You have been entrusted with monies for investment. Given current conditions on global markets what combination of assets would you combine together in a portfolio to ensure your portfolio is fully...

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Portfolio Construction
Introduction
Portfolio Construction is an essential part of the process of portfolio management. It
pertains to the determination of the proportion of various assets in the portfolio so that the risk
and return objectives of the investor are met within the specified constraints. The decision of
portfolio construction is based on several factors which include both external and exogenous
factors (relating to the economy at large) and factors specific to the investor. This report seeks to
determine a standard portfolio composition for an investor in the recession hit environment. The
investment objectives of the investor have been seen to change with changes in the state of the
economy. During times of recession, investors are more concerned about capital preservation
while during growth, investors become risk takers and hunt for higher returns, even if it comes at
the cost of higher risk.
External Economic Conditions
The US economy is deemed to be a super power on the global front. However, the
economy is currently hit by the forces of recession since the unfolding of the sub prime mortgage
crisis in 2007. The stock markets crashed and the investor’s confidence has fallen to an all time
low. The crisis led to the bankruptcy of several respectable names on the Wall Street which also
included the century old Lehman Brothers and this has further caused a decline in the confidence
levels of the economy. Liquidity has dried up in the credit markets since the crisis led to decline
in the values of huge assets on the balance sheets of banks and financial institutions. The stock
markets, as represented by the indices, have been on a decline since 2007. The US Government
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Portfolio Construction
has been consistently implementing the policy of monetary expansion and has been keeping the
interest rates at lower levels to stimulate investment activity. However, unemployment has been
on levels of 9% in the US economy despite of the measures taken by...