Portfolio Managemnt Essay Example for Free

Portfolio Managemnt EssayOverviewKBIM Investment Inc. is a leading investment company incorporated in Barbados and licensed under the Companies modus operandi cap 308 of the laws of Barbados. Founded in the year 2000, the company seeks to conduce its investors with fortune-adjusted cash in ones chipss in a management structure that closely aligns theinterests of investors and managers. Further, KBIM has continued to evolve from a dedicated close equity investment firm to a diversified management company. The fund buys US and Canadian stocks from the New York Stock Exchange as well as from the Toronto market. The fund has been equally divided among the following four industries financials, technology, pharmaceuticals and energy. To assure that efficiency is maintained, the net assets are calculated calendar hebdomadary at the end of each week (Friday) of all stock market transactions.Global Economic and Market OutlookThe global economy is in a dangerous new phase. Global military action has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are exploitation. Against a backdrop of unresolved structural fragilities, a barrage of shocks hit the global economy this year. Japan was struck by the devastating Great East Japan earthquake and tsunami, and unrest swelled in or so oil-producing countries. At the similar time, the handover from public to buck private demand in the U.S. economy stalled, the euro area encountered major financial turbulence, global markets suffered a major sell-off of risky assets, and there are growing signs of spillovers to the real economy. The structural problems facing the crisis-hit advanced economies have proven even more intractable than judge, and the process of devising and implementing reforms even more complicated. The outlook for these economies is gum olibanum for a continuing, but weak and bumpy, expansion.Prospects for emerging market economies have become more uncert ain again, although evolution is judge to remain fairly robust, especially in economies that can counter the effect on output of weaker foreign demand with less policy tightening. World Economic Outlook (WEO) projections indicate that global growth will moderate to about 4 part through 2012 from over 5 portion in 2010. Real GDP in the advanced economies is intercommunicate to expand at an anemic pace of about 1 per centum in 2011 and 2 percent in 2012, helped by a gradual unwinding of the episodic forces that have held back activity during much of the second quarter of 2011.However, this assumes that atomic number 63an policymakers contain the crisis in the euro area periphery, that U.S. policymakers strike a judicious balance amid support for the economyand medium-term fiscal consolidation, and that volatility in global financial markets does not escalate. Moreover, the removal of monetary accommodation in advanced economies is now expected to pause. Under such a scenario , emerging capacity constraints and policy tightening, much of which has already happened, would lower growth rates in emerging and developing economies to a still very solid pace of about 6 percent in 2012.Strategic ObjectivesKBIM Investment Inc endeavours to provide an high up clean, long-term total return fund by investing in small capitalisation stocks listed from at bottom the US stock exchanges. The funds investment style of small capitalization values the investment objective of growth funds. A growth fund seeks to find companies that are expected to show rapid future growth in earnings, even if current earnings are poor, or possibly non-existent. The latter is directed towards more aggressive investors seeking good performance in an expected market rise. KBIM Investment Inc places heavy emphasis on asset allocation which is a very important decision for any investor in terms of portfolio construction. investment trust managers have decided based on strategy and policy of the fund to utilize tactical asset allocation.This approach is performed routinely as part of the on-going process of asset management. Using this approach, market risk is insulated, where exposure to a particular market is increased when its performance is expected to be good. On the opposite hand there is decrease exposure to the market when performance is expected to be poor. An investors fate is basically determined by having allocated funds to asset classes. Risk, expected return, market expectations, risk tolerance and goals of the fund is reflected in the allocation of weightsThe following characteristics should be present for companies in which the fund invests 1. The companys packet price is depressed aft(prenominal) a period of negative growth 2. An acceptable level of financial strength, efficient control and effective management of task assets should be exhibited by the said Company. KBIM Investments Inc reserves the right to rebalance the portfolio later on decis ions