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Investor Policy Statement

My client is 38 years old, and a partner in a law firm, and they are married with one child aged
10. Regarding Risk Tolerance, Client 3 indicates a strong inclination towards the risk aversion,
prioritizing the predictability and stability in the investment strategy. As a partner in the law firm,
the client has specific goals that include finding education for the child, planning retirement, and
indulging in personal hobbies through the purchase of a narrowboat. The primary investment
objectives of a client are income generation and long-term growth to secure a comfortable
retirement. Additionally, the goal is to generate funds for the education of the child and to pursue
a passion for nature watching and sailing.

The client has a long-term investment horizon that is aligned with a strategy that combines
growth and stability. The estimated total wealth of a client is £825,000 which provides the
foundation for a well-diversified investment portfolio. The current annual income of £300,000,
and estimated annual spending of £300,000 shows a balanced financial lifestyle. The amount
available for investment is £525,000, and it is calculated by subtracting the annual expenditure
from total wealth yields. Finally, the recommended strategy is a balanced portfolio encompassing
fixed-income instruments, equities, and alternative investments. This approach provides stability,
and long-term growth and helps in the generation of income.

Financial Investment Instruments

Company Ticker Number of Current Total

Shares Market Price Investments
Associated British ABF 29 1,707.00 £49,443.00
Foods
British American BATS 20 2,576.50 £51,530.00
Tobacco
Unilever ULVR 11 4,663.00 £51,293.00
Total Equity £152,266.00
Table 1 - Equities

Issuer Maturity Total Investments

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SSE 22 September 2022 £51,878.75

National Grid Electricity 13 January 2031 £53,983.29

Transmission
Treasury 22 July 2052 £45,220.82
Total Bonds £150,082.86
Table 2 - Bonds

Instruments Types Total Investments

ASI Asia Pacific Equity (Mutual Fund) £48,600.00
WisdomTree Physical Gold (ETF) £5,744.56
UK Commercial Property Reit Limited (REIT) £35,725.98
Total Alternatives £90,070.54
Table 3 – Alternative Investments

Category Proportion Of Cash (%)

Equities 34.5%
Bonds 33.3%
Alternatives 20.2%
Cash £234,490.40
Table 4 – Cash

The total cost of the portfolio, which includes bonds, equities, and alternative investments is
equal to £392,419.40, which is within available investment amounts of £525,000 demonstrates a
prudent allocation of funds across different classes of assets. The composition of the portfolio
shows a balanced distribution of available funds that ensures diversity across bonds, equities, and
alternative investments, and the proportion of cash allocation is aligned with the risk profile of
the client and investment goals, this approach aims to optimize return while managing risk
effectively. The portfolio is structured and meets the requirements of clients' risk preferences,
financial objectives, and available resources.
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Chosen Equities

1. Associated British Foods (ABF)

Justification: ABF, as a diversified food producer is aligned with the risk-averse of the client’s
nature. The diverse portfolio of a company includes popular brands and offers resilience in
economic downturns, with a beta of 0.8, ABF provides a balance between potential growth and
stability.

1. British American Tobacco (BATS)

Justification: BATS, an industry leader in Tobacco is chosen for its defensive characteristics,
and it typically demonstrates the inelastic demand, making BATS less sensitive to economic
fluctuation. With a low value of Beta of 0.4, BATS indicates the portfolio stability and it is
crucial for risk-averse clients, and the dividend yield of 2.31% contributes the income generation
and is aligned with the long-term financial goals of clients.

2. Unilever (ULVR)

Justification: ULVR, a global consumer good giant, is included in the equities due to its
consistent performance and attributes, and the focus of a company on essential products
contributes the financial stability, and its low beta of 0.3 shows resilience in its overall portfolio.
The global presence of ULVR is aligned with the diversified investment approach and with a
dividend yield of 3.75% adds an income component to the portfolio.

In summary, the chosen equities selected for the client’s portfolio are aligned with Investor
Policy Statements, and it is aligned and take into consideration income generation, risk aversion,
long-term stability, and diversification. The combination of these equities aims to create a well-
rounded and balanced investment portfolio that is tailored to the unique financial needs of the
client’s objectives and performances.

a) Investment Instruments other than equities

1. SSE Corporate Bond (Fixed Income)

Justification: The SSE Corporate Bond provides a regular income and stability through fixed
coupon payments, and with a beta value of 0.5, it contributes to a less volatile and balanced
portfolio. Looking into the client’s risk averse nature, the inclusion of a stable corporate bonds is
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aligned with the objective of preserving capital, and still managing to generate a predictable
income stream.

2. National Grid Electricity Transmission plc Bond (Fixed Income):

Justification: The bond provides exposure to the utilities sector, and it is known for consistent
cash flows and stability, with a slightly higher beta of 0.6, it shows a modest level of risk while
enhancing potential returns. The long maturity is aligned with the long-term client investment
horizon and the attractive coupon rate.

3. Treasury 3.75% 2052 (Government Bond)

Justification: These types of bonds are considered to be risk-free assets, and treasury assets with
a beta close to zero, serves as a hedge against the market volatility. The bond’s inclusion is
aligned with the client preference for stability and acts as a diversification tool. Also, the
extended maturity suits the long-term retirement planning objective.

