Personal Investment & Portfolio Planning. Investments into companies listed on the London Stock Exchange

Essay, 2016

39 Pages, Grade: 1,0



Table of content

1. Executive summary
1.1. Performance of the Portfolio

2. Analysis of the individual companies
2.1. HSBC Holdings plc
2.2. Greggs
2.3. Barclays
2.4. Braemar Shipping
2.5. BP plc
2.6. Corero Network Security plc
2.7. Pearson Group
2.8. Edinburgh Investment Trust
2.9. GlaxoSmithKline
2.10. BAE Systems
2.11. EasyJet
2.12. Royal Dutch Shell

3. Conclusion

4. Reference List

1. Executive summary

In the following the investment of £55,000 into companies, listed on the London Stock Exchange, will be analysed and evaluated. The investment period of the individual investments varied between four and 13 weeks due to an adjustment in week ten. As illustrated bellow, the initial investment was highly diversified in order to avoid an overdependence on particular industries, as this could lead to high losses in case the industry faces difficulties. The risks of the investments vary between moderate and high. While companies, such as HSBC, BP and BAE Systems, are so called blue chip companies, which have a high Market Capitalisation and operations are relatively stable, other companies like Greggs or Corero Network Security are riskier. The majority of the companies are listed in the FTSE 100 or 250 index.

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As the Edinburgh Investment Trust as well as HSBC underperformed in comparison to its appropriated indexes, shares were sold and reinvested in week ten. Even though both new investments contributed negatively to the overall performance of the portfolio, the new investments proved to be an improvement compared to the return of the sold companies. Underlying reasons for the bad performance of HSBC were a high fine and hacker attacks. The weak performance of the largest stakes the Edinburgh Investment Trust is holding, as well as the increasing uncertainty about the potential “Brexit” might be reasons for the decreasing share price. Detailed analysis is provided in the respective subsection of each company.

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1.1. Performance of the Portfolio

The overall performance of the portfolio is a gain of 2.41% and therefore higher than the official bank interest rate of 0.5%. Furthermore, the return equals out the actual inflation rate of 0.5% (Bank of England, 2016). While six companies contributed positively, six companies contributed negatively to the overall performance of the portfolio. Over the 13-week period a gain of £1323 was achieved, whereby the dividend income accounts for 65% of the total gains.

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Due to the high amount of investment and the high return from the Pearson investment, the high losses of the Barclays investment were compensated. Underlying reasons for the positive development of the Pearson investment are the announced restructuring plans and the high dividend pay-out. Subsequently Pearson overperformed the Media index as well as the FTSE100 index significantly. In contrast, Barclays significantly underperformed the FTSE 100 index as well as the Banking Index. Underlying reasons for Barclays’ negative development might be the judgement to pay a £108m fee, the announced drawback from the African market and the drop in profits.

Comparing the share price development of the FTSE 100 and the FTSE All-Share with the portfolio illustrates that the overall development of the portfolio is negative, when dividend pay-outs are excluded. Over the 13 weeks, the value of the FTSE 100 index increased by 3.37% and the FTSE All Share index increased by 2.88% while the value of the shares in the portfolio declined by -2.85% (dividend pay-outs and investments from week ten are excluded).

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By considering the dividend pay-outs as well as the proportion of the investments, the portfolio achieved a return of 2.41%, however, this is also lower than the increase in share value of the two indexes.

In summary, it can be argued that the London Stock Exchange experienced high pressure due to the upcoming referendum on the “Brexit”, which creates insecurity among investors and might tempt them to invest in other countries. Due to macroeconomic circumstances, like the declining oil prices and the declining economic growth in China, stock prices have become very volatile in general. Although, the Central Bank tries to stimulate investments by low interest rates, many investors dread the volatile stock markets, which led to declining share prices. The graph, illustrated below, shows that the stock markets in the United States experienced a high volatility as well and shows that the three indexes correlate with each other, which implies that all indexes are influenced by similar macroeconomic factors.

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(Source: Yahoo Finance, 2016)

2. Analysis of the individual companies

In the following the 12 companies of the portfolio will be evaluated. Underlying reasons for the investment will be provided for each company. Furthermore, share price developments will be analysed by evaluating factors, which might have influenced the share price development of the particular company.

