Investment Analysis and Portfolio Management

Term Paper On Investment Analysis and Portfolio Management PREPARED BY Kamruzzaman Chowdhury Bangladesh University ID-081-12-0199 Department of Finance Faculty of Business Studies Bangladesh University Subject: Submission of the term paper Sir, I am honored and pleased to inform you that as per the course requirement, I selected to work on the field of Portfolio Management & have prepared the report. Based on our classroom knowledge and real-life key informant interviews, we have prepared this report for your kind consideration.

Researching for and finalizing this report have been an extremely learning, interesting and rewarding experience for me. It was a lifetime opportunity to compare the bookish knowledge with the real-world applications. I have gone heights to ensure the highest possible quality of our research and report. You would be pleased to know that I have worked with the utmost possible integrity, honesty and care for preparing this paper.

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I also tried to follow your instructions properly now and when necessary.

I would like to request you to allow me to submit the report on the Portfolio Management Sincerely Yours Md. Sabirul Islam ID- 081-12-0199 Introduction: Security Portfolio Management: Portfolio is a group of financial assets such as shares, stocks, bonds, debt instruments, mutual funds, cash equivalents, etc. A portfolio is planned to stabilize the risk of non-performance of various pools of investment. Management is the organization and coordination of the activities of an enterprise in accordance with well-defined policies and in achievement of its pre-defined objectives.

Portfolio Management (PM) guides the investor in a method of selecting the best available securities that will provide the expected rate of return for any given degree of risk and also to mitigate (reduce) the risks. It is a strategic decision which is addressed by the top-level managers. Portfolio management is also known as investment management which consists of managing the investment securities options. There are seven main activities in portfolio management. They are: • Laying down the objectives of investment and the difficulties involved in it Choosing the asset mix • Portfolio strategy formulation • Securities selection • Execution of portfolio • Revision of portfolio and • Evaluation of performance. Here, Security selection is the first question and Asset allocation is the second question.

Security selection based on: • Risk: The measures of risk that are most widely and commonly used are variability and beta measures. The preferred measure of variability is standard deviation and beta reflects the systematic risk of the portfolio. • 2.

Return: Return can be expressed as a percentage and is calculated by adding the income and the change in value and then dividing by the initial principal or investment amount. The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period. Measuring the overall performance measuring the performance of the portfolio involves considering both risk and return.

The most widely used measures of performance are Treynor’s measure, the Sharpe measure, the Jensen measure and the M2 measure. Apex Adelchi Footwear Limited [pic] | A leading manufacturer and exporter of leather footwear from Bangladesh to major shoe retailers in Western Europe, North America and Japan. The company has revenues of USD 42 million in 2006. AAFL pioneered the export of value added finished products export in the leather sector of Bangladesh and is also involved in the local footwear retail business with the second largest shoe retail network in the country. AAFL has equity , technical and marketing participation from La Nuova Adelchi one of the largest footwear manufacturers of Italy.

Public listed and traded since 1993, AAFL is professionally managed, currently employs 3944 persons and is in full compliance with Corporate Governance Compliance Report under Section 2CC of the Securities Exchange Commission Notification Order VISION: “Honest Growth” MISSION: Sustainable Growth Creating value for our shareholders Proactive compliance Corporate Social Responsibility VALUES: Respect for people Integrity Sense of Urgency Empowerment Courage PRODUCTION: Leather men’s and ladies shoes Styles include: [pic]Men’s’ dress and formals [pic]Men’s’ Casual [pic]Men’s’ Dress and Casual Boots [pic]Ladies Boots pic]Men’s’ and Ladies Hand stitched Moccasins SBL Profile [pic]Standard Bank Limited (SBL) was incorporated as a Public Limited Company on May 11, 1999 under the Companies Act, 1994 and the Bank achieved satisfactory progress from its commercial operations on June 03, 1999. SBL has introduced several new products on credit and deposit schemes. It also goes for Corporate and Retail Banking etc. The Bank also participated in fund Syndication with other Banks. Through all these myriad activities SBL has created a positive impact in the Market.

