,985

29.30

29.30
10.05
4.92
5.13

SAGE GROUP PLC/THE

Utilities

GREENKO GROUP PLC

NATIONAL GRID PLC

36.75

14,133.51

377.90

56,192

64,218.89

87.50

113,659

25,997.04

437.20

60,809

392,319.01

15.50

52,938

5,027.39

1,053.00

784,638.02

7.38

5.55

53,411

113,659
60,809

20.51

224,828

5.50

60,229

1,047,453.65

53,794

9,989.60

4.83
5.28

146,786.02

10.37
5.55

CLOUDBUY PLC

53,944

110,135

144,234.92

CAP-XX LTD

111.20

103,921

Health Care

ARM HOLDINGS PLC

287,019.22

9.48

4.87

10.37

321,096

321,096

157,332

OMEGA DIAGNOSTICS
GROUP
PLC Technology
Information

Closing
Price

14.36

Financials

RSA INSURANCE GROUP PLC

Pos

4.91

57,867

9.87

108,125

4.78

52,373

5.09

55,752

Figure 1 Portfolio Attribution Summary

60,272.47
5,775.57

72.05

5.75

538.50
92.50

906.80

CONSIDERATIONS ABOUT RISK

According to the client requirements, the short-term risk level is low as he would like a fixed

cash flow to cover 10.000 of basic costs while in the medium and long term, the risk level is

balanced as our client expects a good return (at least 12%) from the investment in equities with
corresponding risk exposure. Therefore, the team created a portfolio with 30% of 5 years UK

Bond, which can cover the 10.000 of basic costs without risk and 70% of equities in the main
market, which can satisfy our client requirement for expected return with corresponding risk.

Furthermore, as our client has been a young employee of a high-tech company for 2 years, he

has his own idea about risk and return and would like to invest his money into high technology
and energy sectors including both start up and established companies. Therefore, the team
created

this

portfolio

Summary

As-of Date

10/5/2015

Risk Model

Global Equity Fundamental

Horizon

C&I

cater

his

requirements.

Table 5 Tracking Error Report at 5/10/2015

Currency

D etail

to

Reporting Units

GBP

1 year (252 days) (Scaled 1W)

Returns (%)

% We i g h t Gro ss We i g h t To ta l R i sk C o ntri b u ti o n (% ) Be ta
Po rt

En e rgy

PREMIER OIL PLC

BG GROUP PLC
BP PLC

In fo rm a ti o n Te ch n o l o g y
XCHANGING PLC

ARM HOLDINGS PLC

SAGE GROUP PLC/THE

H e al th C a re

SHIRE PLC
Fi n a n ci al s

RSA INSURANCE GROUP PLC

U ti l i ti e s

NATIONAL GRID PLC

Bo n d s

UKT 3 09/07/20

100.00
20.03
9.96
5.07
5.00
19.90
9.99
5.00
4.91
10.12
10.12
9.90
9.90
9.99
9.99
30.05
30.05

+/-

+ /-

+/-

19.95
10.76
8.56
2.53
1.78
6.87
5.51
1.77
1.63
5.29
5.29
3.75
3.75
2.72
2.72

+/-

100.00
43.38
30.05
7.42
5.91
24.66
15.88
4.84
3.94
13.05
13.05
11.27
11.27
7.64
7.64

P ort

The Tracking Error report (Table 5) shows the total risk of each asset. Six equities have been

chosen (3 from Energy sector and 3 from High Technology sector) to satisfy the client

requirement, which makes contribution around 70% among total risk (43.38% and 24.66%
respectively).

10

To moderate the overall risk of the stocks, the team selected shares from both reputable
established companies and small and medium-sized enterprises with development potential. In

fact, from Figure 2, it is evident how small and medium-sized companies take more risk than
large companies (for example, PREMIER OIL PLC, a medium-sized company, has a risk of 8.56

while BG GROUP PLC, a large established company, takes risk of 2.53, much smaller compared
to PREMIER OIL PLC). To spread the industry risk, the team also chose some equities from
financial and utilities sectors. Finally, the total risk of this portfolio is 19.95 on that trading day.

