Investment portfolio

This paper aims to present and justify an appropriate investment portfolio for Mr.

Flippinlaldi. He expects from his portfolio moderate returns, but Mr. Flippinlaldi is primarily a growth investor.

Therefore he is willing to accept a moderate level of risk and return. A moderate investment portfolio may be suitable for him. It should be diversified in different industries, with preference to large, established companies.As investments three different shares are chosen and a government gilt. Each investment will be presented in the same way: 1. the justification for the choice with a historical review, 2.monitoring of the investment for a six-week period (28.

09. 2006 – 9. 11. 2006) and 3.

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prediction of future prospects for the investment. In comparison with its major competitors, Exxon Mobile and Total S. A (see figure 2), BP shows a good performance.BP has the second largest market capitalization, a similar P/E ratio than its competitors, a better dividend yield and a moderate EPS growth rate. Figure 3: Price history BP Sept05-Sept06 (in British pence) According to the concept of support and resistance, “levels of a share that were important in the past will be important again”3. The chart of BP (Figure 3) shows a supported level of 620p.

Actually the price of the share is 587p, thus the share can be perceived as cheap. In the six- week period the share gained 13p and closed with 601p on the 9th of November, despite the fact that the share price had its lowest point at 568p on the 4th of October. The movements of the price were partly influenced by the announcements BP made. On the 4th of October 2006 BP announced their “3. Quarter 2006 Trading Update” and disappointed the shareholders, thus the share price dropped.

Future prospects of the investment The future prospects for BP are good, as long as they have oil and gas reserves.In order to be prepared, they carry out research and development in renewable and alternative energies. Therefore the share price of BP will rise constantly in the following years. To diversify the portfolio, a company of the financial sector from the FTSE100 was chosen. The Royal Bank of Scotland Group PLC is a banking and insurance holding company based in Edinburgh5.

Due to the fact, that the Royal Bank of Scotland Group is the second largest banking group in the UK and Europe, and the fifth largest in the world by market capitalization, the risk of this share can be evaluated as moderate.In comparison with his main competitors (see figure 5), the share of the Royal Bank of Scotland shows a lower P/E ratio. This indicates that the share is cheap relative to its industry peers. Furthermore it has the best dividend yield; hence the share returns a better income to his shareholders than his competitors. But at the same time, the Citigroup outperforms with a larger market capitalization and a higher EPS growth.

In this six-week period the share had its lowest point on the 28th September with 1812p and its highest point on the 13th October with 1912p.The average share price of this six-month-period (1873p) and the actual share price (1877p on the 9th November) are higher than the purchase price of the share (1812p). Siemens was chosen to take part in the portfolio, because it is one of the world’s largest electrical engineering and electronics companies.

The German company is active in the areas of Information and Communications, Automation and Control, Power, Transportation, Medical, and Lighting8. The risk of the share is moderate, because Siemens belongs to the DAX 30 and the EuroStoxx50; furthermore the company has a large market capitalization .

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