with the investment orientation ot youF IPlI. irstin Kruse, a portfolio manager,
ID: 2613905 • Letter: W
Question
with the investment orientation ot youF IPlI. irstin Kruse, a portfolio manager, has an important client who wants to alter the composition of here lio of 60 global common stocks. Because of concerns about the economy and based on the thesis that the consumer staples sector will be less hurt than oth- ers in a recession, the client wants to add a group of stocks from the consumer staples sector. In addition, the client wants the stocks to meet the following criteria: quity portfolio, which is currently a diversified portfo- Stocks must be considered large cap (i.e, have a large market capitalization). Stocks must have a dividend yield of at least 4.0 percent. . Stocks must have a forward P/E no greater than 15. The following table shows how many stocks satisfied each screen, which was run in July 2008. Number Satisfying 277 446 1,609 2,994 Screen Consumer staples sector Large cap $9.7 billion in this database Dividend yield of at least 4.0% P/E less than 15 All four screens The stocks meeting all four screens were Altria Group, Inc.; British American Tobacco (the company's ADR); Reynolds American, Inc.; Tesco PLC (the ADR): Unilever N.V. (the ADR); and Unilever PLC (the ADR). A Critique the construction of the screen. B Do these criteria identify appropriate additions to this client's portfolio?Explanation / Answer
Answer A)
As the purpose of the client is to allocate some portion of his/her investment in to consumer staples sector to reduce the impact of recession on his/her total portfolio return. The selection of stocks under defined sector is based on the conditions as given in the question .
As per the given data , Conditons are
Stocks should be of consumer Staples of large cap ctaegory , paying at least 4% as dividend with less than 15 P/E multiple.
Screen is rightly constructed ,but should have divide in strata in all category . for example
to provide the correct analytical concept of selection of stock
Answer B)
The selected criteria may identify some of the potential stocks for investment , but not full fill the actual requirement for diversification of portfolio. As the client would like to reduce the ill effect of recession on the existing portfolio .
The selection of stock should be based on the concept of fundamental analysis , i.e selection of stock should follow EIC approach ( Economic , Industry and Company ) .
Condition Number 9.7-10.5 10.5-12 15-Dec 15 and above Large Cap (> 9.7 Billion) - - - -Related Questions
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