Stock Fund Performance Analysis - Term Paper Example

? Stocks Table of Content Executive Summary 3 Introduction 3 Stock Fund creation 4 Overview of the industry 4 2.Brief profile of the companies and reason for selection 4 3.Investing strategy 7 4.Risk profile of fund 7 Stock Fund Valuation 7 1.Calculation of fund value per week 7 Week1 7 Week2 10 Week3 11 Week4 12 2.Effect of foreign exchange risk on portfolio 14 3.Final valuation of portfolio 14 Stock Fund Performance Analysis 14 Conclusion 16 Reference 17 Executive Summary This is an academic project about financial analysis. A detailed investment analysis has been done throughout this project. A portfolio of 10 geographically diversified stocks was chosen to build an equity portfolio of $10,000,000. This total investment was hold for the duration of four weeks to track and evaluate the performance of each stock as well as the total portfolio or the fund. The movement of the each of the stocks and the reasons for changes in the price level of each stock are analyzed. Lastly a comparative analysis has been done of this overall portfolio with respect to Dow Jones Industrial Average (DJIA) and one industry specific sector. The ultimate goal of this project to understand how the internal and external factors of business and economical environment positively or adversely affect the stock prices as well as the overall performance of a diversified market portfolio. This overall project has been done in two phases. In the first phase of the project investment strategies was developed to choose the particular industry and the stocks also. Out of the 10 stocks 6 stocks are taken from the US stock market to get the benefit of foreign exchange risk. All the transactions were made through a standard currency as US dollar. The stocks were taken by the proper research of the selected industry. The main objective of selection of the stocks is to gain profit from the total investment. The stocks which have possible short term growth are chosen. Introduction In the second phase of this project, weekly stock price and the weekly performance of the portfolio has been tracked to understand the movement of each stock and to calculate the fund value of each week. Pre-investment estimate3d risk was compared with the actual return or loss from each stock. Three stocks are taken from three different countries, India, China and Brazil. So to evaluate risk adjusted return from these three different stocks, foreign exchange risk is also considered. This is because, over the investment tenure, the foreign currencies have been devaluated against the US dollar Total performance of the fund has been evaluated and analyzed. Finally the performance of the fund has been measured by comparing the overall gain or loss of the fund with standard industry index i.e. Dow Jones Industrial Average. Percentage change of the total fund value has been compared with the value of the fund in first week. The best and the worst performed stocks are also analyzed to identify the reason for this performance. Stock Fund creation 1. Overview of the industry Telecommunication industry is one of the most growing industries in the world. The growth of this industry has been started since the last decade i.e. in the beginning of 20th century. New technology advancement by the leading companies of this industry has been influencing the growth. The investors also like to include stocks from this industry to reduce the risk as it has reported higher return in earlier than other mature industry. 2. Brief profile of the companies and reason for selection AT & T: It is a holding company that is telecommunications service provider in the United States and other many foreign countries across the world. The company provides services including wireless voice, data communication, local exchange services, roaming services etc. The company targets individual customers as well business clients. The company founded in 1983 and currently headquartered in Texas. It also provides internet based advertising services and customer information services to the business clients. It was selected for the stock because it has been providing good EPS which is currently 0.69. Beta of this stock is less 0.5 which shows lower risk for investment. Verizon: Verizon Communication provides wireless voice and data communication, customer information and many entertainment products and services to the individual customers as well as business customers. There are two segments of its business Verizon wire-line and Verizon wireless. The wireless segment offers data and application services including internet services through Smartphone and other basic phones via specific applications. The wire-line segment offers video services through fiber optics network and high speed internet services to the business clients. This company was selected as their earnings from each share is higher than industry average and currently it is 0.93 and beta of this stock also lower i.e. 0.41. Century Link: The Company is known as integrated telecommunication company which provides local and roaming wireless voice and data services, network excess, managed hosting, collocation and video services to the