Assessment 2 Assessment Type: Case Study – individual assessment. 2,500 +/- 10% words. Purpose: To allow students to demonstrate an understanding of the various portfolio investment performance...

Assessment 2

Assessment Type: Case Study – individual assessment. 2,500 +/- 10% words.

Purpose: To allow students to demonstrate an understanding of the various portfolio investment performance analysis techniques available to real world situations, enabling them to analyse the performance of selected shares and the overall portfolio against a market benchmark. Students will also be required to communicate their findings in a written report, this assessment will reflect the advice that would be expected from students when working in a modern accountancy practice. This assessment relates to learning outcomes a, b, c and d.

Value: 30% Due Date: Week 10 – in Tutorial

Submission: Upload a soft copy to Turnitin located on KOI’s Moodle subject homepage by Monday, Week 10. Submit a hard copy in that week’s Tutorial (see Due Date).

Topic:

You are an experienced employee of an accountancy firm which is licensed to provide investment advice. On 31 December, 2009, you were allocated a sum of $900,000 by a client who requested that the money be invested equally into three of the then top 200 Australian listed company shares. That is, $300,000 is to be invested in the ordinary shares of each of 3 leading Australian companies, which you may select from the top 200 listed companies. You are required to build this portfolio on 31 December, 2009, track the annual performance of your individual investments, and of the overall portfolio, each year at 31 December, from 31 December, 2010 to 31 December, 2019 inclusive, and compare these figures with the market performance over this period, of a benchmark, as measured by the All Ordinaries Accumulation Index. Your brief requires you to submit a two-part report – first, to briefly report on the rationale for the construction of the original portfolio; and secondly, the major part, to report on the annual and overall 10-year performance of each share investment, and of the portfolio, against the benchmark index, along with recommendations for any change in strategy going forward.

Task Details:

Part 1
Prepare for your client, an investment policy statement or report as at 31 December, 2009, recommending the construction of his $900,000 Australian ordinary share investment portfolio. You should specifically consider why you selected the chosen investments for him, along with the benefits of an all-Australian share’s portfolio compared with other investments, and list the risks attaching to such a portfolio.

Part 2
Your client agrees with your recommendations and you go ahead and purchase the shares the same day. You then track the investment performance for the next 10 years, using the following methodology.

You prepare a schedule showing the number of shares held in - and the value of – each shareholding, and of your overall investment portfolio at 31 December, each year, from 2009 to 2019, inclusive. [Assume that the number of shares purchased originally with each amount of $300,000 is a calculated number, correct to 2 decimal places; and that all dividends declared are re-invested to buy additional company shares at the end of the calendar year of declaration, at the 31 December (that year) market share price. This will provide an additional number of shares, providing a new total shareholding, also to be calculated correct to 2 decimal places, in that company, and a new total share-holding value, calculated at year-end.]

You should include in this schedule, a column showing hypothetically an initial total amount of $900,000 invested in the All Ordinaries Accumulation Index at 31 December, 2009, and - based on annual movements in this Index - the amounts to which such an investment would have grown at 31 December each year from 2010 to 2019 inclusive.

Part 3
From the foregoing schedule, calculate the annual percentage returns (correct to 2 decimal places) of each share, the portfolio and the Accumulation Index for each year over the decade from 2009 to 2019 inclusive, and present in appropriate tables.

Further, calculate and present in tables, for the decade, the following:

a. The arithmetic average annual return and the geometric average annual return for each share, the portfolio and the Accumulation Index;
b. The standard deviation and co-efficient of variation of each share, the portfolio and the Accumulation Index;

c. The covariance of the average annual returns on each share with that of each of the other shares in the portfolio, i.e., the covariance of A with B; of A with C and of B with C;
d. The correlation coefficients of the average annual returns on each share with each of the other shares in the portfolio, i.e., the correlation coefficient of A with B, of A with C, and of B with C; and
e. The covariances and correlation coefficients of the average annual returns of the portfolio with those of the Accumulation Index.

Part 4
Prepare a detailed report on the performance of your portfolio, noting any over- or under- performance in relation to each share individually, and of the portfolio overall, all compared with the performance of the Accumulation Index (the benchmark), and note the reasons for these variations. Your report should then extend to include (with reasons) recommendations as to whether, going forward for the next ten years, you would make any changes to the portfolio as at 31 December, 2019. These recommendations would include which holdings you would increase, decrease, retain or replace, along with the identification of - and reasons for selecting - the recommended replacement investments. In making your recommendations, you may relax the requirement that 100% of the portfolio be invested fully and equally in 3 shares, and include other asset classes in your recommended investment mix (even zero amounts in shares, if desired).

Presentation: 2,500 +/- 10% words, in short Report format. The word count excludes the coversheet, contents page, references, appendices, and illustrations (e.g., diagrams, graphs and tables).
Students need to stay within the assigned word limits, and indicate the word count on the cover page of the Assignment. Marks will be reduced for Assignments shorter than or greater than the minimum word count.

Every page should be clearly numbered. The Assignment, when lodged, should include the following, in order:

· Executive Summary.

· Table of Contents.

· Body (main contents).

- Introduction – a brief introduction as to what the report is about, the methodology and key finding.
- Research – this should consist of a review of the literature you have discovered on the topic (see research requirements above) – each identified and described item in your literature review should be source referenced with “(Author(s), date of publication and page number(s)”.

- Analysis – this will be the major part of your Assignment and may require a number of sub-sections and the inclusion of Appendices – see under (f) below.
- Recommendations
- Conclusion.

· Appendices (if any) – you may prefer to include the tables required in Parts 2 and / or 3 above as Appendices, so that your report flows more freely, making appropriate reference/s in your report to each Appendix as required.

· References (using Harvard – Anglia style)

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Marking Guide: Marks will be awarded as follows, out of 30 marks.

You are required to recommend to a client of an accountancy firm, as at 31 December, 2009, three of the then top 200 Australian listed companies, into which your client may invest $300,000 in shares in each. You are required to track the performance of each selected company and the overall portfolio for each of the following ten years and for the decade as a whole, comparing with the performance of the benchmark All Ordinaries Accumulation Index. A two-section report is required, first on the rationale for the originally selected companies, and secondly on the 10-year performance of the investments, plus any current review recommendations for: