Financial Investment Oppotunities Assignment 2

Nguyễn Thị Kiều Anh - Snow - F05014 BANKING ACADEMY OF VIETNAM BTEC HND IN BUSINESS (ACCOUNTING) ASSIGNMENT COVER SHEET NAME OF STUDENT Nguyễn Thị Kiều Anh - Snow - F05A REGISTRATION NO F05-014 UNIT TITLE ASSIGNMENT NO Unit 39: Financial Investment Opportunities Investment Portfolio and Interpretation of Financial Information of NAME OF ASSESSOR Joey Lai SUBMISSION DEADLINE 20th December 2013 ASSIGNMENT TITLE I, Nguyễn Thị Kiều Anh hereby confirm that this assignment is my own work and not copied or plagiarized from any source I have referenced the sources from which information is obtained by me for this assignment _ Signature 20 December 2013 _ Date FOR OFFICIAL USE Assignment Received By: Date: Nguyễn Thị Kiều Anh - Snow - F05014 Unit Outcomes Outcome Evidence for the criteria Assessor’s decision Feedback First attem pt Identify the needs of different investors Understand investors’ needs LO3 3.1 Design portfolios of investments for different individuals 3.2 Explain the functions of financial advisers and how to select one 3.3 Explain investors’ rights and the protection available to them 3.4 Explain the information in the financial pages of The Financial Times 4.1 Understand the working of the Calculate stock stock exchange ratios exchange and and be able to the range of explain what investments they mean available Describe and LO4 evaluate collective investments, e.g Investment and unit trusts OEICs and bonds 4.2 4.3 Rework Internal Verificati on Nguyễn Thị Kiều Anh - Snow - F05014 Outcome Evidence for the criteria Internal Verificati on Assessor’s decision Feedback First attem pt Merit grades awarded M1 M2 M3 Distinction grades awarded D1 D2 D3 Rework Assignment ( ) Well-structured; Reference is done properly / should be done (if any) Overall, you’ve Areas for improvement: ASSESSOR SIGNATURE DATE / NAME: (Oral feedback was also provided) STUDENT SIGNATURE DATE NAME : FOR INTERNAL USE ONLY VERIFIED YES NO DATE : VERIFIED BY : NAME : / / / Nguyễn Thị Kiều Anh - Snow - F05014 A REPORT FOR SENIOR PERSONAL FINANCIAL CONSULTANT Prepared for: Lecturer, Mrs Joey Lai Financial Investment Opportunities Banking Academy, Hanoi BTEC HND in Business (Finance) Prepared by: Nguyễn Thị Kiều Anh - Snow - F05A Registration No: F05-014 No of words: 3300 Submission date: 20th December, 2013 Nguyễn Thị Kiều Anh - Snow - F05014 TABLE OF CONTENTS INTRODUCTION CONTENTS TASK 1: UNDERSTAND INVESTORS’ NEEDS 3.1 Identify the investment needs for each investor 3.2 Design portfolio of investments of different individuals 3.3 Explain the functions of financial advisers and how to select one 13 3.3.1 The function of financial advisers 13 3.3.2 The way to choose financial adviser 13 3.4 Explain investors’ rights and the protection available to them 14 3.4.1 Investors’ rights 14 3.4.2 Investors’ protection 15 TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE RANGE OF INVESTMENT AVAILABLE 16 4.1 Explain the information in the financial pages of The Financial Times 16 4.2 Calculate stock exchange ratios and be able to explain what they mean 17 4.2.1 Earnings per share (EPS) 17 4.2.2 P/E ratio 18 4.2.3 Dividend yield 18 4.2.4 Dividend cover 19 4.3 Describe and evaluate any one collective investment (investment trust, unit trust, mutual funds, OEICs) on the London Stock Exchange (LSE) 19 4.3.1 General description on collective investment 19 4.3.2 Evaluate investment trust on the London Stock Exchange (LSE) 20 CONCLUSION 22 REFERENCES 23 Nguyễn Thị Kiều Anh - Snow - F05014 INTRODUCTION In this report, I play role as the financial consultant in Citizens Investment Ltd My responsibility is base on the information about my clients to provide for them with personalized guidance to support all of their financial needs Besides, I also calculated the stock market ratios of BIX Company in order to recommend the clients whether should in that company or not I write this report based on information in the Investing course book and some reference books, many sources from internet, newspaper In addition, many slides which were continuously updated every week by lecturer Joey also help me collect information, theory in order to support in giving the advices for clients in specific financial situation Nguyễn Thị Kiều Anh - Snow - F05014 CONTENTS TASK 1: UNDERSTAND INVESTORS’ NEEDS 3.1 Identify the investment needs for each investor There are main types of investors’ needs namely: Types of needs Characteristics Low risk tolerance investors Focused on the security of investment, Conservative likely to give up higher amount of return over the long-term for the investors’ needs comfort of low volatility Low to medium risk tolerance investors Focused on generating Retirement wealth over the medium to long term while maintaining some investors’ needs fluctuations of return in the short-term Medium to high risk tolerance investors Focused on producing Balanced investors’ needs returns which are well ahead of inflation over the long term Growth investors’ High risk tolerance investor Focused on producing returns which are significantly ahead of inflation over the long-term needs Table 1: Types of investors’ need (Sunsuper, 2012) The need of Peter, Michael and Sandy is identified based on analyzing their risk tolerance, financial position and investment horizon as follows:  Peter Characteristics Analysis - Age: 57 - Gender: Male Peter is old so capacity to work decrease, opportunity to earn money is Risk tolerance less, income declines as well as does not have capacity to recover loss from investment anymore  is not willing to accept high risk but accept medium to low risk to have opportunity for saving money for retirement  Peter belongs to moderate risk tolerance - Financial position Planning for retirement soon and has less than £10,000 saved He is near to retirement; however he has not started saving for retirement so saving money is small (less than £10,000)  Peter has weak financial position Investment Saving for retirement soon (in less than years) horizon  Peter’s investment is medium term horizon  Investor’s needs: Needs for retirement Table 2: Peter’s need Nguyễn Thị Kiều Anh - Snow - F05014  Michael Characteristics Analysis - Age: 45 - Gender: Male - Experience: Has some (has already started investing but needs more guidance to clearly understand his choices) Risk tolerance Michael is in middle years of working career He still has enough capacity to recover the loss from investment Moreover, he also has some experience in investment  Michael belongs to aggressive risk tolerance Has more than £25,000 to invest Financial - position  Michael has strong financial position Plans to use the money down the road but still have more than years to Investment go and looking for direction horizon  Michael’s investment is long term horizon  Investor’s needs: Needs for growth Table 3: Michael’s need  Sandy Characteristics Analysis - Age: 16 - Gender: Female - Income: Does not have income yet - Experience: Does not have (has not yet started any types of savings plan) Risk tolerance Sandy is young students She still does not have income yet however she can borrow money from parents, friends and banks to invest She does not have experience in investment but she has high education and can hire advisors for giving investment advices  She belongs to moderately aggressive risk tolerance Financial position Investment horizon - Has less than £10,000 With age of Sandy, having the amount of money is appropriately £10,000 is not small  Sandy has normal financial position Pay for college (in - years)  Sandy’s investment is long term horizon  Investor’s needs: Needs for balanced Table 4: Sandy’s need Nguyễn Thị Kiều Anh - Snow - F05014 3.2 Design portfolio of investments of different individuals A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving investor’s goals (investopedia, n.d.) Based on analysing the needs of investors: Peter, Michael and Sandy in first part of report, the researcher can design an investment strategy by using asset allocation In order to accurately assess the portfolio for different investors, this report will compare two pie chart of investment portfolio which is designed based on two different software of reliable website, that are cgi.money.com and money-zine.com  Investment portfolio for Peter Peter belongs to moderate investor who doesn’t accept high risk but accept some risk to get good return to save for retirement Recommended portfolio Recommended portfolio (money-zine, n.d.) (cgi.money, n.d.) The portion for bonds, large-cap stocks, The figure shows that he should spend 48% foreign stocks and small-cap stocks are 70%, in bonds, 32% in cash and 20% in stocks It 15%, 10%, and 5% respectively Portfolio means that besides bonds, Peter should invest shows that bonds is good choices for Peter more on cash because cash investment is because bond is low risk financial instrument considered as ideal for increasing savings and can generate steady growth interest as with low risk which make sure a certain well as can be flexible in time of investment safety for retirement saving Nguyễn Thị Kiều Anh - Snow - F05014 Calculation risk and return of investment Recommended portfolio Recommended portfolio Assume have the returns on assets as follows Assume have the returns on assets as follows Assets Probability Return Bonds 70% 8.8% Large-cap stocks 15% 13.4% Foreign stocks 10% 14.1% Small-cap stocks 5% 14% (Statman, 2000)  Expected return Assets Bonds Stocks Cash  Profitability 48% 20% 32% Return 8.8% 13.5% 6.8% (Statman, 2000) Expected return E(R) = 0.48 × (8.8%) + 0.2 × (13.5%) + 0.32 E(R) = 0.7 × (8.8%) + 0.15 × (13.4%) + 0.1 × × (6.8%) = 9.1% (14.1%) + 0.05 × (14%) = 10.28%  Standard deviation (Risk)  Standard deviation (Risk) [SD (R)]2 = 0.48 × (0.088 - 0.091)2 + 0.2 × [SD (R)]2 = 0.7 × (0.088 - 0.1028)2 + 0.15 × (0.135 - 0.091)2 + 0.32 × (0.068 - 0.091)2 = (0.134 - 0.1028)2 + 0.1 × (0.141 - 0.1028)2 + 0.05 5.608 × 10-4 × (0.14 - 0.1028)2 = 5.1446 × 10-4  SD (R) = (5.608 × 10-4)0.5 =  SD (R) = (5.1446 × 10-4)0.5 = 0.0227 = 2.27% 0.0236 = 2.36%  Result above shows that Peter should choose the investment portfolio which reduces 0.09% risk but still brings return higher 1.18% than investment portfolio  Investment portfolio for Michael Michael is aggressive investor who doesn’t concern about market fluctuation, willing to accept high risk for receiving