Speaker Notes
Introduction
Hello, everyone present in today's congregation; welcome to this presentation covering the U.S. financial markets exchange derivatives, bonds, shares, and currencies. This lengthy presentation will assess top financial asset investments. As Fidelity Investments' research analyst, I help investors analyze financial assets. Equities and bonds dominate asset allocation; thus, this presentation will focus on these topics. Asset allocation helps stock and bond investors avoid market underperformance.
Agenda
This study's sections emphasize portfolio management and coherence. The section also involves carefully studying selected securities to help choose the best financial asset. We will rigorously assess the S&P 500 and Dow Jones to uncover the best stock and bond choices in the U.S. banking sector.
Financial Market Overview
S&P 500 and Dow Jones have been the best U.S. stock market exchange performers. According to the financial records recorded from 10 a.m. to 4 p.m. on November 4, the S&P 500 index was constant at 7:05 p.m. and rose to 4370 points by 9:00 p.m. However, it fell to 4360 at 10:00 p.m., 4356.61 at 11:00 p.m., and 4350 at 1:00 a.m. According to Money Control (2023), the S&P 500 scored 16.61 points in six hours.
Dow Jones Industrial Average decreased 0.12% from 34,061.32 at 10:00 a.m. to 34,049.72 at 4:00 p.m. Moneycontrol (2023) reported 34,160.00 and 33,920.00 highs and lows with no major movements.
Due to its volatility, the S&P 500 gained more than the Dow Jones. On November 4, 2023, the Dow Jones graph shows decreasing stocks and bonds. Interest rates, liquidity, and geopolitics impact stocks.
Diversification
Diversification reduces financial asset management portfolio losses. Protects against underperforming stocks and assets. Market and portfolio volatility are reduced by asset class variety. The lecture explains how diversification protects investors from asset performance swings and significant losses. Diversified asset allocation helps investors achieve goals in volatile markets.
Diversified Portfolio Justification
Diversification improves portfolio performance and lowers risk. Assets are spread among classes, industries, and locations to lessen market volatility and safeguard against surprises. This method stabilizes performance, helping the portfolio thrive during recessions. Diversified portfolios help investors adjust to economic cycles by exposing them to different market conditions.
Stock Selection Analysis
Dow Jones and S&P are examined using P/E ratios, risk indicators, and market patterns. Moreover, this pattern presents how market sentiment and investor confidence affect both indices' P/E ratios. Besides, Alpha, Beta, Mean Annual Return, R-Squared, standard deviation, Sharpe Ratio, and Treynor Ratio are evaluated to assess index volatility.
Portfolio Strategy for Financial Asset Management
Portfolio growth investing targets high-growth companies with long-term profits.
3. INTRODUCTION
Financial Markets are currency-based trading centers
where buyers and sellers use advanced systems to
trade financial instruments. Some financial
instruments traded in the financial market include:
Derivatives, Bonds, Equities and international
currencies. Under this presentation various aspects of
the financial market will be covered especially based
on the best investment options when it comes to
financial assets.
As the current research analyst at Fidelity
Investments, I will conduct a thorough analysis in
this presentation that will enable investors to select
their best choice when it comes to investing in
financial assets.
In contrast, the financial assets that are going to
be covered under this report include Stocks and
Bonds.
In this research presentation, stocks and bonds
have been selected as the major focus since
investors can easily use the asset allocation
strategy. Moreover, an asset allocation strategy is
an approach applied in the stock and bond
market to protect investors from incurring losses
when low performance is experienced in the
market.
4. AGENDA
This report is tailored towards meeting the
best quality by being sectioned accordingly
to create a clear picture of why its
important to implement portfolio
management. on the other hand the
presentation also includes sections such as
the analysis of chosen securities to provide
analytical proof of the best financial asset.
The U.S. financial market is the main focus
under this presentation, Therefore, S&P 500
and other financial market participants such as
Dow Jones financial performance will be
critically analyzed to determine which is the
best choice when it comes to investment in
bonds and stocks.