In the second phase, after a fair return had been realized, our client decided to sell a part of his
portfolio and informed us about his increased desire to take more risk in order to be able to expect
a higher return. According to his willing, the team took the Alternative Investment Market (AIM,

a market which give more financing opportunities for early stage, venture capital backed

companies) more in consideration, expecting to gain a higher return. In the Tracking Error chart
(Table 6), it is clear how the new shares from AIM have a higher risk than stocks coming from
the main market. Nonetheless, the total risk has not increased excessively as some stocks with
larger volatility have been sold. After the adjustment, the total risk of the portfolio is 21.77.
Summary

Table 6 Tracking Error Report at 23/10/2015

Portfolio
As-of Date

C&I
10/23/2015

Risk Model
Horizon

Global Equity Fundamental

1 year (252 days) (Scaled 1W)

Currency

Detail
C&I

Reporting Units

GBP

Returns (%)

% We i g h t Gro ss We i g h t To ta l R i sk C o n tri b u ti o n (% ) Be ta
Po rt

Bo n d s

UKT 3 09/07/20
C o nsu m e r D i scre ti o n a ry
BOOHOO.COM PLC
CELLO GROUP PLC

En e rg y

BP PLC
PREMIER OIL PLC

Fi n a n ci a l s
RSA INSURANCE GROUP PLC
H e al th C a re

OMEGA DIAGNOSTICS GROUP PLC

In fo rm a ti o n Te ch n o l o g y
ARM HOLDINGS PLC
CAP-XX LTD
CLOUDBUY PLC

SAGE GROUP PLC/THE

U ti l iti e s
GREENKO GROUP PLC
NATIONAL GRID PLC

100.00
30.00
30.00
10.00
5.00
5.00
15.00
5.00
10.00
10.00
10.00
5.00
5.00
20.00
5.00
5.00
5.00
5.00
10.00
5.00
5.00

+/-

11

+/-

+/-

21.77
4.05
3.33
1.77
10.09
1.96
9.02
3.92
3.92
3.76
3.76
7.46
1.86
3.85
4.39
1.65
4.79
4.41
1.37

+/-

100.00
10.49
6.89
3.60
35.46
5.90
29.56
11.00
11.00
7.71
7.71
24.09
4.52
6.36
9.76
3.45
11.25
8.12
3.13

Po rt

CONSIDERATIONS ABOUT FUTURE DEVELOPMENTS

AND CONCERNS

The I&C Investment team is rather satisfied about the results obtained in the past five weeks,
even though it is aware about certain aspects which can be improved.

Firstly, although the total trend of the stock market is downward, the team believes there is a
great deal of value in the long-term investment. Since the beginning, great attention has been

dedicated to the analysis of the share price of equities and the relevant news concerning the
companies, in order to find equities with a potential growth tendency. The portfolio strategy

followed until now involved only domestic firms, but a look at foreign enterprises could reveal
interesting investment opportunities.

Besides, a greater diversification could lead to a better risk management. Therefore, a possible

future and efficient strategy would expect more equities from different sectors in order to

reduce the risk level. Nevertheless, a deep analysis is essential to find the right compromise
because too much diversification may not lower the risk level and would increase the cost of
management. These concerns suggested the need of engaging more analysts to focus on the risk
management activity. The team will be strengthened with new experts to be able to lead a wider

research activity and to find more and more efficient investment solutions, tailored to the
clients preferences.

Concerning the building process, the team should keep looking for risk-free investment

opportunities alternatively the one selected. In fact, the portfolio performance continues to be

affected by the constant negative return of the bond. However, the client still requires a
minimum fix return, resulted in the choice of a 5 Years UK Bonds, which represent 30% of the
portfolio. This situation is due to the contraction trend of UK economy, which indeed results in
the constant negative yield of UK bonds.