have been made from review of the portfolio ever quarter. Rebalancing reduces the risks of sharp losses and is less volatile than a portfolio not rebalanced.At any time where the fund liquidates or suitable equity investments are absence, KBIM investments Inc will seek investments in short term debt securities or money market instruments.RiskKBIM investment equity fund is specifically for an investor who seeks to attain high returns and by doing this is willing to tolerate high risk to birth the maximum benefit from their investment. Investors must take into thoughtfulness that investments in only one portion of the economy may offer greater risk than a highly diversified fund. In addition to the above, a fund that invests in well-established companies may be less risky than one that favors start-up companies.LimitationsInvestors must take into consideration the impact of taxes on the portfolio. Further, changing tax laws imposed can become bothersome in terms of imageing fu ture tax rates. Investors must withal abide by regulation requirements imposed by state and federal agencies. The latter specifies the actions an investor should take in terms of achieving objectives, given the preference of the investor and any constraints imposed. benchmarkTo evaluate portfolio performance, the following questions should be answered the world-class being whether or not the return on the portfolio was adequate after all expenses was taken care of? contiguous the amount of risk taken by the investor or portfolio manager in creating and managing the portfolio should be assessed. Finally what return should have been earned on the portfolio, given the risk taken and the alternative returns available to be earned from investments over the same period. KBIM will be benchmarked against the SP 500 small cap index. The stocks for the fund were selected based on the following criterion ROE 10Market cap 1,000,000,000Six month return 0P/E 15Competitive returnsThe fund m anagers of KBIM, are committed to offering returns above average of similar portfolios. Through our investment strategic policies, we hope to attract investors who are seeking to outwit funds. Here at KBIM we also value enhancement services such as risk management, insurance reviews, consulting and corporate governance. The firms comprehensive offerings provide private equity clients with numerous competitive advantages throughout the private equity life cycle, including fund development, portfolio growth and divestiture.Fee DetailsAnnual chargesAnnual focus charges 1.65% of net asset valueFund Administrative charges 0.05%Registrar charges 0.13%Fund expenses 0.2%CommissionSales charge of 1.85% will be charged on amounts invested into the fund.During the first week of investing, KBIM Investment Fund grew by 3.5%, as U.S stocks rosebush wine, driving the touchstone Poors 500 index to its longest winning dapple since February, amid optimism Europes leaders would announce a plan to contain the debt crisis and after McDonalds Corp. (MCD) joined companies beating profit estimates. Financial shares in the SP 500 added 3.9 percent as European finance ministers began negotiations to prevent a Greek default and shield banks. The SP 500 climbed 1.1 percent to 1,238.25, the highest since Aug. 3, and had risen three straight weeks. It had surged 13 percent since Oct. 3, when it unkindly within 1 percent of a bear market, or 20 percent plunge, from its high in April.The Dow Jones Industrial Average also rose a fourth straight week, gaining 164.30 points, or 1.4 percent, to 11,808.79. Equities rose as European finance ministers approved a 5.8 billion Euro loan to Greece, and France retreated in a clash with Germany over expanding the bailout fund. Talks are to continue through Oct. 26. The SP 500 also gained after 74 percent of companies that reported quarterly results conductped the average analystprojection.During the second week of investing, KBIM Investment Fun d grew by 4.54% amidst a week which ended with most U.S. stocks falling, as data on consumer confidence and consumption failed to boost equities a day after European leaders expanded the regions bailout plan. Stocks pared losses in the final minutes of trading on Friday, with the Standard Poors 500 top executive erasing a decline as it completed a fourth straight weekly advance, the longest streak since January. About four stocks declined for every three that rose on U.S. exchanges at 4 p.m. New York time on Friday. The SP 500 rose less than 0.1 percent to 1,285.09, after rallying 3.4 percent on Thursday. It was up 3.8 percent since Oct. 21. The Dow Jones Industrial Average added 22.56 points, or 0.2 percent, to 12,231.11. The Russell 2000 Index of small companies retreated 0.6 percent.U.S. equity options expired Friday. Stocks rose Thursday, extending the best monthly rally since 1974 for the SP 500, as European leaders check up ond to expand a bailout fund and U.S. economic