We have real time online banking for our valued clients at all branches [pic] Objectives To be a dynamic leader in the financial market in innovating new products as to the needs of the society. • To earn positive economic value addition (EVA) each year to come. • To top the list in respect of cost efficiency of all the commercial Banks. • To become one of the best financial institutions in Bangladesh economy participating in the most significant segments of business market that we serve. Core Values • Our Shareholders: By ensuring fair return on their investment through generating stable profit. • Our customer: To become most caring bank by providing the most courteous and efficient service in every area of our business.

Our employee: By promoting the well being of the members of the staff. • Community: Assuring our socially responsible corporate entity in a tangible manner through close adherence to national policies and objectives. Mission & Vision [pic] Vision To be a modern Bank having the object of building a sound national economy and to contribute significantly to the Public Exchequer. Mission To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability.

Beximco Pharma Beximco Pharma aspires to become a nationally admired and globally reputed generic pharmaceutical company, committed to enhancing human health and life.

Beximco Pharmaceuticals Ltd (BPL) is a leading manufacturer of pharmaceutical formulations and Active Pharmaceutical Ingredients (APIs) in Bangladesh. Beximco Pharma is the flagship company of Beximco Group, the largest private sector industrial conglomerate in Bangladesh, and remains the only Bangladeshi company with an AIM listing on the London Stock Exchange.

The company is the largest exporter of pharmaceuticals in the country and its state-of-the-art manufacturing facilities are certified by global regulatory bodies of Australia, European Union, Gulf nations, Brazil, among others. The company is consistently building upon its portfolio and currently producing more than four hundred products in different dosage forms covering broader therapeutic categories which include antibiotics, antihypertensives, antidiabetics, antireretrovirals, anti asthma inhalers etc, among many others.

With decades of contract manufacturing experience with global MNCs, skilled manpower and proven formulation capabilities, the company has been building a visible and growing presence across the continents offering high quality generics at the most affordable cost. Ensuring access to quality medicines is the powerful aspiration that motivates more than 2,500 employees of the organization, and each of them is guided by the same moral and social responsibilities the company values most.

Today Beximco Pharma is building its presence across five continents and is the only Bangladeshi company to market pharmaceutical products in the USA.

The company has a visible and growing presence in emerging market. We’ve built Beximco Pharma into one of the most trusted pharmaceutical companies in the country by delivering solid returns to our shareholders, and helping patients with life-altering conditions so that they may live their lives to the fullest. Products & Services The name Beximco Pharma assures you of many things: outstanding product quality, leading-edge technology, advanced new products, and a commitment to serve the medical community.

Our products come in a wide range of dosage forms including tablets, capsules, dry syrup, powder for suspension, cream, ointment, suppositories, metered dose nasal sprays, large volume intravenous fluids, metered dose inhalers etc. ensuring the global standard of quality.

Healthcare professionals may contact us directly or alternatively the nearest Beximco Pharma Medical Representatives for further information. Our country regulations do not allow pharmaceutical companies to offer medical advice or guidance to patients.

Prescription medicines should be taken only as directed by a registered medical practitioner. Click on the product name for Consumer Medicine Information (CMI). The CMIs on this website are for Bangladeshi residents only.

The CMIs were updated on 1st March, 2010 and are static documents. Objectives of Portfolio Management The main objectives of portfolio management are as follows: • Security of Principal Investment: Investment safety or minimization of risks is one of the most important objectives of portfolio management.

Portfolio management not only involves keeping the investment intact but also contributes towards the growth of its purchasing power over the period. The motive of a financial portfolio management is to ensure that the investment is absolutely safe. • Consistency of Returns: Portfolio management also ensures to provide the stability of returns by reinvesting the same earned returns in profitable and good portfolios.

The portfolio helps to yield steady returns. The earned returns should compensate the opportunity cost of the funds invested. Capital Growth: Portfolio management guarantees the growth of capital by reinvesting in growth securities or by the purchase of the growth securities. A portfolio shall appreciate in value, in order to safeguard the investor from any erosion in purchasing power due to inflation and other economic factors. A portfolio must consist of those investments, which tend to appreciate in real value after adjusting for inflation. • Marketability: Portfolio management ensures the flexibility to the investment portfolio.