4. ASI Asia Pacific Equity (Mutual Fund):

Justification: The ASI Asia Pacific Equity fund provides the exposure to the growing Asia-
Pacific region, and with a beta value of 0.9, it shows a slightly higher risk of return in the
portfolio that captures the potential growth opportunities. It is also aligned with diversification
beyond domestic markets and long-term horizons.

5. WisdomTree Physical Gold (ETF):

Justification: Gold is a classic safe-haven asset, and it is correlated with equities, and with a
beta close to zero, the WisdomTree Physical Gold ETF acts as a hedge against the uncertainty in
the economy. This bond is also aligned with risk aversion and provides store of a value during
turbulent market conditions and provides diversification benefit.

6. UK Commercial Property Reit Limited (REIT):

Justification: Real Estate Investment Trusts (REITs) provide the exposure to property market
without the need for direct ownership, and with a beta value of 0.7 strikes a balance between
potential growth and stability, and it is also aligned with long-term wealth creation and
diversified portfolio.
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In summary, non-equity investments strategically provide risk tolerance, and meet long-term
objectives and income needs. Each financial instrument contributes to the overall resilience of
the portfolio which ensures a well-rounded and diversified approach.

b) Beta and Expected Return of Portfolio

1. Calculation of Beta for Individual Investments:

a) Equities:

Associated British Foods (ABF): Beta = 0.8

British American Tobacco (BATS): Beta = 0.4
Unilever (ULVR): Beta = 0.3
b) Fixed-Income:

SSE Corporate Bond: Beta = 0.5

National Grid Bond: Beta = 0.6
Treasury 3.75% 2052: Beta = 0

c) Alternatives:

ASI Asia Pacific Equity (Mutual Fund): Beta = 0.9

WisdomTree Physical Gold (ETF): Beta = 0
UK Commercial Property Reit Limited (REIT): Beta = 0.7

d) Portfolio Beta Calculation

The portfolio Beta is calculated by using the following formula (Ashlyn, 2023).

∑i-1= (WTotalWi×Betai)

By putting the values, it is calculated as 0.524.

e) Calculation of Expected Return:

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Expected Return=Risk-Free Rate+ (Portfolio Beta×(Market Return−Risk-

Free Rate))Expected Return=Risk-Free Rate+(Portfolio Beta×(Market Return−Risk-Free Rate))
(James, 2023).

Assumptions:

 Risk-Free Rate: 3.00% (as provided in the data)

 Market Return: Assume 6.47% (as provided in the data)

Expected Return=3.00%+(0.524× (6.47%−3.00%)) Expected Return=3.00%+(0.524× (6.47%

−3.00%))

Expected Return≈4.80%Expected Return≈4.80%

Performance Comparison:

The calculated portfolio value of beta of 0.524 indicates that the portfolio is expected to be
volatile (less) than the overall market value, and the expected return of approximately of 4.80%
is in line with the risk-averse nature of the client, and conservative allocation of assets (Charles,
2021). The market assumption and risk-free rate are based on the provided data, beta values are
assumed to be based on industrial characteristics and historical data, and the expected return
calculations use the Capital Asset Pricing Model (CAPM), and data sources include the standard
financial databases and provided information. To conclude, the portfolio with a beta value of
0.524 and an expected return of 4.80% is positioned to provide a balanced risk-return profile,
and it is expected to perform more conservatively as compared to the broader market
(Will,2023).

f) Limitation of Portfolio
1. Market Risk Exposure

The portfolio performance is influenced by the market conditions and the assumed beta values
are based on the historical data, and with rapidly growing changing markets, actual beta values
may deviate from the portfolio of the risk profile of the portfolio.

2. Assumed Risk Tolerance

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The risk tolerance is based on the risk-averse nature of a client, and the client’s risk changes over
time, and the portfolio may no longer be aligned with preferences that lead to a potential need for
adjustments.

3. Fixed-Income Market Volatility:

Government bonds and corporate bonds provide stability, changes in interest rates that have a
direct impact on the market values, and assumed constant interest rates may affect the
performance of fixed-income assets.

4. Assumed Market Return

The expected return is calculated based on the assumed market return, and actual market return
may vary, and deviations may have an impact on the ability of portfolio to achieve the targeted
performance.

5. Lack of Customization

The portfolio is based on the assumed objectives and preferences, and individual client
circumstances such as specific ethical considerations or unique financial goals may not be fully
addressed in the standardized approach.

6. Long-Term Assumptions

The portfolio is designed for a long-term horizon and it is assumed that the client’s
circumstances and goals remain consistent. Changes in the life situation of clients and financial
goals provide adjustments to the portfolio over time.

7. Assumed Economic Conditions:

The portfolio assumes a relatively stable economic environment and unexpected economic
events such as geopolitical crises and recessions could impact the performance in the portfolio in
a way that are accounted in current analysis.
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References

https://smartasset.com/investing/how-to-calculate-the-beta-of-a-portfolio

https://www.investopedia.com/terms/e/expectedreturn.asp

https://www.investopedia.com/terms/c/capm.asp

https://www.investopedia.com/investing/beta-gauging-price-fluctuations/