All these considerations led to another aspect of the investment strategy that can be developed

in the future. In order to achieve our goal of 12% return, the team believes that more attention

to the government bond market should be paid. The main idea is to focus on the research of
treasury bonds of countries whose economic environment guarantees a positive yield, always

keeping in mind what currency risk involves. Xiaojin Zhou, who was responsible for the bond
market, joined the other team members in the equities research, since it had been the main

activity involved during the portfolio adjustment. Therefore, as already mentioned, a team

rearrangement will be the first required operation, in order to exploit in the best way the
present and the future resources and to guarantee to the client the most efficient service.
12

CONCLUSIONS
Here is the summary of the performance of the portfolio designed for Mr Jay Brown. The
investment strategy and fundamental and technical analysis the team pursued, led to a well

portfolio return from the 2th of October to the 11th of November 2015, which is also shown in the
Figure 2.

Generally, the portfolio return maintained a positive and increasing trend, experiencing two

significant rises. The first one started on the 5th October due to the sudden growth of
XCHANGING plc. The company announced the positive results from the amalgamation of the

Xuber Secures, Total Objects and Agencyport in the business report on 29th September. Another
important increase occurred after the portfolio adjustment made on the 23th October, in order to

meet the clients new request of higher risk level. After that, the return stopped its growth,
maintaining steady just below 10%.

Figure 2 Portfolio Performance Total Return

During the investment period, the client wealth has increased from 1,000,000 to 1,095,985
and the total return on the 11th of November is approximately 9.6%.
13

Concerning the portfolio part dedicated to stocks, the Information Technology sector

experienced the highest return and it is the one, among all the sectors involved in the portfolio
strategy, with the larger number of members.

More in detail, the stock that contributed the most is XCHANGING PLC, which return
increased to 48.08%. Although the portfolio included a stock with a negative yeld (NATIONAL

GRID PLC had -2.70% return), all the sectors revealed positive performances. On the contrary,
the selected bond has a negative return of -1.07%. However, the requirement of a fixed income is

essential therefore, as mentioned in the previous section, an intensive research will lead in order
to find a better solution.
Category

Return
Contribution

IT

34.92%
6.79%

Energy
4.49%
1.10%

Table 7 Sectors Return

Financial
8.06%
0.81%

Utilities
0.43%
0.05%

HC

15.92%
0.95%

CD

2.08%
0.21%

IT: Information Technology, HC: Healthy Care, CD: Consumer Discretionary

BOND

-1.02%
-0.32%

TOTAL
9.6%
9.6%

Regarding the risk level, the client required some investments in IT and Energy sectors, which

both have high risk level, in particular around 10%. In order to spread the risk, the team chose
some stocks from several sectors unrelated to each other. Another requirement of the client was

about investing in some small/medium companies or start up companies. In order to balance the
risk coming from investments in the AIM market, the team also selected some established

companies. Overall, the Beta value of the portfolio has always been around 1.04 meaning the
portfolio tent to follow the market variation.

Category
Risk
Contribution

IT

7.76%
24.09%

Table 7 Sectors Risk

Energy

10.09%
35.46%

Financial
3.92%
11%

Utilities
4.79%
11.25%

HC

3.76%
7.71%

IT: Information Technology, HC: Healthy Care, CD: Consumer Discretionary

CD

3.33%
6.89%

On 23th of October an adjustment was made according to the clients requirements and the
changes in the market and in the economic environment. Specifically, the client requested a

higher risk level. After our analysis and comparison, the team sold and bought some stocks

raising the risk level up to 1.82%. Meanwhile, as mentioned above, the return also had a great
growth. Although we made some changes from the very beginning, our actions are always based
on the initial investment strategy.

14

Investment will probably continue to be focused on Information Technology and Health Care

sectors to avoid huge fluctuations on the stock prices. For other sectors, picking up the most

worthy of investment stocks is the primary concern. Thus, the team will pay more attention on
the news and performance of those companies along with a more in-depth analysis of their
financial

statements.

