The Family Portfolio (1.2 million) represents the remainder of our lifetime savings. The portfolio is invested in very safe securities, consistent with the investment policy statement prepared for us by WTFC as shown below: WTFC Investment Policy for Smith: The Smith Family Portfolio's primary focus is the production of current income, with the long- term capital appreciation a secondary consideration. The need for a dependable income stream precludes investment vehicles with even modest likelihood of losses. Liquidity needs reinforce the need to emphasize minimum-risk investments. Extensive use of short-term investment grade investment is entirely justified by the expectations that a low-inflation environment will exist indefinitely into the future. For these reasons, investment will emphasize U.S. Treasury bills and notes, intermediate term investment grade corporate debt and select "blue-chip" stocks with assured dividend distributions and minimal price fluctuations. To assist in a discussion of investment policy, Mesa presents four model portfolio shown below with return for each portfolio, current yield and Sharpe Ratio: B C D ox 5 Asset Class A U.S. Large Cap U.S. Small Cap 0 Non-US Stock U.S. Bonds Venture Capital 15 15 0 80 0 10 5 4 T-Bills 7.5 After-tax Return Sharpe Ratio After-tax Yield 4.2% 0.35 4.20% 13.0 0.45 0.50 0.45 2.9 1.9 3.3 Based on the above information answer the following needs for the Smith family: A. Prepare and justify an alternative investment policy statement for the Smiths' family portfolio B. Describe how your IPS addresses three specific deficiencies in the WTFC investment policy statement. C. Recommend a portfolio from the above for the family portfolio. Justify your recommendation with specific reference to: i) three portfolio characteristics other than return or yield and ii) the Smith Family return objectives (show your calculations). The Family Portfolio (1.2 million) represents the remainder of our lifetime savings. The portfolio is invested in very safe securities, consistent with the investment policy statement prepared for us by WTFC as shown below: WTFC Investment Policy for Smith: The Smith Family Portfolio's primary focus is the production of current income, with the long- term capital appreciation a secondary consideration. The need for a dependable income stream precludes investment vehicles with even modest likelihood of losses. Liquidity needs reinforce the need to emphasize minimum-risk investments. Extensive use of short-term investment grade investment is entirely justified by the expectations that a low-inflation environment will exist indefinitely into the future. For these reasons, investment will emphasize U.S. Treasury bills and notes, intermediate term investment grade corporate debt and select "blue-chip" stocks with assured dividend distributions and minimal price fluctuations. To assist in a discussion of investment policy, Mesa presents four model portfolio shown below with return for each portfolio, current yield and Sharpe Ratio: B C D ox 5 Asset Class A U.S. Large Cap U.S. Small Cap 0 Non-US Stock U.S. Bonds Venture Capital 15 15 0 80 0 10 5 4 T-Bills 7.5 After-tax Return Sharpe Ratio After-tax Yield 4.2% 0.35 4.20% 13.0 0.45 0.50 0.45 2.9 1.9 3.3 Based on the above information answer the following needs for the Smith family: A. Prepare and justify an alternative investment policy statement for the Smiths' family portfolio B. Describe how your IPS addresses three specific deficiencies in the WTFC investment policy statement. C. Recommend a portfolio from the above for the family portfolio. Justify your recommendation with specific reference to: i) three portfolio characteristics other than return or yield and ii) the Smith Family return objectives (show your calculations)