5. Figure 1 above shows the S&P 500 index was constant from 7:05 to 8:00
PM. At 9:00 PM, it surged gradually to 4370 points. It fell to 4360
points about 10:00 PM. Soon later, it reached 4356.61 points at 11:00
PM. By 1:00 AM, it fell to 4350 points again.
Over six hours, it gained 16.61 points (Moneycontrol, 2023).
Figure 2 above shows the Dow Jones Industrial Average performance from
10 a.m. to 4 p.m. on November 4, 2023.
At 10:00 AM, the Dow Jones Industrial Average was 34,061.32, and at 4:00
PM, it dropped 0.12% to 34,049.72. The graph wiggles in a tiny range
without any wild jumps or falls. 34,160.00 was the high and 33,920.00 the
low (Moneycontrol, 2023).
The Major financial Companies that are covered under this overview section include Dow Jones, and S&P 500. Being the companies with the
well performing stock and bond market, the financial entities mentioned above have an overview of their financial performance below as
recoded on November 4th from 10 a.m-4 p.m.
According to the Statistical Analysis above regarding the two companies, S&P 500 outperformed Dow Jones by experiencing fluctuations that enabled
the Entity to increase its net gain. As observed in the Dow Jones graph, its stock and bonds experienced a slight decrease as of November 4th 2023. In
general, some of the major factors that have caused the fluctuations in stock market performance as observed in the graphs above include: market
liquidity, geopolitical events, and interest rates.
Figure 1: S&P 500 Market Performance
Figure 2: Dow Jones Market Performance
6. Financial asset diversification lowers portfolio
risk and loss hence providing more security for
investments done by investors. Besides, in an
instance where one stock or asset type may
underperform, diversification reduces the risk
of losing investments. On the other hand,
portfolio volatility is reduced by diversifying
assets among asset types that perform
differently in different markets.
Asset allocation and diversification are crucial to portfolio resilience and investing success.
Diversifying helps investors navigate short-term performance drops and stay focused on their
goals. Investors can weather market turbulence and achieve their aims with this strategy.
Stocks and bonds are negatively correlated, thus
a diverse portfolio helps balance market
downturns. Diversity emphasizes the need of not
relying on last year's top asset class, which may
underperform. Diversity protects investors from
asset performance volatility and low-priced asset
sales, preventing large losses.
7. Diversification of investments reduces market volatility
and unanticipated events that may affect individual
industries or enterprises. Therefore, diversifying the
portfolio can prevent huge losses from investing in a few
stocks. Besides, financial markets are volatile, so
economic, regulatory, and geopolitical developments can
substantially affect asset performance.
Stability in
Performance
Risk Mitigation
Exposure to Various
Market Conditions
Diversification boosts long-term performance
and prevents asset value volatility (Zhang et al.,
2023). Therefore, a portfolio with diverse return
patterns may perform better. Investors seeking
long-term growth and market stability require
this constancy or stability to achieve their
targeted investment goals.
A diversified portfolio exposes investors to many
markets and industries, decreasing their dependence
on one. This exposure to diverse market
circumstances makes the portfolio strong and
adaptable, allowing it to perform well across all
economic cycles.
Investment diversification lowers risk and boosts rewards enabling the portfolio maximize its impact from any single investment by spreading assets across asset
classes, sectors, and geographies. This investment strategy emphasizes diversification as a sensible choice and strategic need since it attracts multiple rewards.
8. A concentrated portfolio is more volatile because
its performance depends on a few stocks.
Therefore, these equities' price changes can
significantly affect the portfolio's value (Chen &
Israelov, 2023).
Concentrating investments in specific industries or
companies may expose the portfolio to sector-
specific risks or company-specific challenges like
management changes, regulatory issues, or
product failures. These risks could produce big
losses, hence decreasing the value of portfolios.
However, focusing investing in one or two equities may yield larger short-term profits but is
riskier. Some fallacies that might be experienced by making this move include:
9. Figure 3: Dow Jones P/E Ratio
The P/E ratio's fall during the studied timeframe suggests investor attitude adjustments and market
expectations reevaluation. A change in the market's burstiness may indicate a drop in investor confidence
and a more cautious attitude to Dow Jones Industrial Average company valuations. This may be caused by
confounding variables like economic fears, rising interest rates, or geopolitical tensions.
