Investment Case Study

Part 2

By: Thomas Newcombe,

Antonio Sharif and
Varranan Somasundaram

Background Summary
Name: James Hughes
Age: 27
Marital status: Single
Occupation: Junior cameraman at BBC
Wages:40,000 per year
Assets:300,000 inheritance
Liabilities:
Outstanding credit card balance 2000
Rent for one bedroom apartment - 1000 per month
Audi monthly payment schedule - 300 for the next 40 months
Student loan repayment (balance = 5000 , annual rate of 4%) - 100 per month
Other information:
Recently found out hes Father to a child.
Looking to settle down and have a stable income.
Goals:
Wants to own a property at 350,000
Travel to California (valued at 8,000)

Further Information
James receives an Inheritance of 300,000 after the adjustment of inheritance tax.
Investment Goals Identified:
Grow capital and produce stable regular income.
Set up a fund for child to receive at the age of 21 for education and recreational
purposes.
Have a reasonable amount of money for after retirement.

Life Insurance
We have recommend the purchase of life insurance as James
has a 1 year old child.
Legal & General, 40 year life insurance cover which the claim
releases 100,000.00 to the child. It will cost 7.21 per month.

BBC Pension

James' pension means that he will be contributing a minimum of 4% of his salary to a

possible maximum of 10% plus the contribution of 10% by the BBC which is added on
annually. This amounts between 5600-8000.

Risk Assessment
James filled out a Risk Profiling Questionnaire.
Results were that James objective with this portfolio was to balance
between growing the capital whilst also producing income.
Medium-low risk portfolio with a steady income is what he is looking for.

Portfolio Selection
We suggest James diversifies his portfolio.
A portfolio theory of 20-30 stocks would eliminate all unsystematic
risk.
Examples of unsystematic risk of regulatory change, new
competitor etc.

Asset Allocation (Recommendation)

Pay off credit card balance of 2,000
we also advise the use of credit cards only on emergencies.
Purchase the house with a mortgage with HSBC, placing a deposit of 50,000.
Discounted rate mortgage
Initial rate - 1.9%
Revert rate - 3.9%

Repayments
Monthly payments = 300,000.00*0.039=11,700/12=975 (Cheaper than current Rent)
Total amount to be repaid =11,700*30=351,000
Booking fee - 1,500

Remaining fund amount = 300,000 (2,000+50,000+1,500) = 246,500

Reasons to buy a property in Chiswick NOW

Rent in Chiswick in increasing by 2.4% annually
House prices are also currently increasing by 4.3% annually in
Chiswick.

4.30%
2.4%
Rent Prices in
Chiswick
2014

House Prices in
Chiswick
2014

House Prices
In Chiswick

Asset allocation (Recommended)

Continuation
Global fixed interest

UK equities, bonds and funds

12%

Overseas equities and funds

9%

Savings account

Cash

After conducting the risk

assessment, since he wants a
balance portfolio with medium to
low risk securities e.g. equities and
funds we a recommend this
particular allocation.

7%

22%
50%

Asset Allocation

Global fixed interest - 22,140

UK equities and funds - 123,000
Overseas equities and funds - 54,120
Cash - 29,520 - Emergency cash for James. This cash can only
be withdrawn during emergencies only.

Savings account - 17,220 - Money will be set aside to pay for

his Childs education. No risk, will constantly accumulate.

Reasons

Investment strategy
The investment strategy that we recommend with James would
be a

passive approach.

The portfolio will be monitored every 6 months but

amendments will be made yearly with a comparison to
benchmarks such as FTSE 100, 250 and S&P 500.

Trip to California (Optional)

Current Exchange Rate (24/04/15)
USD

GBP

USD

GBP

1 USD =

0.6609 GBP

1.51309
USD =

1 GBP

Trip to California Current Cost

British Pound

US Dollar

5278.56

$8000.00

Also we are encouraging the use of a hedging instrument such as a options contract, so
that when the time of the holiday arrived James is not hit with a unexpected cost
increase.

Global Fixed Interest

Old mutual fund managers

global strategic bond p inc (108.55)

This performance chart shows the bond from one month to five years.
It shows that the bonds best performance is within the five year period.
However the bond does better than the benchmark from three months onwards.

Continuation

Global Fixed Interest

AXA FUND MANAGERS

Sterling credit short duration
bond z net inc (216.40)

Continuation

This three year cumulative performance graph shows our bond compared to an IA sterling corporate bond.
The graph shows that our bond is stead and does not fluctuate in comparison to the other bond. This is
suitable for the portfolio as it makes it a safe choice of investment.

