FINA2004 Portfolio Management Semester 2, 2020-2021 Final Assessment Case Study Analysis (60%) You are an Investment Manager for an asset management company, Big Rock Fund Management. Big Rock is a Caribbean based firm that offers a range of products and services which include brokerage services, registered retired savings plans, mutual funds, portfolio management and financial planning. In your role, you have seen first-hand that investment decisions for your investor clients are largely driven by their personal goals, and the amount of risk they are willing to take. Factors such as the amount of time clients have set for achieving specific goals, are critical to determining the level of risk to be taken on in an effort to achieve these goals. Not many clients like to hear the truth all investments have some elements of risk, and even doing nothing is also risky. The Client Your manager asked you to review the investment portfolio of Michelle Williams, a young woman in her mid-thirties. Ms. Williams is a long-standing customer of the company, but her investment needs have changed over the last few years. When she started her investment portfolio in 2011, she was still a student at university. She lived with her parents and was working a part-time job that helped to pay off her student loan. She put off updating her investment goals through the years and did not pay too much attention to her investment account. However, she believes that given the following changes in recent years, its time to update her investment goals and objectives. 2011: Graduated from the University of the West Indies with an undergraduate degree in Accounting 2012: Landed a job as a Student Finance Officer at the local polytechnic 2012: Started the ACCA designation 2012: Moved into a one-bedroom apartment 2013: Paid off undergraduate student loan 2014: Purchased a car from a local dealership via a 7-year loan from the credit union 2015: Moved back home with her parents in an effort to save money 2016: Acquired land via a 10-year loan from the bank 2018: Completed the ACCA designation 2019: Gave birth to healthy twin boys 2021: Accepted a new position as Finance Manager at the local community college 2021: Applied for a mortgage to build a home Even though she is a conservative investor, Michelle has $75,000 in savings that she is willing to invest with a time horizon of seven years. Big Rock Fund Management The company has identified the following stocks, bonds and cash investments which should be considered when creating portfolios. STOCKS COMPANY INDUSTRY CURRENT PRICE EXPECTED RETURN (%) AFTER: 1 YEAR 3 YEARS 5 YEARS Collymore Rock Trust Financial Services 22.16 9.9 24.7 42.1 Brimstone Technology Telecommunications 18.04 5.6 12.0 26.0 Tunapuna Petroleum Energy 36.86 10.0 22.8 41.9 Lethem Entertainment Media/ Entertainment 108.25 1.2 2.4 4.2 Montego Realty Real Estate 40.92 6.5 20.4 40.0 Hermitage Wholesale Retail/ Wholesale 31.77 7.5 25.5 33.8 Bolands Bath and Body Consumer Goods 2.21 3.1 7.6 16.3 Kingstown Software Technology 11.47 6.3 12.4 24.6 Gouyave Energy Utilities 6.04 3.3 10.9 20.7 Portsmouth Medical Healthcare 19.62 7.7 14.2 36.1 Basse-Pointe Foods Food & Beverages 8.41 5.7 11.8 24.6 Pinneys Products Industrial Goods 15.54 3.4 11.2 28.8 Goat Point Logistics Transportation 19.75 5.8 12.2 24.5 Hamilton Farms Agriculture 44.15 3.0 6.1 13.5 Bouillante Vehicles Automotive 172.72 15.5 15.9 20.2 BONDS BOND/ ISSUER COUPON YIELD MATURITY DATE (mmddyyyy) Exuma Re 5.7500% 37.88% 04/18/2025 Labadie Life 7.1250% 23.33 10/27/2026 Mount Scenery MD 0.0693% 5.04% 06/06/2023 Portsmouth XS 3.3750% 1.34% 10/01/2022 Long Bay Quota Share 5.1550% 5.16% 10/22/2028 Batibou Re 4.0000% 3.97% 09/01/2025 Couva Health 4.6000% 4.60% 09/30/2034 Martha Brae 0.0693% 5.04% 06/06/2023 Davy Hill Bank 3.1250% 2.78% 01/09/2027 Sandy Point ML 1.0000% 0.68% 01/12/2024 Gouyave AXXX 2.2500% 0.72% 01/25/2023 Buccoo ML 7.6250% 40.85% 04/18/2037 Argyle AXXX 5.0200% 0.48% 12/04/2026 Micoud MD 4.6500% 2.88% 03/11/2030 Belleplaine Re 1.1600% 0.93% 11/07/2026 CASH INSTITUTION INVESTMENT TYPE MINIMUM DEPOSIT INTEREST RATE MINIMUM PERIOD Goat Point Finance High Interest Savings 10,000.00 7.5% 3 years Castara Bank Savings Account 100.00 0.10% N/A Pinneys Credit Union Term (Fixed) Deposit 5,000.00 3.5% 1 year Big Rock Fund Money Market 1,000.00 1% 90 days Questions 1. Using the information above, create a portfolio for Michelle that consists of stocks, bonds and cash. [5 marks] 2. Outline your rationale for the composition of the portfolio by explaining: a. The strategy used to allocate assets; b. The factors that influenced your approach; c. The importance of asset allocation to Michelles situation. [25 marks] 3. Identify five risks that could impact the portfolio. Explain the nature of each risk (e.g. how the risk could come about) and the potential impact(s). [30 marks] Grading Guide Q1 (5 marks): 5 marks for a completed portfolio that allocates $75,000 over stocks, bonds, cash Q2 (25 marks): a. 5 marks for explanation of strategy b. 2 marks for each factor (maximum 5) c. 2 marks for each advantage of asset allocation (maximum 6) Q3 (30 marks): 2 marks for each risk identified (maximum 5) 2 marks for explanation of the nature of the risk (maximum 10) 2 marks for the potential impact (maximum 5)