I&C Investments has specific targets to achieve in order to apply an effective portfolio
management. The first aim is to satisfy every clients demand and exploit the best available
resources to design the most suitable investment strategy. Clearly, the main purpose is to obtain

the expected return requirements with an appropriate risk level. Therefore, the team bases its
work not only on the continuous monitoring of the portfolio and on the constant research
activity, but also on the understanding of all the clients need and requirements.

To conclude, according to the performance of the portfolio observed during the investment

period, the total return achieved is 9.6%, while the clients required return is 12%. Even though
the specific requirement of Mr Brown has not reached yet, the team of I&C Investments has the
confidence in future profitable results which will more than meet the clients expectations.

15

BIBLIOGRAPHY
MORRISON, J., (2002) The international business environment: Diversity and the global
economy. Basingstoke: Palgrave Macmillan.

BRUYN, S. M., (2000) Economic growth and the environment. 18 series. Springer
Netherlands.

GREYNER, A., SEMMLER, W. (2008) The global environment, natural resources, and
economic growth. New York: Oxford University Press.

GULER, T., GROSS, G. (2010) The economic evaluation of system security criterion
selection in the market environment. Power and Energy Society General Meeting,
Minneapolis MN. Available from IEEE Digital Library. [22th November 2015]

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (2008)

Staying competitive in the global economy: compendium of studies on global value chains.
Paris: OECD 2008.

BIANCHI, P., LABORY, S. (2011) Industrial Policy after the Crisis. UK, USA: Edward Elgar.

16

APPENDIX I

MANAGEMENT COSTS FOR THE INVESTMENT PERIOD

For the investment period starting on 02/10/2015 and ending on 11/11/2015, the client has been

charged of the following costs due the management activity conducted by I&C Investments. The

fee concerning the portfolio management is 1.5%, that is 15,000.00. The fee related to returns
is 15%, that is 14,397.75.

TRANSACTION COSTS RELATED TO THE PORTOFLIO

ADJUSTMENT

The portfolio adjustment made on 23/10/2015 involved buys and sells and the transaction fee
for them is 1%, exactly 6.937,64.

RISK AND BETA VALUE CALCULATIONS

The formula below shows how risk diversification works if there is a wide range of equities in
one portfolio. We see sample variance as the risk of the equities and we can see that assets with
little or negative covariance (or correlation coefficient) can reduce the value of the second part

on the right-hand side of the equation. In our portfolio, we try to use different type of equities
to reduce the overall risk.

w w j wk jk
2
P

j 1

2
j

2
j

j 1 k 1

17

jk

The tables below indicate different connections between couples of assets.

