International Investments of Government and Corporate Bonds: Case Study

International Investments of Government and Corporate Bonds

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Part 1: International Investments of Government and Corporate Bonds

Portfolio Management

A portfolio refers to the collection of certain investments, such as Mutual funds, cash, bonds, shares and stocks based on the income time and budget of the investor. There are four types of portfolio management: Active portfolio management, passive portfolio management, discretionary portfolio management, and non-discretionary portfolio management (Platanakis and Urquhart, 2019). The portfolio managers understand the needs of the investors for the investment and set certain designs of suitable investments based on the needs, by determining the low risk and high rate of return. Portfolio management refers to the science and art of selecting a group of investments that meet long-term financial goals and tolerating the risks of any company or individual. It is the process of buying and selling stocks from the stock market in order to compete with the broader market.

The companies that the portfolio manager will be going to select based on the requirements provided by the client (Liang et al. 2018). Antofagasta (Auto), Auto Traders Group PLC, BP PLC, BT Group PLC and WPP PLC, and two bonds, such as BT corporate bond and UK Government Bond.

1. Antofagasta (Auto) PLC: It is a mining company registered with the government of the UK. it is a multinational company in Chile with the participation of equity in Antofagasta Minerals, railroads of Bolivia to Antofagasta. It was founded in 1888 in Chile by Andronico Luksic Abaroa. Its current stock price in today's market is 1393.75 GBX (finance.yahoo.com, 2022). The EPS of this company is 0.76, the profit-earning ratio is 18.34, the and the dividend amounts to 25.70 GBX with an annual dividend yield of 7.36%. The portfolio manager selects this company based on its market capital, which is about $13.763 billion. It is recommended to invest 10% of the fund provided by the client.
2. Auto Traders Group PLC: it is an automobile company in the UK and Ireland. It provides advertisements of vehicles on its website for sellers and also provides insurance and loan facilities to the customers. This company was founded in 1977, and its headquarters is in Manchester, UK. Its current market price is 570 GBX. The EPS of this company is 0.25, the profit-earning ratio is 22.85, and the dividend amounts to 2.07 GBX with an annual dividend yield of 1.45% (finance.yahoo.com, 2022). The portfolio manager selects this company based on the Market capital, which is about 5.35B. It is recommended to invest 5% of the fund provided by the client.
3. BP Group PLC: it is an oil and gas-making multinational company. It is one of the world's largest companies for producing oil and gas (Kral et al. 2019). Its headquarters is situated in London in the UK. This company was founded in 1909. Its current stock price in today's market is 486.90 GBX. The EPS of this company is 5.26, the Profit Earning Ratio is 4.05, and the dividend amounts to 5.17 GBX with an annual dividend yield of 4.26% (finance.yahoo.com, 2022). The portfolio manager selects this company based on a Market Capital which is about 103.58B. It is recommended to invest 20% of the fund provided by the client.
4. BT Group PLC: it is a telecommunication industry. It provides fixed-line broadband and mobile service and also provides IT services and TV subscriptions. The headquarters is been situated in London, this company was formed in the year 1846. Its current stock price in today's market is 120.5 GBX. The EPS of this company is 7.00, the profit-earning ratio is 6.84, and the dividend amounts to 1.93 GBX with an annual dividend yield of 6.27%. The portfolio manager selects this company based on its market capital, which is about 11.98B. It is recommended to invest 40% of the fund provided by the client (Kock et al. 2020).
5. WPP Group PLC: It is a multinational company that provides advertising, and public relations. Its headquarters are located in London. This company was founded in 1971 by Martin Sorrell. Its current stock price in today's market is 820.6 GBX. The EPS of this company is 3.54, the earnings ratio is 2.97, and the dividend amounts to 8.43 GBX with an annual dividend yield of 3.92%. The portfolio manager selects this company based on its market Capital which is about 9.26B. It is recommended to invest 5% of the fund provided by the client.
6. BT Corporate Bond: it is recommended to invest 15% of the fund provided by the client.
7. UK Government Bond: it is recommended to invest 5% of the fund provided by the client.

Table 1: % of capital investment

From the above table, it is seen that the client has invested around 1000000 in the first company as equity. In the second company, the client invested 500000 as equity. In the case of the third company, 2000000 is invested as equity. 4000000 is been invested in the fourth company as equity by the client. For the fifth company, the client invested 500000 as equity. The client has also invested in bonds at around a total of 20%. Out of which 15% is 1500000 has been invested in the BT Corporate Bond and the rest in the UK Government Bond at 5% is 500000.

