Finance and The Impact of Portfolio Selection

There is a saying; never put all the eggs in one basket. This statement becomes meaningful in finance and investment market in which money is the central pillar that spins around the market. Rational investors aim at maximizing the expected returns for given levels of risks, or minimizing risks for given expected returns. This concept is can learnt from the portfolio theory whose aim is demonstrating the way investors combine assets with a portfolio as a way of offering ideal returns for given levels of risks(Fernholz, 2011).

This paper will focus on portfolio selection, in particular, aggressive type and the investment strategy to be followed. The equities of AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME companies that could be involved in the portfolio are also reviewed. Ultimately, the paper covers the Bloomberg system in terms of its application in researching and recording of the selected portfolio.

The Portfolio of Investments

A portfolio of equities with an initial value of £100,000 is a high-yield income portfolio which can generate high returns by accepting a high degree of risks. Owing that it can generate high expected return and accept high risks, the portfolio can be considered to be an aggressive portfolio. My portfolio intends to use equities of AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME companies.

The reason for choosing these companies is because they are among few organizations in London Stock Exchange that reflect positive changes in share values in most times. High positive changes imply high risk, although they offer the possibility of high returns in case the shares turn out to be good investments(Abbott, 2015). The equities of these companies have been listed on the London Stock Exchange.

The investment strategy of the portfolio will involve four steps; determining asset allocation, implementation of asset allocation, reassessing portfolio weightings and rebalancing of the securities. My aim is to balance the capital growth and income besides generating high revenue. This implies that the investment value should also be high. The £100,000 value is large to be risked considering that this is the initial value of the portfolio. This idea aligns with the portfolio theory which states that investors prefer more money to less money and require extra return for taking extra risks(Bray, 2015).

Operating with high expected return and high associated risk is suggestive that the aggressive portfolio would best suit this need. In the portfolio, 5% of the portfolio value will represent cash and equivalents. Based on a £100,000 portfolio value, its equivalent to £5,000. The fixed income securities, on the other hand, would amount to 35 % (£35,000) while 50% would go to equities (£50,000). This attracts more risks, and the possibility of generating greater revenue would be high(Elton, 2014).

To achieve asset allocation, the capital will be divided among the asset classes. For a given level of expected revenue, risks can be minimized by diversification(Standard and Poor's Corporation, 2014). Thus, the asset classes would be broken down into subclasses with each class having different risks and possible returns. The equity will be divided among AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME, which, although operate under a similar London stock exchange, their respective risks and revenue are different.

As a matter of fact, current financial standings and risk tolerance are not constant, they keep on changing time to time(Ali, 2013). This calls for adjustments to be made in the portfolio to meet these changing parameters. Thus, the investment strategy would allow for the rebalancing of the portfolio after every three months. This could assist addressing market movements that may alter the initial weightings. As a way of assessing the portfolio’s actual asset allocation, the investments will be quantitatively categorized and their values’ proportion to the whole determined.

During rebalancing of the weightings of AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME companies, my aim will be to determine the over weighted and underweighted companies. For instance, in case asset allocation suggest that the 50% of portfolio value that had initially been allocated to the equities of these companies needs to be less, this will call for reducing the asset value allocated to this class.

The ultimate process of the investment strategy would involve reducing asset value of the overweighed proportion and adding to underweighted groups. In case the £35,000 asset value early allocated to fixed income securities is underweight, the value of other proportions such as cash and equivalents or equities will be sold to buy the underweight securities.

Equities

The equity of AKERS BIO company is broken down into three parts; common stock, paid-in additional capital and retained earnings(International Monetary Funds, 2015). The current equities of AKERS BIO stand at 0.14 for common stock, 0.71 for additional paid-in and 3.17 for retained earnings. All these figures are in terms of millions of GBPs. Summing up the individual equities brings the total equity to 4.02. This net equity is high in comparison to 2014 where it stood at 3.77 suggesting increase in asset value or a decrease in liability.

Mathematically equity is expressed as the total asset value of the company less the total value of liabilities owed by the company. The improvement of the total equity of AKERS BIO could be essential to the investor since he/she is more likely to minimize the risks as the company is making profits(London College of Information Technology, 2015).Investors earn returns in case there are changes in share prices and dividends that are received. Therefore, the received return is a function of dividend and share price at a specific time as shown mathematically below(Abbott, 2015);

Where R is the annualised return, D1 dividend and P share price at time 0 and 1. Positive changes in share values increase the returns an investor earns while decreases minimize the returns. The current price per share of 888 HLDGS is GBX 181.0 and fluctuates positively to 1.30. This is a +0.72% in share value which is important for the earning of an investor. The average Dividend yield for 888 HLDGS for the last five years is 0.03% per share. With a good return on investment and equity (25.16 and 25.49) % respectively in 2016, these values are suggestive of good returns for investing in the company(World Bank Staff, 2016).

