Policy Statement And Preliminary Bond Selections Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

The main purpose of this investment policy statement is to provide the clients who are individual investors with a complete outline of procedures and aims which would apply to the investment portfolio. The investment policy statement outlines in detail all the specific classes of assets available for investment for first time investors, the capital allocation ratios, and the acceptable levels of risk. Based on the guidelines of this investment policy statement, the capital base of investors could be protected and they could seek long term growth and income opportunities. This investment statement should not be considered as a contract but this policy statement would serve as a source of guidance for first time investors.

Return and Risk Objective

The risk tolerance profile for first time investors would be a moderate profile. Therefore, the investment strategy could be defined as a, “Modest Capital Appreciation” strategy. The total amount that can be investted within the portfolio is 100,000. The beta equity value for all the stocks and the investments that would be made in the alternative and stock investments would be between the range of 0.8 to 1.2. The duration of the bonds and the cash equivalents will have to be less than the Aggregate Bond index of Barclay plus 2 years. Furthermore, the credit rating of all types of bonds and fixed income securities need to be given an investment grades of BB or A rating. If any fixed income security of an individual bond with a credit rating of B is allocated then the weigh tage must not exceed 20% for that specific individual position.

Other Considerations

Time Horizon: The recommended minimum holding period for the investment is 4 years. The investment fund that is being devised would be targeted towards households that want to develop an extra source of income and earn a stable income for growth opportunities.
Liquidity: There are no specific liquidity requirements for first time investors however; a specific amount for the current income for first time investors is preferred.
Tax Considerations: No tax considerations as this would be a tax exempt foundation.
Unique Considerations: The time that is available to the investment fund managers is short and it is difficult to form portfolios in the short term, therefore, the volatility of the returns might increase significantly if the weigh tage of stocks in the portfolio is increased significantly.

Asset Allocation Policy

The investment portfolio is going to be comprised of many specific classes of assets with high to low volatility in their returns so that the overall level of the risk is minimized and the weighted average return is maximized. The specific classes of assets would include all the securites that are available readily over the market. Around 80% of the portfolio could be invested in any specific class of the assets. The investment fund will have to be fully invested at all the times and the sum of the weigh tages of all asset classes would equal to 100%. Under the normal market conditions, the investment in cash and cash equivalents would be around 20%. The target allocations for specific classes of assets are as follows:

Asset Type	Acceptable Target Range
	Minimum	Maximum
Cash	0%	20%
Equities	60%	80%
Fixed Income	20%	40%

Other Constraints

All the investments made in all the specific classes of assets must be readily marketable.
Single positions should not exceed 40% so that the benefit of diversification could be realized.
All the assets must have easily ascertainble market value.
All the securities must be listed on NASDAQ, AMEX, NYSE or other regional exchanges.
Leverage, short selling, derivative transactions and private placements are all prohibited.

Policy Statement And Preliminary Bond Selections Case Solution

INVESTMENT POLICY STATEMENT - PART 2

Economic Outlook

The growth of the economy has slowed down over the past few years as a result of state fiscal policies, federal fiscal policies, tax cuts and stimulus spending. This has all been happening after the larger boosts in the years 2008 and 2009. However, based upon the most recent budget agreement in the year 2015, the economic uncertainty and the trouble would be reduced. Based on this the deleveraging and the fiscal drag would be reduced. The demand would be increased and strengthened as a result and extra percentage increases in the growth would be experienced as a result of the reduction in the fiscal drag.

However, if we look at the growth in the output then the growth is paused in the year 2015. The two main reasons for this are the adverse weather and the stronger dollar. But the unemployment rate in the market has been dropping down as a result of many job gains in the private sector. The labor market of the country is expanding and becoming more strong...................

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