gr owth accelerated. Earlier this month, the index came within 1 percent of extending a drop from its peak in April to 20 percent, the common definition of a bear market. Since then, it has risen 17 percent. The SP 500 rallied above the average strategist forecast for its closing level on Dec. 31, the third straight year that stocks ran ahead of projections.The index closed above the year-end forecast on Nov. 4 in 2010 and on June 2 in 2009, according to data compiled by Bloomberg. German Chancellor Angela Merkel said that the debt crisis wont be over in a year. Italys borrowing costs rose to a euro-era record at a sale of three-year bonds, driving yields higher amid aid that efforts to contain the sovereign crisis wont be enough to safeguard the regions third-largest economy. Fitch Ratings said part of the plan to contain debt exhilaration amounts to a Greek default. European leaders may postulate to maintain the euphoria that drove the euro to its biggest one-day gain in more than a year as scrutiny deepens on their latest attempt to stem the regions turmoil.During the third week of investing, KBIM Investment Fund fell by 3.28%. U.S. stocks fell, driving the Standard Poors 500 Index to its first weekly decline since September, as a disagreement on Europes resources to fightthe debt crisis detonate a drop in the American unemployment rate. The SP 500 dropped 0.6 percent to 1,253.23 as of 4 p.m on Friday, November 4, New York time, after falling as much as 1.8 percent earlier. The gauge was down 2.5 percent this week. The Dow Jones Industrial Average slid 61.23 points, or 0.5 percent, to 11,983.24. Benchmark gauges tumbled earlier this week as Greek Prime Minister George Papandreou announce on October 31 a parliamentary confidence vote and his desire to hold a referendum on a European Union aid case needed to avert default.Equities rebounded on Thursday as Greece abandoned the referendum, moving closer to accepting the bailout. Global stocks slumped on Fri day as the Group of 20 nations failed to agree on increasing the International Monetary Funds resources to fight Europes debt crisis. Ruling party lawmakers urged Papandreou to step aside and allow the make-up of a new establishment that can approve the bailout plan for Greece. The unemployment rate surprisingly fell to a six-month low of 9 percent from 9.1 percent, even as the labor force expanded. The 80,000 increase in payrolls followed gains in the prior two months that were revised up by 102,000. Financial stocks had the biggest decline in the SP 500 among 10 industries, falling 1.4 percent as a group.During the fourth week of investing, KBIM Investment Fund rose by 1.17%. U.S. stocks rose this week, restoring the year-to-date gain for the Standard Poors 500 Index, as ameliorate economic data and leadership changes in Greece and Italy bolstered investor optimism. The SP 500 rose 0.9 percent to 1,263.85, overcoming a 3.7 percent decline on Nov. 9 that was the largest one-da y loss since Aug. 18. The Dow advanced 170.44 points, or 1.4 percent, to 12,153.68 this week. Stocks resumed the rally that drove the SP 500 up as much as 20 percent since the first week of October. Equities gained after U.S. consumer confidence improved and Italys Senate approved debt-reduction measures, paving the way for a new government led by former European Union contest Commissioner Mario Monti. Greece swore in Lucas Papademos to head a unity government.The SP 500 has rebounded 15 percent from a 13-month low on Oct. 3 as the Citigroup Economic Surprise Index for the U.S., which gauges whether reports are beating or trailing estimates, climbed to a seven-month high. The benchmark measure of U.S. equities rose 2 percent on Thursday, preventing a second weekly drop, aftera gauge of consumer sentiment topped estimates in November and reached the highest level since June. The Labor Department said on Nov. 10 that the number of Americans filing applications for unemployment benefi ts fell to the last level in seven months. Stocks tumbled on Nov. 9 as yields on Italian government bonds surged, fueling concern European leaders will struggle to fund bailouts.During the fifth week of investing, KBIM Investment Fund fell by 3.71%. U.S. stocks fell, sending the Standard Poors 500 Index to its worst weekly loss in two months, as Spanish, French and Italian bond yields rose and Fitch Ratings said Europes debt crisis poses a threat to American banks. The SP 500 decreased 3.8 percent, the most since the week ended Sept. 23, to 1,215.65. The index closed at the lowest level since Oct. 20. The Dow fell 357.52 points, or 2.9 percent, to 11,796.16. Equities slumped this week as higher government bond yields in Spain, France and Italy spurred concern the European debt crisis is intensifying outside Greece. The SP Financials Index slumped 5.6 percent this week, the biggest drop among 10 industries, after the Fitch report spurred scheme the European