Evaluation of the security transaction, the consistency of the portfolio construction and management with client's profile

Résumé du document

This year, Pro Fund is very proud to have a new client, Mr Lucent who is 47 years old. He sold his firm during the summer and received 1,000,000€ for it. He doesn't really need this money but he wanted to have a new challenge in another sector. He wants to keep the money for the future (children' studies and retirement). Therefore, we get his trust to manage his fortune. In terms of return expectations, Mr Lucent wants to receive a better income as in a bank placement (2.75% of interest rate). He also doesn't want to take too much risk. Given that he has a long-term strategy, he will need liquidity only in 6-7 years. His aim is to follow the market or beat it by 2%.

Regarding to our client's expectations we decided to build a portfolio and invest 874,985.7 euros equally shared in five different shares listed in Euronext Paris (see initial report). We kept the rest, 125,014.3, to transactions costs and management fees. Given that we took only stocks from the industrial sector, we chose a benchmark according to that. There is an index listed on the Paris Stock Exchange (Euronext Paris) with all stocks from the industrial sector. It is called CAC industrials.

After 2 months we could already put two and two together: This report details the returns and variability in value of the portfolio in a first part. In the second part, we explain how and why we did a security transaction. In the third, you will find an ex-post evaluation of the consistency of the portfolio construction and management with our client's profile.

Extraits

[...] On the following graph, we can see the evolution of the portfolio (blue line) and the benchmark (red line) at each of the 8 week. Except two times, it can be said that when the benchmark increase or decrease, the portfolio increase or decrease too. II. Details of the security transaction Which security do we get rid off? We analyse the evolution of Schneider Electric. On the chart above, we can see the evolution of Schneider Electric stock price over the period 05.09 .2005- (blue line). [...]

[...] Conclusion Thanks to an optimistic trend of the market, we succeed having a good return in spite of the fact that we took low risks. Thus in 8 weeks we had a gain of euros. We beat our benchmark CAC Industrial of Thanks to a graphical analysis we saw that Schneider Electric was not a good investment anymore. Then we chose to invest in Lafarge, which is a firm specialised in the cement industry. A SWOT analysis shows that Lafarge has good market and financial strengths and opportunities. [...]

[...] a gain of euros - An increase of of Ciments français, i.e. a gain of euros - An increase of of Nexans, i.e. a gain of euros - An increase of of Vinci, i.e. a gain of euros - An increase of 4,48% of Schneider Electric in 5 weeks, i.e. a gain of 7,839 euros and an increase of 3,96% of Lafarge in 3 weeks, i.e. a gain of 7,245 euros Comparison to its benchmark Over the same period, our portfolio's benchmark increased by It means that our portfolio performed of its benchmark. [...]

[...] For example the Blue Circle assets in North America are managed by Lafarge North America for a fixed annual management fee plus cost reimbursement. This resulted in poor revenue growth from these operations. Inability to successfully integrate acquisitions may reduce its growth in the future. However, the positive impact of its acquisition will probably occur at the end of 2006. Continued decline in roofing segment The performance of the company's roofing segment that provides roofing solutions like roof tiles, roofing accessories, and chimney systems has been poor in recent times. [...]

[...] Evaluation of the security transaction, the consistency of the portfolio construction and management with client's profile Table of contents Introduction I. Portfolio's return and variability in value Portfolio returns Comparison with its benchmark II. Details of the security transaction Which security do we get rid off? Which security do we choose to improve the diversification of our portfolio? How did we the transaction? III. Evaluation of the portfolio construction and management with our client's profile How did we choose our stocks? [...]