Global Fixed Interest

NB global floating rate inc FD LTD RED

ORD NPV GBP (109.29)

This graph shows the one year performance of the bond against the benchmark of the FTSE 250. When
compared to the FTSE, the bond is in line with or above it up to January 2015. The bond also shows
gradual growth throughout.

Continuation

Global Fixed Interest

Standard life investments LTD

corp BD INC INSTL SHS NAV
(126.40)

Continuation

This graph shows the performance of the Standard Life bond against a benchmark bond. The Standard life bond is in
line with the benchmark showing that it is performing well. The bond has also grown a large amount since April and
looks to grow more steadily in the future now it is performing well.

UK Equities and Funds

OIL and GAS producers
BP (486.05)- The firm generated $25,507 million of cash from operations by three-quarter time, compared to $15,686 million during last years equivalent
period. Such cash-generating ability is what keeps me enthusiastic about BP despite its setbacks.
Beta : 1.76 P/E: 35.94 EPS 1.20 Dividend Yield 5.5% Current ratio 1.37
ROYAL DUTCH SHELL (62.96) Royal Dutch Shell is the 2nd largest Oil Company in the world. Its stronghold in the industry means that it guarantees
stable and steady growth.
Beta : 1.28 P/E: 13.37 EPS 2.17 Dividend Yield 5.24% Current ratio 1.16
AUTOMOBILES & PARTS
GKN ORD (367) - With a revenue 6982.00 m a year, its 5 year average has proven a worthy investment with a steady investment.
Beta : 1.56 P/E: 35.98 EPS 0.10 Dividend yield 2.32% Current Ratio 1.33
PERSONAL GOODS
UNILEVER PLC (3,001) - has made its shareholders cheerful with its improving operating performance for fiscal year 2014. The company managed to
grow its underlying sales by 4.3%, including a 2.5% increase in volume and 1.8% rise in price. Its emerging markets underlying sales also achieved 8.7%
growth for the full year.
Beta : 0.59 P/E: 23.15 EPS 1.29 Dividend yield 2.98% Current ratio 0.63
PHARMACEUTICALS AND BIOTECHNOLOGY
GLAXOSMITHKLINE (1538.15) In last months trading update, the CEO points to the emergence of new products in the lines of Respiratory and HIV,
and a deal with Novartis, as evidence of progress. City analysts following the firms fortunes expect earnings to rise by about 10% during 2016, so it looks
like many believe the firm is starting to turn the tide.

Continuation

Overseas Equities and Funds

European Investment Trust PLC ORD

This graph shows the comparison of the European Investment Trust equity against the FTSE 100. It shows that the
equity has performed well against the FTSE, being generally close to it most of the time. Also in recent years the
equity has risen above the benchmark meaning that it is growing large amounts and performing very well.

Overseas Equities and Funds

Blackrock Fund Managers LTD(3135)

Continuation

Average annual increase : 2.1%

This graph is the Blackrock fund compared to a benchmark of IA UK companies. The graph shows
that our chosen fund is performing well compared to the benchmark as it is at the same level. The
graph also shows that the fund is rising relatively consistently.

UK Gilts

UK Gilt 2 Year Yield - 13,666.66

UK Gilt 5 Year Yield - 13,666.66
UK Gilt 10 Year Yield - 13,666.66
UK Gilt 30 Year Yield - 13,666.66

UK Gilts
Continuation

Years to
Mature
UK Gilt 2 Year

Yeild
0.49%

Amount
Invested

Total Semi
Total Annual
Annual
Payments
Payments

End of
Maturity Full
Payments with
End of Maturity Full
Initial
Payments
Investment

13,666.66

66.97

UK Gilt 5 Year

1.27%

13,666.66

173.57

UK Gilt 10 Year

10

1.66%

13,666.66

Total

30

2.41%

133.93

86.78

226.87

UK Gilt 30 Year

33.48

867.83

113.43

329.37

164.68

54,666.64

796.77

398.38

14,534.49

2,268.67

13,666.66

13,800.59

15,935.33

9,881.00
13,151.43

23,547.66
67,818.07

Shares
Amount
Invested

Price Per
Share

Amount of Shares
Bought

Amount of
Shares Bought

BP
Royal Dutch
Shell

13,666.66

486.05

28.1178

28

13,666.66

62.96

217.0689

217

GKN ORD

13,666.66

367

37.2389

37

Unilever
Glaxosmithklin
e
Total
Leftover

13,666.66

3,001

4.5540

13,666.66

1,538.15

8.8851

Amount
Leftover
0.11781
0.06893
3
0.23885
6
0.55403
5
0.88512
8

57.26
4.34
87.66
1,662.66
1,361.46
3,173.38

Amount of Shares in global fixed interest funds and overseas

equities and funds
and the leftover funds
AXA FUND MANAGERS

Sterling credit short

dur
bond z net inc
Old mutual fund
managers
global strategic bond
p inc
Standard life
investments LTD
corp BD INC INSTL SHS
NAV
NB global floating
rate inc FD LTD RED
ORD NPV GBP