The ABDN.ASN INC company aims at maximizing total return to the shareholders through investing in the securities of the company. The company invests all forms of securities especially in equities and equity related securities. As per 26th February 2016, the estimated equity of ABDN.ASN INC stood at 171.52 million GBX with the actual figure amounting to 171.14 million GBX.

The average value of investments varies time to time and, therefore, it is possible for an individual to gain less in comparison to the invested value. Thus, understanding risks is paramount. The average trading price of the share is 155.25 GBX with a +1.25. This represents a 0.81% increase in share price which is good for investors with respect to this particular time(Freedman, 2015).

The total value of assets less the total value of liabilities of ACORN INCOME amounts to GBX 90.74 million. Owing that it the difference between asset value and liability value, this can be taken to mean the standing equity value of the company. As per March 2016, the average share of ACORN INCOME amounted to 371.0 which is the highest share value than any other companies listed on the London Stock Exchange. This share value positively varied by +3.00 GBX, which represents 0.81%. The receivable return and changes in share value are positively correlated, and changes in share value in a positive direction will lead to positive increases in received returns(Bray, 2015).

Bloomberg System

This system is used in making one know more than anyone else. The professional arms investor has the capability of relating professional with detailed analysts, investors and capital structure information, estimate statistics and marketplace news. All these properties are interconnected to the powerful community of averagely 32,000 decision makers at the heart of a dynamic financial market(Johnson, 2014).

The Bloomberg system will be utilized to aid in researching and recording the selected portfolio; aggressive portfolio for this matter. During research, my objective will be accessing portfolio analysts, finance analysts and portfolio policies. This will rely on Bloomberg research resources which collect insight from 2,500 plus providers in one convenient place. The research will be characterized by intense searching, filtering and drilling down of various types of portfolios and the areas they are best suited for.

The system will be used to research historical portfolio developers, their contacts and recommendations. Their portfolio will be reviewed to provide a framework for developing my portfolio. Moreover, by researching contacts, it could be easy to find a way of communicating with the developers who could assist in developing my portfolio(Stringham, 2015).Research is invaluable for any given process. Matters associated with finance are volatile, and it's worth researching probable companies to invest in before implementing the action. Investing in different companies helps to spread the risks since one does not put "all the eggs in one basket"(Abbott, 2015).

To research and follow the AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME, which my Portfolio intends to invest in, the Bloomberg system will be an ideal tool for this application. Its interface with robust query reporting will be used in searching the companies in terms of their purchasing power, cost basis and even market cap exposure. The system’s investor relations tools will provide me a full range of information about the share values, equity, rating and earning of AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME companies that I intend to follow.

The Bloomberg system is used by financial analysts, bankers and brokers in analyzing and evaluating the banking industry and any changes that may occur. I also intend to reap the properties associated with this system. Adjusting of the portfolio to meet changes in the market that are caused by dynamics in current financial standings will be achieved by using the Bloomberg system. The Bloomberg system will be used for tracking and monitoring the financial market data.

The current market standings will be compared against values held in the portfolio to determine if changes need to be made. The Bloomberg system's investor screening tool will help me in retaining my investment capital in an ever-changing financial market.Recording of the selected portfolio is essential to determine progress, what people think of the portfolio and for future reference. This can be achieved by using the Bloomberg. The process would rely on tools that could also update me on news and research from thousands of sources available through Bloomberg.

The proposed portfolio would be posted on my Facebook account as a way of determining other people’s view concerning the portfolio. Moreover, the Facebook account will be linked to the Bloomberg system. Custom news panels with real-time audio alerts will be created that could rely on the social media search filters in recording what friends think of my portfolio.

Conclusion

This paper covered portfolio selection and investment strategy. The composition of the portfolio; equities were reviewed. The equities of AKERS BIO, 888 HLDGS, ABDN.ASN INC and ACORN INCOME are listed on London Stock Exchange. The strategy of investment as presented in the paper will involve four steps; determining asset allocation, implementation of asset allocation, reassessing portfolio weightings and rebalancing of the securities.

Finally, the paper covered the Bloomberg system and the way it may assist in researching and recording the selected portfolio. This report would benefit researchers, scholars and other students in knowledge acquisition regarding the portfolio selection and investment strategy. This will contribute significantly to the general knowledge acquired in actual class and implement it in finance investment market. Moreover, besides gaining academic credits, the report will act as my referencing document to use as I plan to venture into investment market.