ARM
ARM
SGE

ARM
ARM
XCH

1
0.177731

XCH
NG

BP
BG

BP
PMO

BP
RSA

PMO

1
0.182339

18

PMO
NG

RSA
SHP

RSA
NG

SHP
NG

SHP
1

NG
1

RSA
1

SHP

1
0.142938

PMO

NG

1
0.248827

RSA

SHP

1
0.126384

RSA

RSA

RSA

1
0.199886

PMO

PMO

1
0.586938

BP

PMO
SHP

1
0.288996

PMO

BG

1
0.546541

BP

PMO
RSA

PMO

1
0.142888

BG

NG

1
0.105961

BP

BG
NG

1
0.114157

BG

SHP

1
0.025144

XCH

BG
SHP

NG

1
0.471036

BG

RSA

1
0.105829

XCH

BG

1
0.152376

SGE
SGE
PMO

XCH
SHP

BG
RSA

1
0.481266

BG

PMO

1
0.136852

XCH

BP

1
0.270059

SGE
SGE
BG

XCH
RSA

BG
PMO

SHP

1
0.26325

BP

BG

1
0.076637

XCH

XCH

1
0.023263

SGE
SGE
BP

XCH
PMO

BP
NG

BP

1
0.161415

XCH

NG

1
0.306295

SGE
SGE
XCH

XCH
BG

NG

1
0.302332

XCH

SHP

1
0.251715

ARM
ARM
NG

XCH
BP

BP
BP
SHP

SHP

1
0.229438

SGE

RSA

1
0.102748

ARM
ARM
SHP

SGE
NG

RSA

1
0.126423

SGE

PMO

1
0.077319

ARM
ARM
RSA

SGE
SHP

BG

1
0.165441

ARM
ARM
PMO

BP

1
0.230632

ARM
ARM
BG

SGE
SGE
RSA

XCH

1
0.010689

ARM
ARM
BP

SGE

1
0.35884

NG

1
0.143073

SHP
1
0.29607

NG
1

Below there is the calculation of the Beta value of BG GROUP Plc, which we took as an example.

We used historic prices of FTSE 100 as market price. The data used are from 02/10/2013 to
02/10/2015.

The first step is the calculation of the correlation coefficient between the market return and the
BG return. The result shows a positive correlation coefficient, exactly 0.485, which means there
is a strong connection between the movement of BG and the movements of FTSE 100. The next
step is the calculation of the Beta value of BG GROUP PLC. From the regression summary

output, we can see that it is 1.17 and the value is statistically significant. The beta value shows
BG is more risky than the overall market and with one unit change of market price there is more

than one unit change of price of BG GROUP PLC. Using the same way, we calculated all the
assets Beta value and finally, the Beta value of the portfolio.

SUMMARY OUTPUT
Regression Statistics
Multiple R
0.48528
R Square
0.235497
Adjusted R Square0.233989
Standard Error 0.018529
Observations
509

Intercept
BG%Return

Coefficients
Standard Error t Stat
P-value
Lower 95% Upper 95%
-6.6E-06 0.000821 -0.00801999 0.993604196 -0.00162019 0.001607
1.176557 0.094147 12.49702081 1.98243E-31 0.99159114 1.361524

19

APPENDIX II

GROUP PROPOSAL
Group name
C&I INVESTMENTS
Group members

Martina Giuliani 2225739

Xiaojin Zhou 2177319
Lin Zhu 2202504
Chong Li 2122613
Yawen Deng 2171443

Clients name
Mr Jay Brown

Clients profile
Age: 27
Sex: Male

Background

Mr. Brown has been a young employee of a high-tech company for 2 years. His grandmother had just
passed away and she left him a capital of 1.000.000. He has decided to start up his own company
but he requires 10.000 for essential assets in addition to some fixed annual costs such as rent. He
would like a part of the investment to be in technology and energy sectors including both start up and
established companies.
Investment requirements

Short term: 10.000 cash for fundamental and fixed outlays.

Long term: growth of the portfolio to fund future projects and possible company expansions,
expected return needs to be no less than 12%.
Investors risk profile

Short term: the risk level is low. The investment in bonds meets this requirement and at the same
time, it guarantees a moderate but fixed return to cover 10.000 of basic costs.

Long term: risk level is balanced. A good return will be expected from the investment in equities of
new companies as well as established ones.
20

The investment strategy

This portfolio will consist 70% of its capital over 9 equity shares and the remaining 30% on
one UK 5 years Bond which meets both the requirements of risk and return.

Two of the three energy/high-tech companies are some of the biggest in their sectors. The
team also considered two interesting start up/new companies that have good potential
growth. In addition, three others companies from different sectors have been selected in
order to diversify the investment, in particular from insurance, pharmaceutical and utilities
sectors. For better choice, what has been considered were some indexes from the financial
statement and an historical analysis of the company financial performance.

To monitor the portfolio performance an active management with a continuous overlooking

of all the sectors we have chosen is imperative. Moreover, a regular comparison with the
client is expected in order to update periodically its risk profile and adapt consequently the
portfolio investments.

The team
EQUITY SPECIALISTS

They are responsible for the portfolio proportion related to companies shares. They are always up to
date with all the relevant news of the various sectors in order to evaluate any appropriate change.