2.1. HSBC Holdings plc

HSBC is one of the world’s largest financial services providers and active in Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking (HSBC, 2016). As the bank is active in more than 70 countries, this investment is seen as a diversified investment, where a downturn of single economies might not affect the share price in a significant way. HSBC passed the stress test and experienced higher gains in recent years due to its activities in emerging markets (Wearden, 2015). One factor for the recent share price decline might be the speculations whether HSBC will move its headquarter to Asia. It is assumed that after the decision has been made, the share price will stabilise and increase. The movement to Asia is related to high costs and uncertainty, but would cut the operating costs in the long run (Dakers, 2016). Furthermore, HSBC announced plans to package more of their emerging market loans into bonds, which might be promising, as many investors are interested in the promising emerging markets economies (Crimmins and Wilchins, 2015). As the upcoming referendum, whether the UK should stay in the European Union, increases the pressure for the bank, only £1000, which is the smallest investment of the portfolio, have been invested.

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HSBC’s share price development strongly correlates with the banking industry. Furthermore, HSBC correlates with the FTSE 100 Index but strongly underperformed it. Due to this underperformance, 100% of the HSBC shares where sold and invested into another FTSE 100 company. Over the ten-week period HSBC contributed negatively (-6.5%) to the overall performance. Even though a dividend of 14.79 pence was paid out, it did not compensate the losses of the decreasing share price. After the decision not to move its headquarter to Asia, the share price experienced an increase (BBC, 2016c). As the whole banking industry experienced an increase during this time, it is unclear, whether the decision had a direct influence on the share price. Besides, HSBC has been fined to pay £325m between week four and five for abusive mortgage practices during the financial crisis (Neate, 2016b). Even though HSBC was able to successfully defend an online attack on its online banking system, customers were not able to access their account at a very important payday in the UK (Peachey, 2016). This incident further increased the pressure on the share price between week three and four. As the share price further decreased till week 13, the decision to sell the HSBC shares proved to be right.

2.2. Greggs

Greggs is a large bakery and food-on-the-go seller and is exclusively active in the United Kingdom. Greggs employs around 20,000 employees and has around 1700 shops across the UK. Greggs’ share price recently decreased by around 35% due to a slow down in sales during the Christmas period (Ruddick, 2016). As the business model of Greggs has a promising future perspective, and the sales are constantly rising since several years, £2000 was invested into Greggs. The management seems to have the needed expertise and engagement, as they are constantly closing shops with low performance and opening new shops at more popular spots (Ruddick, 2016). As the trend to eat healthy and balanced nutrition is becoming more popular and a rising number of people are short in time, Greggs’ strategy to focus on healthier food for take-away may pay off (Tighe, 2015). By keeping the technology up-to-date, Greggs ensures not to fall behind in respect to efficiency. Furthermore, Greggs may benefit from decreasing food prices (Ficence, 2016d).

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Greggs gradually recovered from the slowed growth during the Christmas period and contributed positively to the overall performance of the portfolio (4.73%). While it outperformed the FTSE 100, Greggs underperformed the food and drug retail sector. In week 7, Greggs announced to close several bakeries in Scotland and to open several new stores in Ireland (Mulgrew, 2015; BBC, 2016). Furthermore, Greggs declared to open around 300 stores with a high focus on the food on-the-go market in the near future (Mccrum, 2016). Another positive aspect in week 7 was the announcement of a 25% increase in profits, as an increasing number of people of the middle class were gained as new customers (Anderson, 2016). Greggs furthermore improved its profit margin. All the above-mentioned news were released between week seven and eight and might have led to an increase in the share price of Greggs. As the shares were sold at the 6th of April, it missed out the dividend pay­out on the 21st of April, which was expected to be raised by 30% compared with the last pay-out (MarketWatch, 2016). Subsequently, the shares should have been hold longer.

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2.3. Barclays

Barclays is a multinational retail, corporate and investment bank headquartered in London. As Barclays gains 91% of its return from the European and the American market, the company is less affected by the economic downturn in East Asia compared to others banks (Barclays, 2015). In contrast to the Deutsche Bank, which suffers from declining share price, due to its plans to expand the investment banking divisions, Barclays new CEO Jes Staley planned to cut jobs in the Asian investment banking area (Morris, 2015). By doing so, the risk of contagion is limited. Barclays was not bailed out by the government and successfully passed the recent stress tests, which shows that Barclays is able to survive a number of external shocks. Furthermore, profits have stabilised since the financial crisis and a dividend pay out in the upcoming month is likely (Stephens, 2015). As Barclays faces several unsolved problems, such as the foreign exchange market manipulation, £3000 invested in Barclays.

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Personal Investment & Portfolio Planning. Investments into companies listed on the London Stock Exchange
Edinburgh Napier University
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personal, investment, portfolio, planning, investments, london, stock, exchange
Quote paper
Anonymous, 2016, Personal Investment & Portfolio Planning. Investments into companies listed on the London Stock Exchange, Munich, GRIN Verlag,


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