Schumpeter Finanzberatung GmbH Harvard Case Solution & Analysis

Schumpeter Finanzberatung GmbH Case Solution

Evaluate the existing risk and return of Schumpeter’s portfolio

From the market analysis, it is determined that the prices and returns of the indexes fluctuated overtime, before the global financial crisis, the industry’s performance was at the peak. However, it declined consistently and damaged stock valuation of different industries all over the world. This reduced the level of prices in equity shares and treasury bonds and demanded every industry to maintain the position within market and to reduce the liquidity risk factors.

According to the proposed strategy of Schumpeter, it has been analysed that the market started to regain after the financial crisis (2009) and boost by approximately 30% of every industry. On the other side, the trends were started to be noted in a positive directions, so many investors started to invest in a huge amount under the portfolio.

While the latter figure shows, that the market would again drop the ratio of expected return due to the economic fluctuations. Therefore, in the period of 2012-2013, the expected returns and Treasury bond rates declined and thus, allowed the increase in demand of individual investments. This would achieve expected benchmark of the portfolio for the upcoming period.

In the period of 2014, the trends again started to increase, where the main focus of different industries was to increase the level of equity shares instead of going to the bond evaluation. Schumpeter determined in the phase, that this would be an opportunity to regain shares prices by investing into the selected companies of portfolio.

In order to do implement the strategy, Schumpeter analysed the potential benefits of investment into Thyssen Krupp AG, and Deoleo SA because the historical data shows positive performance for both the industries. To implement the results, Schumpeter assessed expected return from each company and analysed the potential risk of holding or purchasing of stock. She was looking to manage the stock under 60% of STOXX Europe TMI, 39% of the Treasury rates and 1% of equity involved within the portfolio.

After the critical analysis, it was concluded that Schumpeter started to involve in the expansion of the individual stocks due to increasing demand for high revenues under the scenario. She also assessed the potential inclining rate of treasury bonds if involved within a particular portfolio. So the main reason to analyse the risk and return of the clients portfolio was to provide information of whether to hold, or buy the share for a particular of time or not. In addition, the key factor to include in data was the uncertainty of market trends, which might make it unmanageable to overcome the risk of loss.

Benefits of adding T-bills to the equity portfolio

After analysing the existing clients portfolio, it was determined that if Schumpeter would add the portion of Treasury stock into the case then it would be beneficial to manage the entire portfolio and receive more expected return due to risk-free factor of the rate under the bills. Therefore, in order to determine the expected rate of T-bills, an average historical rate is determined by Schumpeter and assess the going rate over the selected period.

Thus the main advantage of adding the portion of T-bills into annualized return would be to reduce additional risk of price fluctuations due to the maintained rate of profits through the investment in treasury bonds. Moreover, it has been determined that certain portion would allow each investors to add value against prices of a particular industry. Therefore, with the additional of the Treasury bills into the portfolio, Schumpeter would manage to decrease diversified risk. .................

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