Personal Investment & Portfolio Planning. The case of an investment in 10 stocks and their development

Term Paper, 2016

30 Pages, Grade: 1,0



Table of content

1. Executive summary

2. The distinct companies in the portfolio
2.1. Barclays
2.2. WPP
2.3. Vodafone
2.4. IG Group
2.5. DirectLinelnsuranceGroup
2.6. Berkeley Group Holdings
2.7. SanneGroup
2.8. Edinburgh investment Trust
2.9. Reckitt Benckiser Group
2.10. GlaxoSmithKline
2.11. BP
2.12. Glencore

3. Conclusions

4. Reference List

1. Executive summary

The following report analyses the investment of £55,000 into a portfolio of companies listed on the London Stock Exchange. As the current market situation is very unstable, I tried to diversify the portfolio in different aspects. First, the sectors I invested in do not intersect a lot, second, 50% of the firms, I primarily invested in at week 1, are within the FTSE 100 Index, the other 50% are in the FTSE 250, FTSE 350 or the FTSE All Share Indices. The following table displays the initial allocation in week 1 starting 13th January 2016.

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In week 10, I decided to sell 50% of Barclays' shares and 100% of Berkeley Group Holdings' shares. Both companies had a negative performance, which diverged substantially from both, the FTSE and the sector index. Reasons are most certainly individual challenges, such as Barclays' announcement to further cut jobs and withdraw partly from the Asian and African market, or the fact that hedge fund managers have taken a short position against Berkeley Group Holdings. The following table summarises the readjustment. The two companies I sold were the ones, which performed worse, and the two companies I bought are both companies that would benefit from an increase in the oil price.

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The company that performed worse is Barclays with a return of -20%. The company that performed best is WPP with a return of 12%, however, taking the weighting of the portfolio into account, Reckitt Benckiser Group is the company that contributed most to the absolute return with a gain of £970.90. The following graph displays a comparison of the performance ofthe individual companies.

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Over the period, I have received £670.64 income in the form of dividends, which accounts for approximately 49% of the cash gain in the end. As one can only buy whole shares, a total of £69.66 has not been invested, which includes the cash left in the first week as well as the cash left in week 10. The following table summarises the influences on the cash balance throughout the 12 weeks. The cash ending balance takes into account that 50% of Barclays shares and 100% of Berkeley Group Holdings shares were sold in week 10. Accordingly, it does not influences the cash ending balance, as the amount gained from the share divestment has been reinvested. However, the dividend and the cash left on hand nevertheless influence the cash ending balance. More details will be provided for each company in section 2.

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The cash balance in the end (£56,365.69) results in gain of £1,365.69 and a return of 2.48% on the £55,000 that I had in the beginning. Although, three out of four indices that served as a comparison, referring to the FTSE 100, FTSE 350 and FTSE All Share Indices (see table below), have outperformed the portfolio's return, a return of 2.48% is high compared to current interests on a saving account.

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Furthermore, a return of 2.48% despite the economic difficulties, especially in industries with exposure to China or the oil market, was anything but certain. Although, the central banks try to stimulate investment by introducing low or even negative interest rates, uncertainty is high and investment confidence is low. Accordingly, many investors prefer to save rather than invest, which inhibits rising prices at the stock market. Furthermore, many investors are even more cautious due to the upcoming referendum on the "Brexit".

2. The distinct companies in the portfolio

2.1. Barclays

Barclays is a transatlantic retail, corporate and investment bank. Although the bank is present in over 40 countries, its exposure is concentrated in the UK, the Americas and Europe with 91% in 2015 (Barclays, 2016a). After the stock market crash in China, especially shares of companies with a high exposure in Asia declined (Khan et al, 2016). Accordingly, Jes Staley's strategy to focus on its core business rather than expansion is promising. He took over as the new CEO in December 2015 and implements the simplification and restructuring of Barclays, which will include especially cuts in Asia (Morris, 2015; Barclays, 2016b). The restructuring includes a wider pullback from Asian countries, such as India, South Korea and Taiwan (Daga and White, 2016). Although, Barclays is involved in litigation issues due to mortgage-backed securities and foreign exchange market manipulation, progress is identifiable, which makes hope for a positive future development. However, as Barclays is facing multiple challenges at the moment, I decided to invest £1,000, which is the smallest amount within the portfolio.