Amount Invested

Price Per Share

Amount of Shares Bought

Amount of Shares Bought

Amount Leftover

5,535.00

216.40

25.5776

25

0.57763

125.00

5,535.00

108.55

50.9903

50

0.99033

107.50

5,535.00

126.40

43.7896

43

0.78956

99.80

5,535.00

109.29

50.6451

50

0.64507

70.50

Total Leftover

Equities the
European trust
Funds Blackrock
Fund Managers LTF
global strategic bond

402.80
Amount Invested

Price Per Share

Amount of Shares Bought

Amount of Shares Bought

27,060.00

823.50

32.8597

32

Amount Leftover
0.85974

708.00

Price Per Share

Amount of Shares Bought

BP

486.05

28

Royal Dutch Shell

62.96

GKN ORD

Expected Growth (Using Historical Data

over 5 Year average annual Growth) Predicted Share Prices In 1 Year

Capital Gain on Shares

Gains after Invested Capital

6.79% 519.05

14,533.48

924.08

217

6.61% 67.12

14,565.40

903.08

367

37

2.60% 376.54

13,932.05

353.05

Unilever

3,001

3.6% 3,107.84

12,431.34

427.34

Glaxosmithkline
AXA FUND
MANAGERS
Sterling credit short dur
bond z net inc
Old mutual fund
managers
global strategic bond p
inc
Standard life investments
LTD corp BD INC
INSTL SHS NAV
NB global floating rate
inc FD LTD RED ORD
NPV GBP

1,538.15

5.7% 1,625.52

13,004.14

698.94

216.40

25

1.98% 220.68

5,517.12

107.12

108.55

50

0.36% 108.94

5,447.04

19.54

126.40

43

3.46% 130.77

5,623.26

188.06

109.29

50

3.81% 113.45

5,672.70

208.20

823.50

32

4.40% 859.73

27,511.49

1,159.49

3,135.00

9.10% 3,420.29

27,362.28

2,282.28

Equities the European

trust
Funds Blackrock Fund
Managers LTF
global strategic bond p
inc

Total Capital Gain on

Shares
Total Gain after Invested
Capital

145,600.29

7,271.17

151864.47

144,593.30

Comparing our Portfolio Growth to Popular

Indexes

Indices
2010
2015

April 22
20102015
S&P 500

April 22
20102015
FTSE100

1972.29 2010 6550.3

2058.2 2015 7062.9

Average annual
rate over 5 Years 4.36%

7.83%

April 22
2010-2015
Dow Jones

April 22
20102015
NASDAQ

Our
Portfolio

2010 17320.71 2010 4570.82

2015 17949.59 2015 5014.1
3.63%

9.70%

5.03%

Comparison of Cash Flow Statements Before

and after our Investment Strategy
Cash Flow Statement of James Hughs before Investments
Cash Flow Statement of James Hughs After Investments

Cash Inflows
Salary

40,000.00

Total

40,000.00

Cash Inflows
Salary

Bonds

Investment Portfolio

Cash Outflows
Rent
Audi
Student Loan
Living Costs (Food, utility bills, clothing and petrol)
Holidays to Europe including spending money
Socialising

12,000.00
3,600.00
1,200.00
4,400.00
2,000.00
1,800.00

Total

40,000.00
796.77
7,271.17

48,067.94

Mortage

11,700.00

Audi

3,600.00

Cash Outflows
Total

25,000.00

Retirement Plan
James will start receiving his pension as he turns 60, he would be
receiving a accumulated amount of 8000.00 annually.
All 4 bonds would have been paid off (Paying 351,000 back) and he
would have 72,391.41 released, which we can invest further. As well as
not having to make payments to both his student loan and Audi loans.
Also the 350,000 house in Chiswick will be paid off and we have
worked out that the future value , has an expected average of
350,000*(1+4.3%)^33 = 1,404,269.00 (+1,054,269)
Also if he kept all his money in our portfolio, our future value predicts it
would now be worth 144,593*(1+5.04%)^33=732,576.00 (+587,983)

THANK YOU.
ANY QUESTIONS?