LBF302 Investments

LBF302 Investments

PART A

Question (i)

Number 1

An investment strategy is a set of rules that an investor uses in the selection of securities in an investment portfolio. Investment strategies are made in such a way that they fit an investor’s preferences of risk and return. Some investors prefer maximizing the expected returns by investing in risky assets, while others prefer minimizing the risk, but most of them select a strategy that combines both.

The infrastructure fund that has been chosen in this case is from APA group. This is the Australia’s largest natural gas infrastructure business. The business operates approximately $9 billion of energy infrastructure assets. From the performance shown by the infrastructure bond, it is evident that the firm uses an Active Investment Strategy, which can either be technical or fundamental analysis in nature (Sherman & Titman 2002).

Number 2

The performance of the fund is influenced by a number of factors, namely:

  1. The individuals chosen as fund managers will affect the choice of investment strategy that will be used by the fund.
  2. The volatility of the market.
  3. The performance of other related funds in the infrastructure field.

Exchange Traded Funds (ETFs) are investments open-ended funds that invest in a basket of securities or assets that generally aim at tracking the performance of a given index or benchmark, and are normally traded in a stock exchange market. International ETFs, such as commodity ETFs, allow investors to gain exposure to the fundamentals, without necessarily delivering the commodity physically. This creates arbitrage opportunity should the market price of the commodity ETFs shift away from its NAV. It serves as a hedging tool in case of exchange rates fluctuations.

Reasons for selecting international ETFs

·         International ETFs provides an investor with foreign exposure to regions that have a high or relatively higher growth or even emerging markets. Thus, International ETFs increases investors’ international exposure.

·         Regional diversification that arise from one adding an international ETFs to the investment portfolio expands the investors’ investment scope and helps balance the overall scheme of the investor, especially if the portfolio is fairly low in the domestic market.

·         If an investor is already exposed to certain regions, then there is a better opportunity to buffer his/her investment from uncertain and negative developments in those regions, be it political upheavals or mass unrests, via international ETFs.

Question ii

3 (a)

Table 1.1 below show the firms which were selected. Regression analysis was done, which indicated that 96.5% of ASX Return on investment can be explained by the given set of portfolio; hence, a significant effect is experienced. At any point, the return on investment at the ASX can be determined by the following regression equation.

Y = a + β1X1+ β2X23X3+ β4X4

Where a = Constant and β1, β2, β3 and β4 are Beta coefficients

Y= 1717.967 + 7020.174X1+22.986X2 + 6.831X3 + 24.341

The analysis was done using the SPSS and is as represented in the tables 1.2 and 1.3 below.

Table 1.1 Return on investment and portfolio performance

ASX S&P 200 INDEX GALILEO JPT  APA Group  SPDR 50 FUND  I Shares  MSCI BRIC
4366.5 0.02 24.62 137.95 40.66
4335.2 0.02 23.69 140.81 40.88
4298.5 0.02 21.98 137.02 43.8
4262.7 0.02 20.02 131.32 41.16
4056.6 0.02 18.52 125.5 36.27
4119.8 0.02 17.97 124.99 38.43
4298.1 0.03 25.22 125.5 39.78
4008.6 0.02 23.79 113.15 33.87
4296.5 0.02 27.05 122.22 42
4424.6 0.02 27.7 129.33 46.71
4608 0.03 30.08 131.97 47.8
4708.3 0.02 31.43 134.9 48.84
4823.2 0.02 32.76 136.43 50.37
4837.9 0.03 31.43 132.59 50.31
4831.7 0.03 33.24 133.15 48.2
4753.9 31.5 128.68 47.25
4745.2 30.1 125.75 49.13
4584.4 26.98 118.49 47.49
4661.6 28.33 118.49 49.22
4582.9 26.04 114.13 47.76
4404.2 23.43 105.31 43.08
4493.5 28.12 110.27 44.78
4301.5 26.31 103.22 40.99
4429.7 28.3 109.37 41.34
4807.4 29.33 118.81 45.56

Source: Yahoo! Finance Site

Figure 1.1

 

Table 1.2 Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .982 .965 .951 62.08914

Source: SPSS Output

Table 1.3 Coefficients
Model Unstandardized Coefficients Standardized Coefficients
B Std. Error Beta t Sig.
1 (Constant) 1717.967 327.004 5.254 .000
GALILEO JPT 7020.174 4214.146 .115 1.666 .127
APA Group 22.986 6.815 .418 3.373 .007
 SPDR 50 FUND 6.831 3.214 .176 2.126 .059
 I Shares  MSCI BRIC 24.341 7.640 .453 3.186 .010

Source: SPSS Output

Question 3 (b)

There is a lag effect between the return and volatility of the market and return and volatility of the investment portfolio. The lag can be explained by:

  1. Time taken for the participants to realise new information in the market.
  2. Time taken for the actions of the participants to be felt in the investment portfolio performance.
  • Time taken by participants to realise any incorrect actions that they may have undertaken with regard to their portfolio, and take corrective action.

PART B

  1. a) The role and size of share market in Thailand

            In Thailand, stocks are traded in the Stock Exchange of Thailand (SET). This market, which is situated in Bangkok, had 541 companies listed for share trading by 2007. By then, the collective market capitalisation was $ 280 billion. The stock exchange uses three indices to assess the performance of the shares, including SET100 index, SET50 index, and SET index. Development of the modern stock exchange market has gone through two historical stages. From 1962 to early 1970s, the stock market operated as a privately owned entity. Between 1967 and 1971, the Security Exchange of Thailand was established, with the aim of accumulating funds for economic development and industrialisation. Although some other stock markets existed before, this was the first stock market to be officially approved and supervised……………………………………………………………

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