crisis poses a threat t o earnings.The SP 500 advanced one day this week, on Nov. 15, amid speculation Mario Monti would succeed in forming a new Italian government to battle the debt crisis, while growth in retail sales bolstered optimism in the economy. Yesterday, he won a final parliamentary confidence vote, granting full agency to his new government after pledging to spur growth and reduce debt in the euro-regions third-largest economy. The benchmark measure of U.S. stocks erased gains yesterday after Deutsche Presse-Agentur reported that Germanys outside Ministry said the nation was considering the possibility of orderly defaults beyond Greece. The index had rallied after a measure of leading U.S. indicators signaled the worlds biggest economy will trammel growing in 2012.During the sixth week of investing, KBIM Investment Fund fell by 4.07%. The euro touched a seven-week low against the dollar, falling for a fourth week, as Italian borrowing costs jumped to the highest level since 1997, adding to speculation Europes sovereign-debt crisis is spreading. U.S. stocks tumbled in the worst Thanksgiving-week loss for the Standard Poors 500 Indexsince 1932 as concern grew that Europes debt crisis will spread and American policy makers failed to reach agreement on reducing the federal budget. The SP 500 slid 4.7 percent to 1,158.67, closing at the lowest level since Oct. 7. The Dow fell 564.38 points, or 4.8 percent, to 11,231.78 this week. The SP 500 has fallen for seven days, the longest streak in four months, and has tumbled 7.6 percent so far in November.U.S. equities erased an early advance on the final session of the week as SP lowered Belgiums credit rating and Reuters reported that Greece is demanding private investors accept larger losses on their debt. The cost of insuring European sovereign bonds against default rose to a record this week as Germany failed to find buyers for 35 percent of the bonds offered at an auction. German Finance Minister Wolfgang Schaeuble said mar ket turbulence sparked by the euro regions sovereign-debt crisis will last for a a few(prenominal) months.Congresss special debt-reduction committee failed to reach an agreement this week, setting the stage for $1.2 trillion in automatic spending cuts and fueling concern that economic- stimulation measures that are set to expire will not be renewed. Still, SP reaffirmed it would keep the U.S.s credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5. Stocks fell Nov. 22 as revised Commerce Department figures showed that gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. U.S. stock exchanges were shut Nov. 24 for Thanksgiving and closed three hours early on Nov. 25.Evaluation of FundKBIM FUND PERFORMANCE WEEK 1-6Initially, the first two weeks of the portfolios performance did exceptionally well. Due to essential market conditions in Europe (European Debt Cr isis), the fund was affected. The weaknesses of Europes common currency area, ranging from its design to a persisting dearth of bank funding and anemic economic growth, werent properly addressed in the measures revealed on to stem investor panic. Consumer confidence unexpectedly rose in October from the previous month, indicating the biggest part of the economy will help keep the U.S. recovery intact.Performance fell in week 3 but stabilized in week 4 due to improving economic conditions in Europe (leadership changes in Greece and Italy), thus restoring confidence in the market. Week 4 and 5 dropped to record lows in the SP 500. This was due to the negative result of the sale of government bonds in Germany, as investors lacked the confidence it once had in what is arguably the strongest economy in Europe.The fact that the German economy was unable to brook the money it expected to with the sale spoke volumes, as it was the one country in Europe which seemed to be stable and assiste d in the bailout of its struggling phallus countries (Greece, Italy and Spain). This also led to a huge dip in the value of the Euro currency. Overall, the funds performance was below expectations. There was, however, directly related to unexpected market conditions, which affected the global market adversely.Invariably, that was passed down to the portfolio. During the six week period KBIM started out with $999,984.84 and ended with $977,853.00, thus making a loss of $22,131.82. agree return was then a negative return of 2.21%. The decision was taken to hold of the selling of equities with the portfolio. Instead, the strategy opted was one of riding the storm out, and in some instances, even buying more stock, as the markets were down and the share prices down as well. This would allow for the fund to make substantial profits when the market vulcanized or improved, as it could only improve from this point.BibliographyJones, Charles P. Investment Analysis and Management, Eleventh Edition John Wiley and Sons 2010 http//www.bloomberg.comhttp//www.imf.com