You are hired as a fund manager in the Stockiest91 Fund Management Company where your job is to manage the accounts of high net worth clients and usually clients net worth is more than 5 million therefore high due diligence is required in construction of portfolio. You have interviewed the client to know her financial health and jot down some points:-

Current age is 35 years

Source of income is passive, currently employed in an organization since 3 years

The objective of the client to save 1.5 million in next 3 years along with finance her children fees till next 5 years, in addition to that client also planned a leisure trip which required around 2 million in next 5 years, at last, clients want to preserve its capital by the rate of inflation to eliminate the risk of losing purchasing power parity.

Current portfolio worth 5.5 million in which sector allocation mainly to Cements 25%, Steels 20%, Fertilizer 30% and Foods sector 25%.

Mutual funds industry is offering an equity return for a 1-year basis 9.5% whereas expected rate of inflation in the economy as per analyst consensus around 7.5% however equity market offering 10.25% return for a year.

Sector

Expected Return

Beta

Cements

15%

1.75

Steels

9%

2.11

Banks

22%

1.75

Technology

27%

2.50

Fertilizer

-5%

1.24

Foods

10%

1.10

After conducting your analysis you come to the point current portfolio allocation is not optimal to the clients objective therefore you have re-allocate the portfolio into different sectors as per your analysis. You believe that Banks/Automobile/Technology sector seems much lucrative at the moment and will produce a good return in the future.

Instructions:

Prepare the complete portfolio management report in which you mentioned the working of required return which meets the objective completely and construct the portfolio based on your market analysis. In addition to that, first define the investor behavior as per Markowitz portfolio theory and rest of the working will be based on investor's willingness & ability to take risk.