high return, high growth in the future Recommended portfolio Recommended portfolio (cgi.money, n.d.) (money-zine, n.d.) Michael is recommended that he should invest The second recommendation shows that he most of the assets on stocks with large-cap should spend the most (60%) for stocks which stocks (30%), foreign stocks and small-cap are considered as good choices for generating 10 Nguyễn Thị Kiều Anh - Snow - F05014 stocks accounted for the same portion (20%) wealth due to high risk with high rate of which bring high interest but also go with high return The other safer investments are risk Although Michael accepts high risk to get spending on 24% in bonds and 16% in cash maximum interest, he still should continue which will help Michael recover the loss from investing small part of his assets (30%) in bonds investing more in stocks in the case of stocks for safety in investment investment is unsuccessful Calculation risk and return of investment Recommended portfolio Recommended portfolio Assume have the returns on assets as follows Assume have the returns on assets as follows Assets Probability Return Bonds 30% 8.8% Large-cap stocks 30% 13.4% Foreign stocks 20% 14.1% Small-cap stocks 20% 14% (Statman, 2000)  Expected return Assets Bonds Stocks Cash  Profitability 24% 60% 16% Return 8.8% 13.5% 6.8% (Statman, 2000) Expected return E(R) = 0.24 × (8.8%) + 0.6 × (13.5%) + 0.16 E(R) = 0.3 × (8.8%) + 0.3 × (13.4%) + 0.2 × × (6.8%) = 11.3% (14.1%) + 0.2 × (14%) = 12.28%  Standard deviation (Risk)  Standard deviation (Risk) [SD (R)]2 = 0.24 × (0.088 - 0.113)2 + 0.6 × [SD (R)]2 = 0.3 × (0.088 - 0.1228)2 + 0.3 × (0.135 - 0.113)2 + 0.16 × (0.068 - 0.113)2 = (0.134 - 0.1228)2 + 0.2 × (0.141 - 0.1228)2 + 0.2 7.644 × 10-4 × (0.14 - 0.1228)2 = 5.2636 × 10-4  SD (R) = (7.644 × 10-4)0.5 =  SD (R) = (5.2636 × 10-4)0.5 = 0.0229 = 2.29% 0.0276 = 2.76%  In conclusion, both figures also recommended for Michael should invest the most on stocks, but the first recommendation is more suitable than second one because with aggressive investors such as Michael, investing in cash isn’t suitable for get profit over the long-term Moreover, holding a portfolio of several stocks instead of holding stocks in isolation will help Michael reduce 0.47% risk while still get return higher 0.98%  Investment portfolio for Sandy Sandy is moderately aggressive investors who willing to accept medium to high risk for receiving high return, high growth in the future 11 Nguyễn Thị Kiều Anh - Snow - F05014 Recommended portfolio Recommended portfolio (money-zine, n.d.) (cgi.money, n.d.) The first recommendation for Sandy is spending The portion for bonds, stocks, cash are 40%, the most of her assets on investing in stocks with 40%, and 20% respectively Portfolio shows large-cap stocks accounted for 30%, foreign that investing more on stocks is good choices stocks (15%) and 10% for small-cap stocks for purposes generating wealth to support for However, still invest large part in bonds (45%) college expenses of Sandy However, bonds which brings steady growth interest, flexible in and cash still accounted 60% of investment investment This prefer to her characteristics of for reducing the loss from investment because moderately aggressive risk tolerance Sandy only is medium to high risk takers Calculation risk and return of investment Recommended portfolio Recommended portfolio Assume have the returns on assets as follows Assume have the returns on assets as follows Assets Probability Return Bonds 45% 8.8% Large-cap stocks 30% 13.4% Foreign stocks 15% 14.1% Small-cap stocks 10% 14% (Statman, 2000)  Expected return Assets Bonds Stocks Cash  Profitability 40% 40% 20% Return 8.8% 13.5% 6.8% (Statman, 2000) Expected return E(R) = 0.4 × (8.8%) + 0.4 × (13.5%) + 0.2 × E(R) = 0.45 × (8.8%) + 0.3 × (13.4%) + 0.15 × (6.8%) = 10.28% (14.1%) + 0.1 × (14%) = 11.50%  Standard deviation (Risk)  Standard deviation (Risk) [SD (R)]2 = 0.4 × (0.088 - 0.1028)2 + 0.4 × [SD (R)]2 = 0.45 × (0.088 - 0.1150)2 + 0.3 × (0.135 - 0.1028)2 + 0.2 × (0.068 - 0.1028)2 = (0.134 - 0.1150)2 + 0.15 × (0.141 - 0.1150)2 + 6.3232 × 10-4 0.1 × (0.14 - 0.1150)2 = 6.0025 × 10-4  SD (R) = (6.3232 × 10-4)0.5 =  SD (R) = (6.0025 × 10-4)0.5 = 0.0245 = 2.45% 0.0251 = 2.51% 12 Nguyễn Thị Kiều Anh - Snow - F05014  From the analysis above, it is easy to recognize that recommended portfolios are also reasonable for Sandy However, Sandy should choose the investment portfolio which will bring return higher 1.22% with risk lower 0.06% than investment portfolio 3.3 Explain the functions of financial advisers and how to select one 3.3.1 The function of financial advisers A financial advisor (or adviser) is a trained specialist who helps people with their investments and financial planning (wisegeek, 2013) Financial advisors provide clients with advice on financial matters, making recommendations on ways to best utilise investors’ money Working as financial advisors, they must research the marketplace and advise clients on products and services available as well as ensure that investors understand those that best meet their needs Before giving any suggestion for clients, financial advisors must accumulate customers’ characteristics, financial