individual as well as business customers. Apart from these services the company also provides video entertainment services through CLP TV and Direct TV brands. It also provides data and voice services to the government agencies, enterprises and wholesale customers. The company was founded in 1986 and currently headquartered in Louisiana. This stock was selected as their current earnings per share 0.91 which is good indicator for short term investment and also lower risk i.e. beta is 0.6. Telecom Corporation of New Zealand Limited: The Company provides telecommunication services in New Zealand and Australia. It offers fixed line, wireless data and voice through mobile phones, and broadband internet services to the individual customers, SMEs and also wholesalers. The company has become successful in terms of its 1 million fixed line residential and business customers, 2 million mobile connections and 8000,000 fixed and wireless internet connections in New Zealand. This stock was selected for the portfolio as its EPS is near about 2 and currently it is 1.97 and beta of this stock is less than 1. The company has fixed client base which generate maximum percentage of its revenue as well as its growth in stock price. Rogers: Rogers Communication Inc is well diversified telecommunication and media-company of Canada. There are three segments in the company’s overall business. Wireless segment of the company provides voice and dat5a services to the individual clients as well as business customers. It also operates global systems of voice, data and radio services. Apart from these the company also provides digital cable and high-speed broadband internet services and current client of the same is 1.8 million in Canada. This company was selected as it generate yearning per share is 2.75 which is very attractive for investment and also beta is very low for this higher earning i.e. 0.62. Telecom Italia: The Company provides fixed line voice and high speed internet services, wireless voice and data services and also media and advertising services to its individual as well as business clients. It also provides information technology solutions to the business clients especially office technology services. The company focuses on the wholesales business of wireless voice and data services. Media operations of the company include traditional broadcasting and new mobile broadcasting by the partnership with MTV it has launched MTV mobile. It has business operation in Europe, South America and some other regions. It has god client base i.e. 33 million mobile connections in Italy. This stock was selected as it has been generating good sales through its diversified portfolio of products and also market. DU: the company established in 2006 and it offers fixed and wireless voice and data services to the home and business customers. It also provides IPTV services and career services to the business clients. As a new company it has a higher growth rate and it also has higher opportunities for in terms of new product diversification in Saudi Arabian Market. It has selected for its higher growth rate and also trading currency is USD. Vodafone: It is one of the leading telecommunication companies in the world. It provides wireless voice and data services and also fixed broadband internet and voice services to the business and individual customers worldwide. The company has approximately 350 million customers worldwide. Apart from 10,300 franchisee business it also owns 2200 stores across the world. This company was selected as it is second largest company which provides continuous positive return to its investors in standard economic environment. France Telecom: France Telecom is the leading telecommunication company in France. The company provides fixed and wireless voice and data services to approximately 193 million customers worldwide. It is headquartered in Paris which was established in 1792 `when its name was not French telecom. This company was selected to diversify the portfolio in terms different market and it is also third largest telecommunication company in Europe. Manitoba: Manitoba Telecom Services Inc is the primary telecommunication company in the Canadian province and fourth largest telecom company in Canada. It provides internet and voice services to the residence and business clients in Canada. This company is selected as its current earnings per share 1.82 compared to its very lower beta. 3. Investing strategy Very short term investment strategy has been taken for this portfolio of ten international telecommunication companies. The main objective is to gain weekly profit from the total investment and for this reason if the share price of any company increased the stock was sold at the end of the day of last day of each week. 4. Risk profile of fund Risk of a portfolio is determined by many factors. Generally to reduce risk an investment portfolio is made from various financial instruments like debt and equity or if the portfolio is made ion equity then the stocks are taken from various industries or sectors. But this portfolio is very narrow in terms of risk diversification. Although this portfolio has been made by the stocks of a single telecommunication industry but risk has been like reduced as few stocks are from different foreign market. So, market risk has been reduced. Moreover, this is a short term investment plan i.e. for four weeks only so it had been expected that there might not substantial changes in the stock prices of this portfolio in four weeks span of time. Stock Fund Valuation 1. Calculation of fund value per week Week1 AT&T: The Company is listed in New York Stock Exchange. So, the transactions of shares of this company have been done in USD and also USD is the standard currency for the overall transactions of this portfolio. 