This a Investment management assignment. This assignment should contain a cover sheet, title page, executive summary, Table of content, body ( intro,research, analysis, reccomendation, conclusion),...

Executive Summary-
Portfolio manager needs to understand the investor first and accordingly create the investor policy statement. Once it has been created, based on the risk and return profile, portfolio manager needs to allocate the assets and keep the rebalancing policy in the place to ensure that the goals and objective are not violated over the period of time. Managers can use the Sharpe ratio as the tool to ensure both risk and return objectives are taken care of. Traditional asset classes – Equity and Debt, need to be used to ensure that risk and return of the investor profile is met.
Here using this we allocated our funds in the equity investments to ensure the Sharpe Ratio is maximized. Diversification is a must in the portfolio construction. We are investing $ 500,000 into debt and equity in the ratio of 40:60. Taking the liquidity considerations into mind, we are investing in the short term government bonds, and remaining in the long term bonds. For equity, we have diversified into mining, banking, and healthcare industry. Over the six months, portfolio managed to gain $ 90,000 in the returns.
Diversification in the portfolio is a must. However, during the time of the downturn, the correlation across the asset classes increase significantly and diversification might not yield the desired results.
Introductions-
We are creating a portfolio for a Senior Citizen’s Recreation Club. The club currently invests all of the savings into cash maximize account, which generates a fixed return and does not have any risk. However, the club got to learn about the equity and other financial instruments which have potential generate higher returns. They also come with a downside of some price risk associated as far as the equity instruments are considered. For fixed income investments the credit and interest risks are present. As a portfolio manager, we need to come up with investment policy statement and accordingly allocate the $500,000 into asset classes - Shares, Bonds and cash.
Research-
Mean-variance efficient portfolios help investors reap extraordinary risk-adjusted returns. 1Using the efficient frontier, the portfolio managers tend to maximize their returns. As per the modern portfolio theory, by Harry Markowitz, for a given risk and return objectives, efficient portfolios can be constructed. For these portfolios, we can find the optimum asset allocation. This makes us easier for us to achieve the assets weights across securities and asset classes.2    
Analysis-
Investment Policy Statement –
Investment policy statement is a document which states all the risk, return requirements of the investor, time horizon of the investment and liquidity requirements. On top of it, the investors, might want to restrict the allocation to certain assets. The portfolio manager clearly needs to state the rebalancing policy and frequency and also the asset allocation policy of the fund in the IPS.
Overall Investment Objective –
The Senior Citizen’s Recreation Club needs to earn higher returns than the online savings account provides. As per the
Return Requirements – The senior citizen’s club requires higher returns than what they are currently achieving from the
Risk tolerance- To identify the risk tolerance, ability and willingness of the risk taking characteristics were analyzed. Since the club has 78 long time members, the income generated has been steady. Apart from the variable revenue has been enough and hence the ability to take risk is from moderate to high.
As far as the willingness of risk is concerned, the club has been a bit conservative and they are not willing to accept losing the portfolio value of more than 10% in a given year.
Liquidity requirements – The club plans to expand the business after 2 years and plans to invest it in buying some space nearby. It will require $ 50,000 for this purpose. Hence, 10% of these funds need to be invested in the short term instruments or marketable securities or kept idle as cash.
Tax Concerns – The members of the senior citizen club mostly do not have any tax implications currently on their income and it is not a major concern.
Regulatory and Legal Considerations – Not applicable.
Unique Needs – The club does not want their money to be parked outside the country and hence no foreign investments to be made. Apart from this, Biotechnology firms poses a very high risk and club does not want to invest the funds into any securities related to it. Club does not want to engage into derivatives segment.
Asset Allocation policy-
Assets can be allocated to three major classes – Stocks, Bonds and Cash and equivalents. All the other assets are classified in alternative assets. The return on these assets will be weighted return and the risk for the portfolio depends on the correlation among the assets. Based on the time horizon of the investor, proportions of the assets are allocated.
For the asset allocation, multiple strategies can be used. There are many strategies portfolio manager use to allocate the assets as follows-
Strategic Asset Allocation – Based on the age and investor profile and requirements assets can be allocated to different classes. This is mostly the long term decisions that the manager takes.
Constant Weight Asset Allocation - Constant weights are maintained across different classes. Portfolio rebalancing takes place frequently to ensure the weights are kept constant.
Tactical Asset Allocation – Tactical asset allocation mostly deals with maximizing the short...