position and customer needs to give the advice based on this data and they also must have specialty skills, and follow the regulations of financial industry as well (prospects, 2013) 3.3.2 The way to choose financial adviser Firstly, clients should identify types of financial advisor Financial advisors are divided into three types: - Tied advisers: working for one organization, such as bank, building society or insurance company, and selling only their products - Multi-tied advisers: selling several companies’ products - Independent financial advisers (IFAs): advising on any company’s products and, by law, providing clients with the most suitable advice (Arnold, 2010) Investors Types of advisors Reasons Peter’s need for retirement  He only need choose products Peter Tied advisers from one specific provider which help him receive steady interest for saving for retirement soon Michael’s need for growth  IFAs could help him widen Michael Independent products chosen from the whole of the market for finding new financial advisers investment opportunities for generating more wealth in the future Sandy’s need for balanced  Sandy only need generate wealth Sandy Multi-tied advisers with products from several providers, no need expand whole of the market like Michael Table 5: Identify suitable types of advisors for different investors 13 Nguyễn Thị Kiều Anh - Snow - F05014 After identify types of financial advisor which suitable the most for themselves, investors should focus on legal of a financial advisor All financial advisors must register with Financial Service Authority (FSA) so it is easy for investors to ensure the qualification of financial advisors by entering into homepage of FSA Thirdly, in order to choose good financial advisors, investors needs to consider on many aspects, namely - Advisors are required to be registered with Security and Exchange Commission License (SEC)  Ensure for investors due to financial advisor owed important liability in their financial - Look for advisors with experience  Ensure advisors’ ability to deal and handle different situation - Look for advisors with professional designations (Chartered Financial Analyst - CFA, Certified Investment Management Analyst - CIMA )  Ensure advisors is an expert in the field that they are trained - Typical professional investment advice fees  Ensure that investors can afford fee for services - Check the track record and reputation of advisor  Give confident for investors about advisors’ ability - Expect lots of questions from good advisor to assess clients’ investing expertise  Good advisors always consider the big picture of clients’ financial situation before advising on products or recommending specific actions (Beyers, 2012) In conclusion, based on above process, Peter, Michael and Sandy could make sure that their financial advisor is good for them to reach success in investment 3.4 Explain investors’ rights and the protection available to them 3.4.1 Investors’ rights There are six common rights of investors, including: Investors’ right Descriptions Investors have power in electing directors, which takes place at the Voting Power company’s meeting annually and voting for proposals for fundamental changes affecting the company such as liquidation or mergers Ownership Investors own a piece of a portion of the company that has value when business thrives Transfer ownership Investors are allowed to trade their stock on an exchange that is they can exercise the right to transfer ownership 14 Nguyễn Thị Kiều Anh - Snow - F05014 Dividend Entitlement Investors have a right to claim any profit a company pays out in the form of a dividend, along with a claim on assets Inspect Corporate Investors have right to be provided annual report which plays important Books and Records role in helping them assess financial position of the company Suing If the company has any illegal acts or provide inaccurate view of its financial health, investors have right for suing the company Table 6: Investors’ right (investor, 2013) 3.4.2 Investors’ protection UK government provides some regulations to protection rights of investors as follows:  Protection from wayward financial services professionals Financial Services Authority (FSA) regulates so many different aspects of financial system from stockbrokers, banks and stock markets to independent financial advisers All firms or individuals offering financial advice, products or services in the UK must be authorised by the FSA Thus, investors can be protected in order to minimize level of the risks, damages that they may offer (Arnold, 2010)  Regulation of markets Investors are also protected by rules and regulations in London Stock Exchange, namely as follows: Monitors market makers’ quotations and the price of actual trades to ensure compliance - with its dealing rules - Look-out for patterns of trading that deviate from the norm with the aim of catching those misusing information, creating a false or misleading impression to the disadvantage of other investors or some other market distorting action - Requires companies to disseminate all information that could significantly affect their share prices  Compliance with LSE