Posted: September 13th, 2017

ASSIGNMENT # 2: INVESTMENT POLICY AND PORTFOLIO DEVELOPMENT

This is an individual assignment worth 20% of final grade in course. Due Date:
Friday, April 01th, 2015 at 3:00pm. An electronic copy of your written report is to be submitted to the FOL Drop Box and a hard copy of your report is to be submitted to the Physical Drop Box located outside Room B2025. Please be sure to include your name on the cover page of the report as well as your professor’s name. Late Assignments are subject to a 20% penalty per day.
Objective:
Each student is to demonstrate how to build a portfolio of mutual funds that is suitable for a given client scenario. This assignment involves the creation of an Investment Policy Statement and the preparation of asset allocation and specific investment recommendations. As well, students are expected to provide a projection of the portfolio value at retirement and an estimate of the potential pre-tax retirement income generated by the portfolio.
Instructions:
1. Review the Assignment 2 Overview PowerPoint Presentation on FOL.
2. Obtain your own unique client scenario from the professor based on the attached Client
3. Data – parts A, B & C.
A. Client information
scenario Client Name Age Time Horizon Primary Objective Need for Liquidity Risk Tolerance Investment Knowledge
•7 Allen Miller Age 60 5 years Income Medium Medium Fair
B. Client Income, Net Worth and Anticipated Contributions
Scenario Gross Annual Income Net Worth Anticipated Annual Contributions over next 5 years
Anticipated Annual Contributions thereafter until retirement
•2 $50,000 $550,000 $7,000
$9,500

C. Current Portfolio Scenario:
Please note – all funds have been purchased Front End with zero commission and are retail share classes priced in Canadian currency.
•?Portfolio 1
$140,000 O’Leary Canadian Bond Yield (Series A) Fund
$15,000 RBC Global Energy Fund
$12,500 CI Money Market Fund
$20,000 Mawer Canadian Equity Fund
$100,000 Mawer U.S. Equity Fund
$85,000 AGF Canadian Bond Fund

4. Prepare a written report that includes the content listed below. Please assume that your client has approached you for advice on how to invest their RRSP savings. Assume that your client wishes to retire at age 65 and does not have an employer pension plan or any other retirement savings.
Written report:
Your report should be written to your client and should contain the following 4 sections:
1. Investment Policy Statement
??Develop an Investment Policy Statement (IPS) and formulate a general asset
allocation strategy within it based on your client’s primary objective, need for liquidity, risk tolerance and time horizon. You are encouraged to expand upon the suggested contents of an IPS listed in the Assignment 2 Overview PowerPoint Presentation and are free to work off templates sourced from the internet so long as you do not copy them word for word. Be sure to use references for works cited at the end of your report. Please note: you will need to make assumptions to complete the IPS.

ASSIGNMENT # 2: INVESTMENT POLICY AND PORTFOLIO DEVELOPMENT

2. Investment recommendations
??Your client currently has 6 existing mutual fund positions. You will need to:
1 • Determine the client’s current asset allocation and compare it to the general asset allocation recommendation that you suggested in the IPS.
2 • Outline the specific changes/trades to the existing portfolio. You should review each of the mutual funds to determine if they should continue to be held or if changes are necessary in light of the client’s objectives and risk tolerance.
3 • Select the specific mutual funds you think your client should purchase for their portfolio and back up your recommendation with research from financial websites and/or mutual fund research providers. See a listing of considerations in the Assignment 2 Overview PowerPoint Presentation on FOL. You are free to choose any mutual funds in the Canadian mutual fund universe. Include supporting information on the recommended funds in the appendix of your report.
4 • Calculate the expected return of the recommended portfolio. As a reference, you may use CSC Volume 2 text Chapter 16 and/or the CIBC Wood Gundy Long-term Strategic Asset Allocation Report (see pages 9 and 11) for expected returns on individual asset classes.
3. Investment Projection
??In this section, you will need to make projections for:
1 • The value of the recommended portfolio at retirement. Use the expected portfolio return you calculated above to project the future value. Be sure to take into account expected annual contributions. (Note: don’t worry about investing the tax savings. Assume tax savings are spent).
2 • The pre-tax retirement income that the portfolio could generate from retirement until death. Be sure to use a more conservative rate of return for this calculation to reflect your client’s increase need for security and income in retirement.
4. Appendix
3 ??Please include the following in your Appendix
1 • list of assumptions
2 • information on the recommended funds
3 • your original client scenario
Important: your report should be written as if you were going to present it to the client and should be no longer than 10 pages (excluding the cover page and appendix)

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ASSIGNMENT # 2: INVESTMENT POLICY AND PORTFOLIO DEVELOPMENT Grading:
This assignment is worth 20% of your final mark in the course. Reports will be graded using the rubric posted on FOL. The following weights apply:

Investment Policy Statement 20%
Investment Recommendations 32%
Investment Projection 16%
Appendix 12%
Professionalism 20%
Total 100%