Under this section of the presentation an
analysis covering the securities and risk
statistics of Dow Jones and S&P is
conducted thoroughly. Further, some of
the areas covered in this statistic section
include determining the P/E ratio of the
two companies. After accessing the P/E
Ratio, risk statistics are also evaluated
and discussed. The risk statistics discussed
in this section include Alpha, Beta, Mean
Annual Return, R-Squared, standard
deviation, Sharpe Ratio, and Treynor
Ratio.
Figure 3 below depicts the Dow Jones P/E ratio from
November 8, 2023, to November 8, 2023, shows a strange
trend of a little fall from 27.64 to 27.32 (Dow PE Ratio,
2023). Although minor, this reduction adds to the burstiness
of the data, suggesting market sentiment swings within the
studied timeframe. The P/E ratio, a confusing but important
valuation tool that compares a company's stock price to its
earnings per share, indicates market sentiment. This
indicator, calculated by dividing the stock price by earnings
per share, is both confusing and volatile due to the reflecting
market movements and investor attitude. A higher P/E ratio
indicates confusion, as investors are prepared to pay more
per dollar of profits, indicating market optimism.
10. Figure 4: S&P 500 P/E Ratio
Figure 4 above depicts a clear trend of the S&P 500 P/E ratio's downward trajectory since the
culmination of 2021, demonstrating a decrease from 31.45 in November 2021 to 24.59 in November
2023, marking a substantial decline of 22%. This notable decrease, although significant, still positions
the entity above the enduring average of 15 (S&P 500 P/E Ratio, 2023).
The diminishing P/E ratio signals a diminishing inclination among investors to expend a premium for
the earnings of S&P 500 companies. This shift in sentiment could be attributed to various factors,
including apprehensions surrounding a potential economic downturn, escalating interest rates, or
geopolitical instabilities.
Overall, the graph illustrates that the current S&P 500 P/E ratio rests at a relatively elevated point,
albeit witnessing a considerable drop over the preceding year. This implies a potential overvaluation of
S&P 500 companies, though not as excessive as observed in late 2021.
Prior to delving into the S&P 500, investors are advised to meticulously assess their risk tolerance and
investment objectives.
11. Statistic DIA Category Average
Alpha -0.81 0.43
Beta 0.91 0.91
Mean Annual Return 0.80 0.88
R-squared 85.03 86.29
Standard Deviation 17.61 10.58
Sharpe Ratio 0.43 1.00
Treynor Ratio 7.03 11.86
Table 1: Dow Jones Securities
The table compares Dow Jones Industrial Average (DIA) risk to category average.
These details are necessary to evaluate the DIA's stock market benchmark
performance and risk. First, the DIA's "Alpha" is -0.81, below the category average of
0.43 (SPDR Dow Jones Industrial Average ETF Trust (DIA), 2023). This indicates the
DIA underperformed the category average. Second, the DIA's "Beta" is 0.91,
matching the category average, indicating market-like price movements.
The DIA's "Mean Annual Return" is 0.80, below the category average of 0.88.
The DIA's "R-squared" value of 85.03 and the category average's 86.29 imply a
strong correlation between DIA returns and market returns, albeit slightly lower
(SPDR Dow Jones Industrial Average ETF Trust (DIA), 2023).
Its "Standard Deviation" is 17.61, more than the category average of 10.58, indicating
higher price volatility than the average fund.
DIA's "Sharpe Ratio" is 0.43, below the category average of 1.00, indicating that its
returns have not compensated for risk as effectively as the average fund.
Last, the DIA's "Treynor Ratio" is 7.03, compared to 11.86 for the category, indicating
lower returns per unit of systematic risk. These numbers provide a thorough view of
the DIA's risk and performance metrics relative to its category average, making it
easier to assess its investment potential and suitability in a diversified portfolio.
12. Risk Statistic 3 Years 5 Years 10 Years
Alpha -0.07 -0.65 -0.05
Beta 1.03 0.98 1.0
Mean annual
return
0.93 1.28 1.03
R-squared 100 95.34 96.99
Standard
deviation
17.82 11.38 14.92
Sharpe ratio 0.51 1.34 0.74
Treynor ratio 8.03 15.73 10.64
Table 2: S&P 500 Securities
Table 2 displays S&P 500 index risk for a period of 3, 5, and 10 years.