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Over the 12 weeks of monitoring the portfolio, Barclays was the firm that had the weakest performance, as the share price fell by 26% during that period and the overall return on investment was -20% (due to dividend payments), which is why 50% of the shares have been sold in week 10. Reasons for the drop are multiple challenges, as well as announcements, such as job cuts as well as the pullback from Africa (BBC, 2016). Besides, the Oversea-China

Banking Corp (OCBC) agreed to buy part of Barclays' wealth and investment management unit in Singapore and Hong Kong for $320 million (Azhar, 2016). Furthermore, Barclays announced that it would put an additional £1.45bn aside for payment protection insurance (PPI) miss selling. On the 1st March, annual profits for 2015 were published, which fell by 2% to £5.4bn. Barclays paid a 3.5 pence dividend to shareholders holding shares on 11th March, but announced to cut dividends in 2016 (BBC, 2016). However, it is also notable, that the overall performance has a strong correlation with its sector, as well as the FTSE 100 performance. Accordingly, the poor performance has not been solely caused by Barclays individual challenges, but also by the overall economic and industry difficulties.

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2.2. WPP

The WPP Group is market leader in the advertising industry, consisting of different companies in Media Investment Management, Data Investment Management, Public Relations & Public Affairs, Branding & Identity, Promotion & Relationship Marketing, among other sectors (WPP, 2016a). WPP received multiple awards, including the Cannes Lions' Holding Company of the Year for the fifth time in 2015 (Cannes Lions, 2016). With three major events happening in 2016, the US presidential election, Rio Olympics, and the UEFA Euro Football Championships, 2016 is likely to be an even more profitable year than 2015. Furthermore, WPP's strategy to focus on fast-growth markets and data provides a base for high returns. However, the investment in WPP is also a slightly risky one due to the high exposure to China, representing the third-largest market for WPP, as well as other emerging markets that rely on high oil prices, such as Saudi Arabia, Russia and Venezuela (Bishop and Makortoff, 2015). Nevertheless, WPP is a promising investment, as the company has been the market leader over a long time period under consistent leadership of its CEO Martin Sorrell since 1986 (WPP, 2016).

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WPP was the best performing company in the portfolio with a return of 12% and clearly outperformed the FTSE 100 as well as the Media sector. Especially after reporting growth of 4.9% for the fourth quarter of 2015 in March (week 8), the shares experienced an upturn. Furthermore, WPP secured business worth £5.6bn pounds with customers, including Unilever, L'Oréal, Tesco and Ford (Reuters, 2016a). Furthermore, WPP has acquired Communications Media, Inc. (CMI), which is a specialist in the healthcare media-planning industry, and has great potential to build synergies with WPP (Lee, 2016). Furthermore, shareholders voted in favour of the merger with STW to create WPP AUNZ (WPP, 2016b). Accordingly, WPP is gaining exposure to expertise in different sectors through organic growth as well as M&A. WPP is currently investigating the allegations of sexist and racist behaviour against Gustavo Martinez, who is the CEO of "J. Walter Thompson Inside" (JWT), a company that belongs to the WPP Group (Tadena, 2016). Nevertheless, WPP's share price has not been affected bythese claims.

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2.3. Vodafone

Vodafone is a leading telecommunication provider, operating in 26 countries and serving 444 million customers. Particularly promising is Vodafone's huge investments in 4G, which is part of Vodafone's "Project Spring", and which resulted in 29.9 million 4G customers and a 4G coverage of 80% in Europe. However, only 20% of the European customer base currently has a 4G device, which is an opportunity for future growth, as the market is not saturated yet. Furthermore, Vodafone plans to provide 4G in India, which bears a lot of potential for growth (Vodafone, 2015). A competitive advantage over low-cost supplier is additional revenue from selling hardware in retail shops as well as a broader customer base, as business customers usually do not chose low-cost suppliers. Besides, Vodafone is a global leader in the provision of Machine-to-machine (M2M) services with 24 million connections, constantly growing as multinational companies look for multinational providers (Vodafone, 2015).

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Personal Investment & Portfolio Planning. The case of an investment in 10 stocks and their development
Edinburgh Napier University
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personal, investment, portfolio, planning
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Anonymous, 2016, Personal Investment & Portfolio Planning. The case of an investment in 10 stocks and their development, Munich, GRIN Verlag,


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