A portfolio consists of such investment, which can be marketed and traded.

Suppose, if your portfolio contains too many unlisted or inactive shares, then there would be problems to do trading like switching from one investment to another. It is always recommended to invest only in those shares and securities which are listed on major stock exchanges, and also, which are actively traded. • Liquidity: Portfolio management is planned in such a way that it facilitates to take maximum advantage of various good opportunities upcoming in the market. The portfolio should always ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements.

Diversification of Portfolio: Portfolio management is purposely designed to reduce the risk of loss of capital and/or income by investing in different types of securities available in a wide range of industries. The investors shall be aware of the fact that there is no such thing as a zero risk investment. More over relatively low risk investment give correspondingly a lower return to their financial portfolio. • Favorable Tax Status: Portfolio management is planned in such a way to increase the effective yield an investor gets from his surplus invested funds.

By minimizing the tax burden, yield can be effectively improved.

A good portfolio should give a favorable tax shelter to the investors. The portfolio should be evaluated after considering income tax, capital gains tax, and other taxes. Methodology: In this assignment I am using different formula for calculating portfolio Securities. They model are: • Government 360 Days T-Bill • Average Daily Hpr • Average Percentage Return • Annualized Return • Standard Deviation (Daily) • Standard Deviation (Annualized) • Risk Premium • Reward to variability ratio • Weight • Expected Return of the Portfolio Variance of the Portfolio • Standard Deviation of the Portfolio • Risk Premium of the Portfolio • RTV of the Portfolio • Daily Average Market Return • Annualized Market Return • Beta of the security • Expected Return (Using CAPM) Expected return: [pic] Where Rp is the return on the portfolio, Ri is the return on asset i and wi is the weighting of component asset i (that is, the share of asset i in the portfolio). Portfolio returns variance: [pic] Where ? ij is the correlation coefficient between the returns on assets i and j.

alternatively the expression can be written as: [pic],

Where ? ij = 1 for i=j. Portfolio returns volatility (standard deviation): [pic] Main Research Report: In this report, I have selected 10 companies for calculating portfolio securities and I have collected securities data from DSE general index (2004 to2010). The names of 10 companies are 1. APEX FOOTWEAR LTD. 2.




Part: 1 Three securities Portfolio are given here: Government 360 Days T ill |9% | | | |Measures |APEX FOOTWEAR LTD |BEXIMCO PH LTD |STANDARD BANK LTD | |Average Daily HPR |0. 31% |0. 16% |0. 14% | |Average Percentage Return |110. 89% |58.

10% |50. 26% | |Annualized return |202. 9% |78. 71% |65. 24% | |Standard Deviation (Daily) |6.

10% |3. 93% |3. 22% | |Standard Deviation (Annualized) |115. 68% |74. 66% |61.

00% | |Risk Premium |194% |70% |56% | |Reward to Variability Ratio |1. 7 |0. 93 |0. 92 | |Expected return for (Apex, Beximco & Standard Bank) |138% | Above this table show that expected return of Apex is very high and Beximco is also moderate, Standard Bank is also moderate. The total Expected return for the portfolio is 138%. This is comfortable for the investor’s point of view.

2nd Part When consider the 3 securities portfolio: Portfolio For Three Securities : | | |Portfolio For (Apex, Beximco & Standard Bank) |  | |Expected return for (Apex, Beximco & Standard Bank) |138% | |Portfolio variance |44% | |Standard Deviation |67% | |Risk Premium |129% | |RTV of Portfolio |1. 94 | Here, the portfolio RTV is shown. And it is 1. 94; this is also a favorable investment situation for the investor. 3rd Part Considering the 2 security portfolio Expected Return of the Portfolio(APEX & BEXIMCO) |115% | |Variance of the Portfolio |36% | |Standard Deviation of the Portfolio |60% | |Risk Premium of the Portfolio |106. 28% | |RTV of the Portfolio |1.