Lin Zhu, Chong Li, Yawen Deng

BOND RESPONSIBLE

She always monitors the bond market to check the presence of more suitable investment
opportunities for the clients needs.

Xiaojin Zhou

PORTFOLIO SUPERVISOR

She looks after the general portfolio performance developing a steady report to inform all the team
about the investment status. She is also the main contact person for the client.

Martina Giuliani

21

Portfolio

Stocks 70% Bond 30%

Stocks
Name

ARM Holdings PLC

SAGE Group PLC
XCHANGING PLC
BP PLC
BG Group PLC
PREMIER Oil PLC
RSA INSURANCE Group
SHIRE PLC
NATIONAL GRID PLC
Bond
Name

5y UK Bond

ARM
SGE
XCH
BP
BG
PMO
RSA
SHP
NG

Price at 2/10/2015
(GBP)
935.00
504.50
110.75
342.71
987.80
70.40
404.60
4513.00
916.89

Coupon
value

Price at 2/10/2015
Percentage
(GBP)

Code

(12 months)

3.75%

112.74

Group Interim Report

22

Percentage
5%
5%
10%
5%
5%
10%
10%
10%
10%

30%

Group Name

Date submitted

I&C Investments

25/10/2015

Clients name
Mr Jay Brown

Summary of the changes proposed

After two weeks the portfolio has been created, the C&I Investment Team is pleased to reveal a
satisfying +7.07% return.

A relevant contribute has been given by the UK Bond but it has not been the same for all the
stocks.

Moreover, Mr Brown informed us about increased desire to take more risk in order to be able to

expect a higher return. As he is thinking about some interesting expansions for his company,
which would lead the business into new promising sectors regarding both new hardware and
software technologies.

Considering these aspects, a readjustment of the portfolio has been conducted, identifying what
needed to be sold and how to reinvest the available capital.

Up to 70 % of the portfolio will be unchanged. 30% of it is represented by the Bond, which needs

to be held in order to respect the essential return wanted by the client, specified at the beginning.

The six companies involved in the other 40% all have valid prospects to view their share price

to continue to grow, both considering some positive events for their business and a technical
analysis of the share prices. For instance, the trend of Bp Plcs share price was already rising on

the 2nd of October when the purchase was done. One factor that supports the belief in its

constantly growing concerns a pair of multibillion-dollar energy deals which are just be signed
by BP company and Chinese companies during Chinese President Xi Jinpings visit to London.

Shares of four companies were sold because the initial prediction did not meet the actual
conditions of growth, and the expected scenarios illustrated a decreasing trend in stock prices.

The available capital has been reinvested in six new companies. In order to raise the risk level
for greater return, the corporations have been selected from the Alternative Investment Market
including new sectors such as Media and General Retailers.

23

Portfolio
SALE
ASSETS

CODE

SECTOR

National Grid Plc

NG.L

Utilities

Bg Group Plc

BG.L

Xchanging Plc

XCH.L

Shire Plc

SHP.L

Healthcare
Basic

Materials
Services

% ASSET
SOLD
50%

100%

NO.

PRICE

SOLD

23/10/2015)

OF SHARES
53

22

(at

929.40

4445.00

100%

50

1082.00

100%

902

163.50

NO.

PRICE

WEIGHT

BOUGHT

23/10/2015)

BUY
ASSETS

CODE

Boohoo.com Plc

BOO.L

Omega

SECTOR
General

Retailers

PORTFOLIO

OF SHARES

(at

5%

1587

36.75

Diagnostics

ODX

Healthcare

5%

4184

13.75

Cap-xx Limited

CPX.L

Technology

5%

11574

5.15

5%

640

89.50

5%

8522

6.88

Group Plc

Greenko Group
Plc

Cloudbuy Plc

Cello Group Plc

GKO.L
CBUY

CLL.L

Electricity
Software
Media

5%

24

685

84.00