36,640 shares were bought on 7th May, 2012 at a price per share $32.75 and sold on 11th May 2012 at share price of $33.69. Gain per share was 0.94 which has made a total gain of $34,441.60. VZ: It is also a US company and transaction of shares has been done in USD. 32,440 shares were bought on 4th May at $40.07 price per share and sold on 11th May at increased share price $40.51 with a gain per share 0.44 and total profit was $14,273.60. Another transaction of this share was done. On 9th May 32,600 shares were bought at share price of $40.31 and sold on 11th May at an increased price per share of $41.18 with a profit per share $0.87 which made a total gain of $28,362. So, total gain from the shares of this company was $42,635.60. NZT: Currency of transaction of its share is dollar as it is listed in New York Stock exchange. 118,225 shares were bought on 4th May at share price of $10.15 and sold on 10th May at an increased price of $10.53 with the profit per share of $.38 which contributed a total gain of $44925. CL: it is also a US company and USD is the standard currency for share transaction. On 8th May, 31500 shares of this company were bought on per share price $38.10 and sold on 10th May at increased share price of 39.65 with a profit per share of $1.55. Total gain from this transaction was $48,825. Rogers: Currency of transaction of its shares is USD. 22,197 shares were bought on 4th May at a share price of $34 and sold on 7th May at increased share price $36.40 with a profit per share of $2.00. This transaction provided a total profit of $$44,394 to the portfolio. Another transaction has been done. On 9th May, 22,683 shares were bought at share price of $35.62 and sold the same on 11th May at increased price of $36.07. Total gain from this transaction was $10,207. Total profit from this company was $54,601.35. TI: Shares of this company was transacted on dollar. 63926 shares are bought on 9th may at a share price of $10.95 and sold on sold on next day at slightly increased share price at $10.98 with a profit per share $0.03. Total profit from this transaction was $1,917.78. DU: Dollar is the standard currency of transaction of its shares. 32,383 shares were bought on 8th May at share price of $3.09 and sold on 10th May at a increased share price $3.12 with profit per share of $0.03. This transaction contributes a total profit of $971.49. Vodafone: As it is listed in London Stock Exchange, the currency share transaction of this company is GBP. To buy the shares of it $1200000 was converted to GBP at an exchange rate 1.61. 4357 shares were bought on 9th May at share price GBP 171.05 and sold on 10th May at profit per share of GBP 0.75. Total profit from this transaction was GBP 3,267.750. France Telecom: Transaction was done in Euro for this share. 73364 shares were bought on 4th May at a share price €10.405 and sold on 10th May at increased share price at €10.555 with profit per share €0.15. Total profit was €11,004.6. Manitoba: Euro is standard currency for transaction of its shares. 38,862 shares were bought on 7th May at a share price €25.732 and sold on 11th May at increased share price at €26.667 with profit per share €0.935. Total profit was €36,335.970. Overall performance in week1: Total $1200000 was converted to GBP for purchasing Vodafone and total $2,300,000 was converted to Euro to purchase France telecom and Manitoba. Total amount invested $10,000,000 including the remaining converted amount and total gain for the 1st week of investment week is $269,381.56. Exchange rate of Euro to USD was declined slightly 1.29 which 1.3 and 1.31 at 4rth and 7th May. GBP to Dollar rate was similar on 10th May as of 7th at 1.61. Week2 AT&T: On 14th May, 48,050 shares of this company were bought at a per share price of $33.30 and sold the same numbers of shares on 18th May at an increased share price of $33.60 with a gain per share $0.30. Total profit from this transaction was $14,415. VZ: 448333 share of this stock were bought on 14th May at price per share $40.78 and sold all the shares on 18th May at increased price $41.53 with a profit per share $0.75. So, total gain from this transaction was $33.624. NZT: 116,033 shares of this company were purchased on 18th May at a price per share $9.48 and these shares were not sold in week 2 as price was not increased in week2. CL: 32,747 shares of this company were purchased on 18th May at a price per share $38.59 and these shares were not sold in week 2 as price decreased later on. Rogers: 31,241 shares of this company were purchased on 18th May at a price per share $35.21 and these shares were not sold