Case Study Analysis

The Williams Family Portfolio

You are a portfolio investment manager with an investment management company, Bloom Fund Managers. The company provides a number of investment products and services including a growth fund, a high interest fund, a property fund, a registered retirement savings plan, pension fund and global funds.

Your manager asked you to review the investment portfolios of Justin and Latoya Williams, a young couple in their early forties. The couple previously worked with another investment management company, Island Financial Managers, but had to put their investments on hold due to a large financial purchase.

To assist you with your review, the couple provided the following background information:

Family

The couple has two sons ages 6 and 3. The 6 year old is in primary school, whilst the 3 year old is in nursery school. The 3 year old will be transferring to primary school within the next year.

Health

Justin is 42 and Latoya is 41. Justin is very fit and an active cricketer. He plays for a local club and spends at least one day on the cricket field. He is allergic to dairy products and sometimes suffers from hay fever. Both of his parents and sister are hypertensive. Latoya is not active and has very little exercise because of a leg injury that she sustained a few years ago. Sometimes she takes the children to the beach to practice their swimming. As a child she was diagnosed with asthma and there is a history of diabetes in her family.

Housing

The couple recently moved out of their two-bedroom apartment rental and into their home. The three-bedroom two-bathroom home was bought for $385,000 and was secured via a 100% 30-year mortgage. The monthly payback for the mortgage is $1,900 per month. The home was built in 2008 and the property area is 5,100 square feet.

Expenses

The couples expenses include utilities (electricity, water, natural gas, and telephone/internet); a single car payment and childcare costs. Their estimated monthly after-tax living costs (excluding their mortgage) are approximately $2,350.

Income

Justin and Latoya are employed in full-time jobs. Justin is a sales representative for a pharmaceutical company, which pays him a flat salary plus commission. Latoya is a teachers aide at a primary school and she hosts an after-school programme three days a week. Their combined monthly income after taxes is $6,825.

Financial Goals

The couples main goals are to improve their financial security, start a six-month emergency fund and create a financial cushion for their boys. They want to expose their children to different activities and save towards their education. If possible, they would like to take one family trip each year. The couple is keen to create an investment portfolio that would allow them to meet their medium to long-term goals. They would also like to increase their savings in the credit union.

Additional Comments

Justin and Latoya are looking for an investment manager who can create a comprehensive plan for them to follow. They would prefer to invest in companies operating in less risky sectors; however, they are open to investing in sectors that have the potential to be profitable in the medium to long term. The couple wants to make well-planned decisions; but they have decided that they will not sell a security for less than what was paid.

Questions

1. Create a portfolio of ten (10) stocks for the Williams family using the stock information presented in the table below:

COMPANY	RISK RATING	TOTAL RETURN AFTER:
		1 YEAR	5 YEARS	10 YEARS	15 YEARS
Collymore Rock Trust	Medium	9.9	24.7	42.1	50.9
Brimstone Green	High	5.6	12.0	26.0	54.3
Tunapuna Petroleum	High	10.0	22.8	41.9	77.6
Lethem Legal	Low	1.2	2.4	4.2	10.8
Montego Companies	Medium	6.5	20.4	40.0	86.7
Hermitage Capital	Medium	5.5	11.4	20.8	35.7
Exuma Wholesale	Medium	7.5	25.5	33.8	51.1
Bolands Bath and Body	Low	3.1	7.6	16.3	27.9
Labadie Pharmaceuticals	Low	6.2	13.6	28.5	49.1
Mount Scenery Technology	Medium	4.0	8.6	18.6	28.0
Soufriere Software	Low	6.3	12.4	24.6	55.8
Gouyave Energy	High	3.3	10.9	20.7	40.0
Portsmouth Surgical	Medium	7.7	14.2	36.1	56.1
Basse-Pointe Beverages	High	5.7	11.8	24.6	44.4
Pinneys Integrated Products	High	3.4	11.2	28.8	59.9
Goat Point Research	High	5.8	12.2	24.5	49.0
Castara Medical	Low	4.9	8.0	26.3	36.0
Cockburn Town Systems	Medium	5.3	10.0	19.0	34.8
Bayamon Pharmaceuticals	High	12.0	12.6	15.3	18.9
Hamilton Farms	Low	3.0	6.1	13.5	23.8
Bouillante Wholesale	Medium	15.5	15.9	20.2	35.4

a. Create a list of the selected investments and explain why they were selected for the portfolio (Note: Please indicate your rationale for choosing the specific stock) [10 marks]

b. Assuming that the probability is 0.25, calculate the expected rate of return after 15 years for the portfolio you have created, using the formula:

Expected Rate of Return = (Probability x Possible rate of return). [5 marks]

Please provide in editable copy and paste format thank you.