rules, aimed at making sure members (market makers ) act with the highest standards of integrity, fairness, transparency and efficiency (Arnold, 2010)  Regulation of companies Investors have right to receive information about the company and to expect that there are laws and other pressures to discourage the management from going astray and acting against investor interests (Arnold, 2010)  Self-protection Besides, protection of UK government, investors also have to protect themselves by methods as follows: - Make sure the financial service company is authorised (FSA) 15 Nguyễn Thị Kiều Anh - Snow - F05014 - Understand the risks of the underlying investments - Choosing qualified and ethical a stockbroker and financial advisors - Check the fees charged by stockbrokers and financial advisors (Arnold, 2010) When firm’s wrongful acts or their negligence lead to investors’ damage, they can complaint by raising the issue with the financial service company first If investors and company cannot reach an agreed settlement, the complaints scheme will decide the final outcome of complaint If investors are not happy with final decision of the complaints scheme, investors can still take the matter to court (moneysmart, 2011) In conclusion, investors such as Peter, Michael and Sandy need understand deeply about right and protection available for protecting themselves TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE RANGE OF INVESTMENT AVAILABLE 4.1 Explain the information in the financial pages of The Financial Times Ken Fisher - the author of article “Take advantage of false fears, they create future demand” give a judgement that global demand increase by giving many evidences in the past It is considered as positive information and good news for investors Because it is obvious that when demand increase, it creates many business opportunities and corporation can grow more profit as well as market share As a result, investors can be easy get more interest with low risk The author gives out evidences in aspects to support for his judgement Firstly, increasing of air travel industry, the author states that air travel growth only described for strong world where citizen always have tends expenses than savings and can use their pocket on expensive services such as air travel for holiday or business purposes The next argument of Ken is inventories fall, sale increase When inventories fall, it demonstrated that the purchasing power of people increase It requires company need to restock to keep pace with that demand The last argument is power consumption increase, shipment increase It implied that when order more, produce increase, production staff must work more time than usual to achieve customer demand As a result, power consumption requirement is higher and shipment also more busy After that, Ken show wrong thinking of most of people about inventories fall, advice people should think in positive way and recommend that people should invest shares to grow in the future because business will have good opportunity to develop due to increasing demand 16 Nguyễn Thị Kiều Anh - Snow - F05014 The article “UK investment intentions at six-year high” written by Financial Times employee on September 2, 2013 There are some differences easy to recognize among two articles While article illustrated global demand in different country with large areas, article is only particularly in UK In addition, article does not mention the increasing demand last for how long while article shows specific number is year In article 2, the author show many contrast opinion about things whether should invest on machinery for developing economic or not Adrian Maxwell encourage business should invest because everything cannot come to business if they only sit and wait while Bart Simpson said that business still develop if business doing well whether having new machines or not Cart Anrntzen pointed out he still have not made investment decisions because increasing demand is only short term Therefore, it is necessary for business to consider fluctuations of the rest of the years before making investment decision 4.2 Calculate stock exchange ratios and be able to explain what they mean 4.2.1 Earnings per share (EPS) EPS represent a portion of a company’s profit that is allocated to each outstanding share of common stock The high EPS means high value of the shares of stock (Yellowkippy, n.d.) There are ways to calculate EPS:  Calculate EPS for both ordinary share and preference share EPS = - = = 4.72p Number of shares = Ordinary share + Preference share = (45,000 - 1,800) + (19,800 -1,800) = 61,200  Calculate EPS for ordinary share EPS = = = 5.86p - PSD = (19,800 - 1,800) × (50 × 4%) = 36,000 - Number of shares = Ordinary share = (45,000 - 1,800) = 43,200 In 2012, EPS of BIX (£5.86) is higher than the industry averages (£5.20), which means that company performs business well and BIX’s value of share of stock is higher than company of the same industry BIX Company can apply following ways to improve EPS: 17 Nguyễn Thị Kiều Anh - Snow - F05014  Increase earnings To this, BIX has to increase revenues, reduce expenses or both because profit equal total revenue minus total cost BIX Company