in week 2 as it was hold to price to increase. Vodafone: 4,555 shares were bought on 18th May at a per share price $GBP 164.3 and were not sold in week 2 as share price decreased. France Telecom: 77,438 shares were bought on 4th May at a price per share €10 and were not sold in wee2 as the share price were not increased. Manitoba: 39,858 shares of this company were bought on 7th May at a share price of €26 and were holds to price of the shares to in increase. Overall performance in week2: In week2 only AT & T and VZ have made profit as share price of these two companies were increased after two days of purchase. TI and DU were not purchased in week2. But rest six share of the portfolio were not increased. So those six shares were not sold in week2. These stocks were hold to sell at an increased price later. So, in week 2 this portfolio was in a qualitative loss as the share were not sold. Week3 T&T: In 23rd May 35,971 shares were bought at a price per share $33.36 and sold on 25th May at increased price $33.69 with a profit per share $0.33. Total profit from this transaction was $11,870.43. VZ: 36,204 shares of this stock were bought on 23 rd May at price $40.78 and sold on 25th May at an increased share price $41.53 with a profit per share $0.75. This transaction contributed total profit of $27153. NZT: Purchased shares of this stock in week2 were sold on 22nd May at share price $10.06 which made a profit per share 0.58 and total profit $67,299.15. Again on nest day 124,430 shares were bought at a share price $9.62 and sold on 25th May at increased price $9.66 with profit per share .04 which made a total profit $4,977.20. CL: Purchased shares of this stock in week2 were sold on 22nd May at share price $38.99 which made a profit per share 0.40 and total profit $13,098.80. Again on nest day 34,860 shares were bought at a share price $38.78 and sold on 25th May at increased price $38.94 with profit per share 0.16 which made a total profit $5,577.60. Rogers: Purchased shares of this stock in week2 were sold on 22nd May at share price $35.77 which made a profit per share 0.56 and total profit $17,494.96. Again on nest day 51673 shares were bought at a share price $35.34 and sold on 25th May at increased price $35.53 with profit per share 0.19 which made a total profit $9,817.87. TI: Shares of Telecom Italia was not purchased on week 3. DU: On 19th May, 268457 shares were bought at sharer price of $2.98 and sold at increased price $3.03 on 22nd May with a profit per share 0.05. Total profit from this transaction was $13,422. Vodafone: Purchased shares of Vodafone in week 2 were sold on 25th May at hug increased price per share GBP 8.80. Total profit this transaction contributed to the portfolio was GBP 40,084. France telecom: Purchased shares of this company in week2 were sold on 25th May at an increased price €10.360 and total profit from this transaction was €27,877.68. Manitoba: Purchased shares of Manitoba in week2 were sold on 24th May at increased share price €26.10. This transaction has provided a total profit of €3,985.8. Overall performance in week3: Purchased and hold shares of six companies except T&T, VA and Du were sold in week3 at increased share price and this is why in week3 there was huge profit. Maximum percentage of profit was contributed by the shares of Vodafone as the share price increased GBP 8.8. Total profit from shares of six except Telecom Italia which were transacted in USD was $170,711.85. Other three foreign company’s shares made a total profit of $02761.23. Including the previous week’s profit, the total profit at the end of week3 was 65188.61. So, total value of the portfolio at the end of week4 was $10,651,888.61. Week4 T&T: On 29th May, 20160 shares were purchased at a price per share $33.88 and sold on 30th May at slightly decreased price which made a total loss of $403.20. VZ: 18,396 shares were bought on 29th may at a price per share $41.62 and sold on 30th May at a decreased price per share $41.42 with a loss per share $0.20. Total loss from this transaction was $3,679.20. NZT: On 29th may, 15,032 shares were purchased at share price of $9.75 and sold on 30th May at a decreased price with loss per share $0.20. Total loss from this transaction was $3,006.40. CL: 31,747 shares were3 bought on 29th May at per share price $39.19 and sold on 30th May at an increased price per share which made a total profit of $1904.82. Rogers: 20,231 share of this company were purchased on 29th May at share price $35.06 and sold on 30th May at an increased price per share $34.79 which made a total loss of $5,462.37. Vodafone: On 28th May, 2,296 shares of Vodafone were purchased at price per share GBP 171.70 and sold on 30th May at an increased price per share GBP 171.850 with a profit per share $0.150. Total profit from this transaction was GBP 344.40. France Telecom: 48,100 shares were bought on 28th May at price per share €10.255 and sold on 30th May at decreased price per share €10.18 with a loss per share 0.08. This transaction provided total loss $3,607.50. Manitoba: On 28th May, 16280 shares were purchased at a share price of €26.29 and sold on 30th May in lower price share €26.11 with a loss per share 0.18 which made a total loss in the portfolio €2930.40. Overall performance in week4: In week 4, investment was done by considering the risk of return. As this was the last week for of the assigned time period and there was no extra time period to recover loss, 50% of the total money from the third week was invested. Half of the money of each currency was invested. Among the eight transactions of eight different shares except TI and Du, six companies provided return in loss. Only Colgate-Palmolive and Vodafone gave profit in week4. So, in week4 total loss was $17,115.10 but due to substantial profit in the previous three weeks total profit at the end week4 was $578,935.05. 