Mr. Steven, a successful businessman who is married and has 16-year old daughter. Mr. Steven’s wife working as a doctor in private hospital and his daughter is currently studying in private school at Kuala Lumpur. According to the doctor’s salary, assume that Mr. Steven’s wife annual income is RM 84,000 with the monthly income of RM 7,000. Besides, Mr. Steven did invested in some liquidate and marketable investment such as properties, money market, and investment grade bond funds. Therefore, he is no liquidity problem.
The main aim of this policy statement is to help Mr. Steven to generate sufficient fund in order to use the money for his daughter’s education in England. In order to achieve it, he has to make investment in equity market of the Bursa Malaysia and generate return that is higher than the average return of KLCI in 2 years times from 11 June 2018 to 11 June 2020. Therefore, develop a growth portfolio can help Mr. Steven to reach and achieve his objective.
Investor’s Return Requirement
Mr. Steven is planning to send his daughter to further study in university at England for 2 years. Recently, Mr. Steven had withdrew RM 1 million from his fixed deposit in Alliance Bank because he believe that invest in equity market can provide him a better ROI compare to place the fund in fixed deposits. Therefore, Mr. Steven is now looking for invest in equity market of the Bursa Malaysia. Besides, Mr. Steven is also expecting a higher ROI than average return of KLCI with same level of risk. The ROI generate from equity market will be used for his daughter’s education cost in England. Therefore, portfolio manager have to help Mr. Steven to achieve the objective and help him to invest in stocks from different industries so as to diversify risk. Portfolio manager can select different stock from different industries that have potential to growth and that can help investors to gain capital appreciation and preservation.
Risk objective is based on the ability and willingness of investor to take risk so that the portfolio manager will select the stocks that is suit to the investors itself. It also depends on an investor’s age, occupation, current net worth, income expectation and etc. Since Mr. Steven has no liquidity problem as he did invested in some liquidate and marketable investment. So, it shown that Mr. Steven has higher risk tolerance as more liquidity allows more risk taking. Based on the objective of Mr. Steven that he is going to generate funds for his daughter’s education fees for study abroad only. So, I can conclude that Mr. Steven has moderate high risk tolerance as he is not invest with the purpose of earning extra income. Therefore, portfolio manager should be based on the risk tolerance of Mr. Steven in order to help him to generate higher return by invest in moderate high risk investment in equity market of the Bursa Malaysia.
Liquidity requirement refer to the how easy it is to cash out of an investment and the risk of loss due to the unexpected cash outflow during the investment period. Based on investor profile and investor’s family background above, it shown that the Mr. Steven has no any liquidity problem as he did invested in some liquidate and marketable investment such as properties, money market, and investment grade bond funds. On the other hand, Mr. Steven already withdrew RM1 Million from his fixed deposits in Alliance Bank. So, he is not going to make withdrawal from his other investment and he is appointed a portfolio manager to handle his investment in order to help him achieve his objective.
Time horizon refer to the period of time that investor to hold their investment. Time horizon will generally affect the liquidity needs and risk tolerance such as the longer the time holding for the investment, the higher the risk tolerance and the less liquidity for the investor. Based on the objective of the policy above, it shown that the Mr. Steven has to make investment in equity market in order to generate return that is higher than the average return of KLCI in 2 years times from 11 June 2018 to 11 June 2020. Thus, portfolio manager should help Mr. Steven to achieve his objective by generate the target returns within the period.
According to the law of Malaysia, it does not levy withholding tax on dividends in Malaysia. Therefore, Mr. Steven is not subject to any taxes charged on the capital gains from the investment in equity market. Thus, Malaysia is applying the single tier system so that the dividends from the investment is tax exempted so that Mr. Steven does not need to pay for tax to the government.
Legality can be defined as an act or obligation imposed by law, that is consistent with the law of being lawful that conducted by government and it can impact the investment decision of the investors. Bank Negara Malaysia and the Securities Commission are the parties who imposed the rules and regulations in order to protect the benefits of financial institution and investors. Therefore, investors must follow strictly to the guidelines for legal investments so as to protect and manage the investor’s investment portfolio benefits.
Unique refer to the special or personal needs and wants that required by the investors in the investment objective. Based on the policy objective and investor’s return requirement above, it shown that the Mr. Steven had withdrew RM 1 million from his fixed deposit in Alliance Bank and he is wanted to invest in equity market that can provide him a better ROI compare to place the fund in fixed deposits with the purpose of generate sufficient funds to be used for his daughter’s education cost in England.
Asset allocation is an investment strategy or process that used to allocate investor’s investment in different countries. It also based on the asset classes for investment purpose. Besides, different group of securities will have different correlation and risk. Therefore, invest in different portfolio investment in various countries that can help investors to diversify risk and increase returns per risk.
In practice, finance sector is the most stable stock that includes insurance companies, real estate, investment fund and banks such as Public bank and Maybank in Malaysia. Therefore, this type of stock can help investors to reduce portfolio risk and increase portfolio income due to this type of stock is more stable compared to others industries.
Moreover, gaming sector such as Genting Malaysia is a resorts and casino company and is a subsidiary of the holdings company Genting. The company generates the vast majority of its revenue in Malaysia. We believed that this type of stock can help investors to minimize and diversify the portfolio risk.
Therefore, property sector can be consider one of the stable stock in Malaysia. For instance, Eco World Development Group Berhad is one of the largest property developer in Malaysia that provides real estate services and serves customers worldwide. The company is also one of the fastest growing companies on Bursa Malaysia. This type of stock can help investors lower down the risk and generate better income in the portfolio investment.
In consumer goods sector, Ajinomoto (Malaysia) Bhd is a company that involved in manufacturing and selling of monosodium glutamate (MSG) and other related products, etc. It related to the food industry and it will not have large impact to the companies during the economic recession. Thus, change in the economic condition will not have big impact to the company as the company’s production still can give positive sentiment to the market.
Lastly, consumer goods sector can be refer to items or tangible goods that the companies involved and the performance depends heavily on consumer behavior. For instance, British American Tobacco Malaysia Berhad with the code of 4162 is a defensive stock. This type of stock carry with negative or low beta, it means that it will reduce the risk of portfolio investment.