78 | Here the portfolio is made between the Apex & Beximco . The RTV is Show maximum 1. 78 and the Expected return is 115% but the risk of the portfolio is 106. 28% which is also high. |Expected Return of the Portfolio(BEXIMCO & STANDARD BANK) |38.

1% | |Variance of the Portfolio |6. 78% | |Standard Deviation of the Portfolio |26. 04% | |Risk Premium of the Portfolio |29. 41% | |RTV of the Portfolio |1. 13 | Here the portfolio is made between the Beximco & Standard Bank.

The RTV is Show maximum 1. 13 and the Expected return is38. 41% but the risk of the portfolio is 29. 41% which is also high. Expected Return of the Portfolio(STANDARD BANK & APEX ) |120% | |Variance of the Portfolio |36% | |Standard Deviation of the Portfolio |60% | |Risk Premium of the Portfolio |111% | |RTV of the Portfolio |1. 86 | Here the portfolio is made between the Standard Bank & Apex.

The RTV is Show maximum 1. 86 and the Expected return is120% but the risk of the portfolio is 111% which is also high. 4th Part Next calculate the Optimal & complete portfolio. Optimal Portfolio of APEX & BEXIMCO |  |  |Optimal Complete portfolio | |Expected Return of the Portfolio(APEX & BEXIMCO) |115% | |53% | |Variance of the Portfolio |36% | |15% | |Standard Deviation of the Portfolio |60% | |25% | |Risk Premium of the Portfolio |106. 28% | | | |RTV of the Portfolio |1. 78 | | | | | | | | |Here the optimal complete portfolio shows that the expected return is 53% and the RTV | | | | |of the portfolio is 1.

78 and the risk premium of the portfolio is 106. 28%. | | | |Optimal Portfolio of BEXIMCO & STANDARD BANK |  |  |Optimal Complete portfolio | |Expected Return of the Portfolio(BEXIMCO & STANDARD BANK) |38. 41% | |9. 77% | |Variance of the Portfolio |6.

78% | |0. 18% | |Standard Deviation of the Portfolio |26. 04% | |0. 8% | |Risk Premium of the Portfolio |29. 41% | | | |RTV of the Portfolio |1.

13 | | | | | | | | |Here the optimal complete portfolio shows that the expected return is 9. 77% and the | | | | |RTV of the portfolio is 1. 13 and the risk premium of the portfolio is 29. 41%. | | | |Optimal Portfolio of STANDARD BANK & APEX |  |  |Optimal Complete portfolio | |Expected Return of the Portfolio(STANDARD BANK & APEX ) |120% | |57% | |Variance of the Portfolio |36% | |15% | |Standard Deviation of the Portfolio |60% | |26% | |Risk Premium of the Portfolio |111% | | | |RTV of the Portfolio |1.

86 | | | Here the optimal complete portfolio shows that the expected return is 57% and the RTV of the portfolio is 1. 86 and the risk premium of the portfolio is 111%. BETA & Expected return of CAPM For calculate the Beta at first I take the data from 2004-2010 general Index. Then calculate the general index HPR. Calculate the annual Market return . Annualized Market return=99% Using data analysis system run the regression.

Then find out the BETA of the3 securities. Beta Of Three Securities | | |APEX FOOTWEAR LTD |0. 0252044 | |BEXIMCO PH LTD |0. 0360095 | |STANDARD BANK LTD |0. 0063514 | | | | Expected Return BY CAPM |APEX FOOTWEAR LTD |11.

6% | |BEXIMCO PH LTD |12. 23% | |STANDARD BANK LTD |9357% | | | | Final Interpretation: By measuring all things we see that previous individual, 2 security portfolio, 3 security portfolio , optimal, complete portfolio is better than current all. Weight is an important part here. In every calculation what amount took for weight is depend on the RTV. We see that expected return effect the RTV.

When expected return is higher that RTV is also higher & vice-versa. [pic][pic]