2. Effect of foreign exchange risk on portfolio Fluctuation of dollar price against Euro and GBP is a major risk for investing in both the currencies. For increase or decrease in the exchange rate the final value of the total portfolio or the total return from a portfolio of international stock changes. In this portfolio total return has been decreased due to decrease of the dollar value against Euro and GBP. At the beginning of the investment in week1 exchange rate of GBP/USD was 1.61 and Euro/USD was 1.3 and 1.31. But at the end of week4 i.e. on 30th May, GBP/USD was 1.548 and Euro/USD was 1.237. So, this portfolio has been suffered substantial loss in terms of exchange rate fluctuations. 3. Final valuation of portfolio Total amount invested at the beginning of week1 was $10,000,000 and at the end of week4 was $10,578,935.05. So, after four weeks of investment total profit from this portfolio was $578,935. Maximum loss was in the week4 and maximum profit was in week3 where Vodafone provide maximum profit to the portfolio. All the stocks are not traded in each week due to decrease in share price like in week2. Few stocks have been provided maximum profit to this portfolio like Rogers in week1 and Vodafone in week3. Stock Fund Performance Analysis 1. Percentage change of fund value compared to first week Total fund value or total value of all the stock after the week1 was $10,269,381.56 and total profit was $269,381.56. This valuation has been done on the basis exchange rate of GBP/USD on 10th May and Euro/USD on 11th may $1.61 and $1.29 respectively. After the four week of investment the total value of this portfolio was $10,578,953 and total profit was $578,953. So, percentage change in fund in week4 from week 1 is only 3.01% which is not that much good in rest three week of investment compared to fund value including profit after week1 only. 2. Performance of fund compared to DJIA Return on Investment after four week of investment from $10,000,000 was 5.79% which is a good percentage return from the one month investment period. Figure 1: DJIA from May 1 to May 30 (Source: Yahoo Finance, 2012) Dow Jones industrial Average was declined from 1st May 2012 to 30th May 2012 -6.47% whereas this portfolio of 10 intonation telecommunication companies has been provided substantial percentage of profit 5.79%. This percentage of profit is also included the loss in terms of fluctuation of dollar value with respect to Euro and Great Britain Pound whereas DJI is has traded as similar currency i.e. USD. So, this portfolio has given more than 12% return compared to DJIA. 3. Analysis of best and worst performed shares Best performed shares of this portfolio is Vodafone which has been provided continuous profit in each week to the portfolio and also it has been traded in GBP and for this reason more contribution came to the portfolio as exchange rate is maximum for GBP. Total profit from this share was GBP 43,461.235. This stock has provided maximum profit in week when share prices increased more GBP 8 which contributed maximum profit from this share. Worst performed shares were Telephone Italia which has been traded in week1 only and it has provided only $0.03 profit per share in week1. Conclusion This total investment was hold for the duration of four weeks to track and evaluate the performance of each stock as well as the total portfolio or the fund. The movement of the each of the stocks and the reasons for changes in the price level of each stock are analyzed. Lastly a comparative analysis has been done of this overall portfolio with respect to Dow Jones Industrial Average (DJIA) and one industry specific sector. The ultimate goal of this project to understand how the internal and external factors of business and economical environment positively or adversely affect the stock prices as well as the overall performance of a diversified market portfolio. So, the performance of this portfolio was far better than DJIA where it provided more than 5% ROI and DJI reported a more than 6% decline in May. So, overall this portfolio has achieved its objective which was substantial percentage of profit or return on investment in short term investment i.e. in period of only four week. This good return has possible by more than expected return from few stocks of this portfolio. Reference Yahoo Finance. 2012. Dow Jones Industrial Average. Retrieve on June1 2012 from http://finance.yahoo.com/echarts?s=%5EDJI+Interactive#symbol=%5Edji;range=20120501,20120530;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;. Read More