Question

Client’s objectives are 1) Diversification, 2) Invest in only local equities, 3) Will on go long on his investments & 4) Allow only 5% probability of losses that are more than $100,000 & 5) To achieve of 6% average return per year taking to account inflation of 2.5%.

As such, our team will propose for client to invest in the portfolio that has exposure to few industries to achieve the client’s 1^st objective, diversification. Equal dollar value should be invested in each industry. 2^nd objective is met as all 5 companies are from Singapore. 3^rd objective is met as no short sell will be done on the shares.

The portfolio consists of the following shares:

CapitalLand Limited – Property industry

Singapore Press Holding Ltd – Publishing industry

Starhub Ltd – Telecom industry

Oversea-Chinese Banking Corporation Limited – Banking industry

ComfortDelGro Corporation Limited – Transport industry

Referring to the excel sheet table as attached, it shows that the 4^th objective is met whereby at no time did the portfolio suffered a $100,000 loss, in other words, a 10% loss. The lowest return was on the month of May 2012 with 4% real return.

As shown in the table, the 5^th objective is also met as the adjusted return for each year is more than 6% real return.

Question

Evaluate the need to rebalance your portfolio. Make and justify three (3) changes to the industry weights for your portfolio constructed.