face many costs for operating business such as admin cost, operating cost, cost of good sales, research and development cost, machinery cost BIX can reduce R&D cost, however, this way will lead to consequences such as can not develop new products, reduce the types of products to sale so it require BIX Company must give out right strategies instead R&D procedures with low cost before implementing this way  Decrease the number of share In order to decrease the number of share, BIX can apply financial tricks such as issuing corporate bonds and buy back common stocks 4.2.2 P/E ratio P/E ratio measure the relationship between the market share and EPS A ‘high’ P/E ratio may imply either high growth or low risk (or both) expected in future (ashgate, n.d.) = = = 9.56 times P/E of BIX (9.56) is only greater with 0.06 than the industry averages (9.50) This indicates that investors are willing to pay for BIX’s earnings because of high growth and low risk when invest in company In order to increase P/E ratio, BIX need to increase market prices To this, BIX must find out strategies to increase people demand such as update good information about financial health of company compared with average industry and current economic trend for giving the confidence for people that their choices is right 4.2.3 Dividend yield Dividend yield is a measure for determining how much income a stock provides (ashgate, n.d.) Dividend yield of BIX is greater 0.25% than the industry averages (6.00%), which shows that BIX Company is doing well and shareholders can get more earnings when investing in BIX Company High dividend yield lead to high income, however, very high yields can be a sign of unsustainably high dividend, may be it can be cut in the future Thus, investors must analyse the past period to recognize its fluctuations before investing in the company 18 Nguyễn Thị Kiều Anh - Snow - F05014 4.2.4 Dividend cover Dividend cover measures the number of times the current dividend could have been paid from available earnings The higher cover, the safer of dividend is (BPP, 2010) Dividend cover = = 1.67 times Dividend cover of BIX Company (1.67) is higher than industry average (1.50), which shows that BIX Company has safer dividend and ability to maintain dividend of company is higher 0.17 times than compared with industry average  From above results, it is easy to recognize that BIX Company is operating well and more effective than company in the same industry Thus, investors should invest in BIX Company 4.3 Describe and evaluate any one collective investment (investment trust, unit trust, mutual funds, OEICs) on the London Stock Exchange (LSE) 4.3.1 General description on collective investment Collective investments provide a means for ordinary people to invest in the stock exchange and to beat inflation by getting good returns (asisa, n.d.)  Two main types of collective investment - Investment trust: is types of investment firm formed for holding securities of other firms, and for obtaining its capital from public issues of shares that are traded on stock exchange It is close-ended funds (businessdictionary, 2013) - Unit trust: an organization which takes money from small investors and invests it in stocks and shares for them under a trust deed, the investment being in the form of shares in the trust It is open-ended investment (businessdictionary, 2013)  Advantages of collective investment - Suit “ordinary share” - Flexible: Pay/ invest a whole lump sum Pay/ invest on regular basis Can be transferred easily Purchase/ invest on behalf of other party  - Offer liquidity (can be converted into cash easily) - The amount of return depend on the total unit of fund you hold - Tax (CGT) is lower Disadvantages of collective investment - Risk: If the financial market collapses, the collective investment also will be affected 19 Nguyễn Thị Kiều Anh - Snow - F05014 - The high return from collective investment depends on the time held (medium to long term)  It does not help investors generate high return in the short term - Performance of collective investment depends on the “fund manager” (how much experience the fund manager has) If choose one excellent fund manager  high performance of CI In addition, it also depends on the evidence in the past few years (historical performance) (Lai, 2013) 4.3.2 Evaluate investment trust on the London Stock Exchange (LSE) Among companies of UK investment trust, I chose “Aberforth geared income trust plc” to analyse and evaluate Aberforth Geared income trust plc is a split capital investment trust which has two classes of share: Ordinary shares and Zero Dividend Preference (aberforth, n.d.) Figure 1: Historical Stock Chart of Aber.Income.Ord (AGIT) (LSE, 2013) This chart illustrated the stock price of AGIT in 2013 As can be seen, there were an increase trend in the stock prices of AGIT Starting with a slightly increase in the first month of year, the price of stocks had fluctuations significantly in the middle months of year 2013 from May to September with lowest point in July (£125 per share) but still higher compared with the first month of the year It began increasing again only in short time and reached the highest point (£162 per