FTSE 100 will be taken as the best index as it contains all the 5 companies mentioned and its market value in today's world is around 7369.21. This index is chosen to compare with other indexes. Two government bonds are not listed here but according to the stock market of the UK, FTSE 100 is at the top containing the 100 best companies in the UK. Compared to other indexes of the market such as FTSE 250 and FTSE 350 these indexes also have companies which were already present in FTSE 100 but they are at a very low rate.

Part 2

Figure 1: Movement of share price

Changes have been found in the price of the shares and bonds where the client invested. It is seen in the 1st company that, the company at the end of day 7 has performed well and expected based on a week that the company will provide a good return.

The second company shows that it has performed well as the 1st company. In the case of the 3rd and 4th company, the day 7 amount is below the amount invested so it can be at a loss (Qudratullah, 2019). The fifth and the seventh companies perform well and the fifth is at the top of good performance compared to others. The sixth company is at a loss at the end of the week and hence not a good amount is expected from it.

The changes in the price of the shares may occur due to certain reasons. Those can be like the loss found in the business or in case of a market crash, past poor performance of the company in the market. There can be an increase in the profit of some businesses which increases the price of the stock.

Treynor Ratio of Antofagasta PLC

Table 2: Treynor ratio of Antofagasta PLC

This Treynor ratio shows that the investment derived is at loss so this company is not to be taken as a profitable investing company by the client.

Treynor Ratio of BP Group PLC

Table 3: Treynor ratio of BP Group PLC

This Treynor ratio shows that the investment derived is at a loss so this company may be taken as a profitable investing company as its loss is been at a very minimal rate. The client can invest in this company.

Conclusion

It can be seen that the two companies have been at a loss of 0.01 percent, in which the client has invested the money. The Treynor ratio is computed to generate the actual change in the price of the shares after a certain period. From this information, the client can decide whether it is profitable to invest or not. According to active and passive portfolio management, it cannot be fully deduced from outcomes whether this company is profitable or not. To assume it, the Treynor ratio is required to be computed. This ratio in this given problem has been made on the equity-based company, which is at FTSE 100. It has been expected that the company at the end will provide some profitable outcomes but contrary to the result computed, it is found that the company has been in a slight loss which can be ignored, but if the client demands to gain profit and not to face any kind of losses then it is to be suggested that the client should not invest in this type of companies.

References

finance.yahoo.com 2022 about the company available at: https://finance.yahoo.com/quote/ANTO.L?p=ANTO.L&.tsrc=fin-srch [Accessed on 13^th November 2022]

finance.yahoo.com finance.yahoo.com 2022 about the company available at: https://finance.yahoo.com/company/autotrader?h=eyJlIjoiYXV0b3RyYWRlciIsIm4iOiJBdXRvdHJhZGVyLmNvbSJ9&.tsrc=fin-srch [Accessed on 13^th November 2022]

finance.yahoo.com finance.yahoo.com 2022 about the company available at: https://finance.yahoo.com/company/bp-group?h=eyJlIjoiYnAtZ3JvdXAiLCJuIjoiQlAgZ3JvdXAifQ==&.tsrc=fin-srch [Accessed on 13^th November 2022]

Kock, A., Schulz, B., Kopmann, J. and Gemünden, H.G., 2020. Project portfolio management information systems’ positive influence on performance–the importance of process maturity.International journal of project management,38(4), pp.229-241.

Kral, P., Valjaskova, V. and Janoskova, K., 2019. Quantitative approach to project portfolio management: proposal for Slovak companies.Oeconomia Copernicana,10(4), pp.797-814.

Liang, Z., Chen, H., Zhu, J., Jiang, K. and Li, Y., 2018. Adversarial deep reinforcement learning in portfolio management.arXiv preprint arXiv:1808.09940.

Platanakis, E. and Urquhart, A., 2019. Portfolio management with cryptocurrencies: The role of estimation risk.Economics Letters,177, pp.76-80.

Qudratullah, M.F., 2019. Treynor ratio to measure islamic stock performance in Indonesia.Jurnal Fourier,8(1), pp.1-13.