share) in the last month of the year Stock prices change because of demand and supply If more people want to buy a stock (demand) than sell it (supply), then the price moves up In contrast, if more people wanted to sell a stock than buy it, the price would fall (Investopedia, 2013)  It can be said that increasing of AGIT’s stock price is because many people want to buy a stock of AGIT than sell it  This is a good news for investors who invest in AGIT company In order to assess accurately fluctuations in stock prices, I will analysis based on last trades of AGIT as follows: 20 Nguyễn Thị Kiều Anh - Snow - F05014 Figure 2: Last trades of Agit’s stocks (LSE, 2013) Stock price has some changes in last trades on 13 Dec 2013, in which, the price was 162.50 in the beginning of trades and increased to 162.00 in the second trades It continued increasing and remained unchanged in the last trades with 162.50 Can be seen that, it is a good sign for its investors and attractive for investors when intend to invest on AGIT Figure 3: Fundamentals of AGIT company (LSE, 2013) EPS of AGIT for the year 2013 were 8.86p, which increase 6.5% compared with 8.15p for the year 2012, and increase 4.80% compared with 7.77% for the year 2011 It proves that AGIT performs business well and AGIT’s value of share of stock increase year by year P/E ratio calculated in 30 Jun 2013 (14.60) increase dramatically compared with that of 30 Jun 2012 (11.13) By increasing of P/E ratio, it means that investors are willing to pay for AGIT’s earnings because of high growth and low risk when invest in company In general, with all above analysis, it is easy to recognize that AGIT operating well and efficiency As a result, investors may believe that it continue developing greater in the future 21 Nguyễn Thị Kiều Anh - Snow - F05014 CONCLUSION In this report, the reader can understand deeply how to identify the needs of investors and way to design investment portfolio for different individuals based on accumulated data from investors This report also gives much important information about how to choose good advisors which help investors reach success as well as know exactly rules, and regulations of UK government apply for ensuring rights themselves during investment time Last, reader can know the working of the stock exchange and the range of investment through understanding information in the Financial Times, meaning of each ratio calculation in evaluating performance of each company and analysing one collective investment of specific company for assessing its potential Hopefully, through this report, readers can understand more about investment and plan to use the money for investing with aim at developing economics 22 Nguyễn Thị Kiều Anh - Snow - F05014 REFERENCES aberforth, n.d Aberforth Geared Income Trust [Online] Available at: http://www.aberforth.co.uk/aberforth-geared-income-trust/aberforth-gearedincome-trust.htm [Accessed 14 December 2013] Arnold, G., 2010 Investing 2nd ed s.l.:Financial Time Guides ashgate, n.d Financial and stock market ratio [Online] Available at: http://www.ashgate.com/pdf/samplepages/meaning_company_accounts_8_section3.pdf [Accessed 25 November 2013] asisa, n.d Introduction of Collective Investments [Online] Available at: http://www.asisa.co.za/_docs/Chapter%201.pdf [Accessed 13 December 2013] Beyers, T., 2012 The 10 Habits of a Good Financial Advisor [Online] Available at: http://www.dailyfinance.com/2012/05/11/the-10-habits-of-a-good-financialadvisor/ [Accessed 21 November 2013] BPP, 2010 In: Financial Reporting London: BPP Learning Media Ltd businessdictionary, 2013 Investment trust [Online] Available at: http://www.businessdictionary.com/definition/investment-trust.html [Accessed 13 December 2013] businessdictionary, 2013 Unit trust [Online] Available at: http://www.businessdictionary.com/definition/unit-trust.html [Accessed 13 December 2013] cgi.money, n.d Asset allocation [Online] Available at: http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.html [Accessed December 2013] Investopedia, 2013 Stocks Basics: What Causes Stock Prices To Change? [Online] Available at: http://www.investopedia.com/university/stocks/stocks4.asp [Accessed 14 December 2013] investopedia, n.d Investing 101: Portfolios And Diversification [Online] Available at: http://www.investopedia.com/university/beginner/beginner6.asp [Accessed December 2013] investor, 2013 Common rights of an investor [Online] Available at: http://www.investor-rights.com/common-rights-of-an-investor-explained.html [Accessed 22 November 2013] Lai, J., 2013 The advantages and disadvantages of collective investment, s.l.: s.n LSE, 2013 ABERFORTH GEARED INCOME TRUST PLC ORD £0.01 [Online] Available at: http://www.londonstockexchange.com/exchange/prices-andmarkets/stocks/summary/companysummary.html?fourWayKey=GB00B4TR3444GBGBXSET3 [Accessed 13 December 2013] moneysmart, 2011 You can complaint [Online] Available at: https://www.moneysmart.gov.au/tools-and-resources/publications/you-cancomplain-part-1 [Accessed 22 November 2013] 23 Nguyễn Thị Kiều Anh - Snow - F05014 money-zine, n.d Asset Allocation Caculator [Online] Available at: http://www.money-zine.com/calculators/investment-calculators/assetallocation-calculator/ [Accessed December 2013] prospects, 2013 Financial adviser [Online] Available at: http://www.prospects.ac.uk/financial_adviser_job_description.htm [Accessed December 2013] Statman, M., 2000 THE REAL ROLE OF FOREIGN STOCKS [Online] Available at: https://www.aaii.com/journal/article/the-real-role-of-foreign-stocks-in-aninvestor-s-portfolio [Accessed 10 December 2013] Sunsuper, 2012 Identify your super investor profile [Online] Available at: http://www.sunsuper.com.au/Grow_your_Super/Choose_your_investment_stategy/Identify_y our_super_investor_profile/ [Accessed December 2013] wisegeek, 2013 What is a Financial Advisor? [Online] Available at: http://www.wisegeek.com/what-is-a-financial-advisor.htm [Accessed 20 November 2013] Yellowkippy, n.d How to Calculate Earnings Per Share [Online] Available at: http://www.wikihow.com/Calculate-Earnings-Per-Share [Accessed 29 November 2013] 24 [...]... (R) ]2 = 0.45 × (0.088 - 0.1150 )2 + 0.3 × (0.135 - 0.1 028 )2 + 0 .2 × (0.068 - 0.1 028 )2 = (0.134 - 0.1150 )2 + 0.15 × (0.141 - 0.1150 )2 + 6. 323 2 × 10-4 0.1 × (0.14 - 0.1150 )2 = 6.0 025 × 10-4  SD (R) = (6. 323 2 × 10-4)0.5 =  SD (R) = (6.0 025 × 10-4)0.5 = 0. 024 5 = 2. 45% 0. 025 1 = 2. 51% 12 Nguyễn Thị Kiều Anh - Snow - F05014  From the analysis above, it is easy to recognize that 2 recommended portfolios are... 0.113 )2 + 0.6 × [SD (R) ]2 = 0.3 × (0.088 - 0. 122 8 )2 + 0.3 × (0.135 - 0.113 )2 + 0.16 × (0.068 - 0.113 )2 = (0.134 - 0. 122 8 )2 + 0 .2 × (0.141 - 0. 122 8 )2 + 0 .2 7.644 × 10-4 × (0.14 - 0. 122 8 )2 = 5 .26 36 × 10-4  SD (R) = (7.644 × 10-4)0.5 =  SD (R) = (5 .26 36 × 10-4)0.5 = 0. 022 9 = 2. 29% 0. 027 6 = 2. 76%  In conclusion, both figures also recommended for Michael should invest the most on stocks, but the first recommendation... Profitability 24 % 60% 16% Return 8.8% 13.5% 6.8% (Statman, 20 00) Expected return E(R) = 0 .24 × (8.8%) + 0.6 × (13.5%) + 0.16 E(R) = 0.3 × (8.8%) + 0.3 × (13.4%) + 0 .2 × × (6.8%) = 11.3% (14.1%) + 0 .2 × (14%) = 12. 28%  Standard deviation (Risk)  Standard deviation (Risk) [SD (R) ]2 = 0 .24 × (0.088 - 0.113 )2 + 0.6 × [SD (R) ]2 = 0.3 × (0.088 - 0. 122 8 )2 + 0.3 × (0.135 - 0.113 )2 + 0.16 × (0.068 - 0.113 )2 = (0.134... http://www.ashgate.com/pdf/samplepages/meaning_company_accounts_8_section3.pdf [Accessed 25 November 20 13] asisa, n.d Introduction of Collective Investments [Online] Available at: http://www.asisa.co.za/_docs/Chapter %20 1.pdf [Accessed 13 December 20 13] Beyers, T., 20 12 The 10 Habits of a Good Financial Advisor [Online] Available at: http://www.dailyfinance.com /20 12/ 05/11/the-10-habits-of-a-good-financialadvisor/ [Accessed 21 November 20 13] BPP, 20 10 In: Financial Reporting... Sandy should choose the investment portfolio 1 which will bring return higher 1 .22 % with risk lower 0.06% than investment portfolio 2 3.3 Explain the functions of financial advisers and how to select one 3.3.1 The function of financial advisers A financial advisor (or adviser) is a trained specialist who helps people with their investments and financial planning (wisegeek, 20 13) Financial advisors provide... [Accessed 22 November 20 13] 23 Nguyễn Thị Kiều Anh - Snow - F05014 money-zine, n.d Asset Allocation Caculator [Online] Available at: http://www.money-zine.com/calculators /investment- calculators/assetallocation-calculator/ [Accessed 6 December 20 13] prospects, 20 13 Financial adviser [Online] Available at: http://www.prospects.ac.uk /financial_ adviser_job_description.htm [Accessed 6 December 20 13] Statman,... 14% (Statman, 20 00)  Expected return Assets Bonds Stocks Cash  Profitability 40% 40% 20 % Return 8.8% 13.5% 6.8% (Statman, 20 00) Expected return E(R) = 0.4 × (8.8%) + 0.4 × (13.5%) + 0 .2 × E(R) = 0.45 × (8.8%) + 0.3 × (13.4%) + 0.15 × (6.8%) = 10 .28 % (14.1%) + 0.1 × (14%) = 11.50%  Standard deviation (Risk)  Standard deviation (Risk) [SD (R) ]2 = 0.4 × (0.088 - 0.1 028 )2 + 0.4 × [SD (R) ]2 = 0.45 × (0.088... http://www.investor-rights.com/common-rights-of-an-investor-explained.html [Accessed 22 November 20 13] Lai, J., 20 13 The advantages and disadvantages of collective investment, s.l.: s.n LSE, 20 13 ABERFORTH GEARED INCOME TRUST PLC ORD £0.01 [Online] Available at: http://www.londonstockexchange.com/exchange/prices-andmarkets/stocks/summary/companysummary.html?fourWayKey=GB00B4TR3444GBGBXSET3 [Accessed 13 December 20 13] moneysmart, 20 11 You can complaint [Online]... AGIT company (LSE, 20 13) EPS of AGIT for the year 20 13 were 8.86p, which increase 6.5% compared with 8.15p for the year 20 12, and increase 4.80% compared with 7.77% for the year 20 11 It proves that AGIT performs business well and AGIT’s value of share of stock increase year by year P/E ratio calculated in 30 Jun 20 13 (14.60) increase dramatically compared with that of 30 Jun 20 12 (11.13) By increasing... our_super_investor_profile/ [Accessed 6 December 20 13] wisegeek, 20 13 What is a Financial Advisor? [Online] Available at: http://www.wisegeek.com/what-is-a -financial- advisor.htm [Accessed 20 November 20 13] Yellowkippy, n.d How to Calculate Earnings Per Share [Online] Available at: http://www.wikihow.com/Calculate-Earnings-Per-Share [Accessed 29 November 20 13] 24