From the table, figures in the ‘Alpha’ section show negative return relative to
the market (-0.07, -0.65, and -0.05) (SPDR S&P 500 ETF Trust (SPY), 2023).
Besides, the index should have underperformed the market throughout these
periods.
On the other hand, ‘Beta,' which measures the S&P 500's market volatility
susceptibility, shows a close association between index performance and
market changes at 1.03, 0.98, and 1.0 respectively as depicted on the table.
According to the US stock market's upward trend, the S&P 500 index's 'Mean
annual return' values of 0.93, 1.28, and 1.03 indicate moderate to good
performance.
Nevertheless, 100, 95.34, and 96.99 'R-squared' values show how much
market variations explain S&P 500 movements. Therefore, large percentages
indicate a strong link between index performance and market movements.
The S&P 500's 'Standard deviation,' which measures return variation, is 17.82,
11.38, and 14.92, demonstrating volatility over the specified time frames.
However, S&P 500's 'Sharpe ratio,' which measures risk-adjusted returns, is
0.51, 1.34, and 0.74, with 5-year data performing best.
Finally, the 'Treynor ratio' of 8.03, 15.73, and 10.64 compares the S&P 500's
excess return to systematic risk. High numbers reflect market risk excellence.
Risk and return figures for the S&P 500 index help investors choose US
stocks.These risk statistics are significant since they are needed to assess the
S&P 500 index's volatility.
13. Proposed Portfolio
Strategy
2021 2022 2023
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
The proposed portfolio strategy for the management of financial assets investment
is Growth Investing. Besides, to raise capital, growth investors buy stocks and bonds
from companies with high earnings and long term growth potential. These methods
help investors determine companies with above-market revenue and earnings
growth. Nevertheless, these firms reinvest earnings to grow rather than pay
dividends. Therefore, investors have interests to profit from significant share price
appreciation by investing in such companies.
Long-term capital appreciation from growth investing is significant. While riskier
than value or income investing, this method can yield higher returns during bull
markets. The S&P 500 benefits from growth investment in high-growth companies.
The market's rising direction and growth-oriented stocks' outperformance have
helped S&P 500 investors minimize market volatility and economic downturns. By
capitalizing on growing firms' long-term potential for above-average returns, the S&P
500 has helped investors maximize earnings.
14. A growth investing portfolio plan must minimize risks to protect capital and ensure long-term success on investments made on
financial assets. Growth investing is riskier due to growth stock volatility, but investors can limit these risks using different
ways. Here are some ways to reduce growth investing portfolio risks:
Diversification
Understanding investment especially
in finance firms needs significant
study that entails assess of the
company's finances, growth,
competitiveness, and management.
Portfolio companies should have a
good business plan, continuous
development, and an industry edge.
Research and Due Diligence
The portfolio should use stop-loss
orders to limit losses by selling a
stock if it falls below a certain
price. Consider buying put options
to hedge against downside risk in
certain stocks or the market.
Risk Management Tools
A single stock's poor performance
can be mitigated by investing in
growth enterprises from multiple
industries. Spreading investments
across sectors and markets
reduces sector downturn risk.
15. Figure 5: S&P 500 Historic Data
In this portfolio performance analysis section, the analysis of S&P 500 historical data will be analysed since the entity remains being this presentation’s
major focus due to its good performance in the stock market.
A decade of S&P 500 volatility as illustrated in Figure 5 indicates how market stability has been harmed
by index swings. The index fluctuated 15.5% from June 30, 2023, to 4th Nov 2023. Some of the major
factors that have contributed to the decline include the war existing between Russia and Ukraine and
increasing interest rates. In the other years, the fluctuation has been experienced but the value has not
gone below 15 meaning that the fluctuations of the portfolio have been balancing and limiting the risk of
investors losing their investments.
16. Metric 10-year average
Average return 9.3%
Standard deviation 17.82%
Sharpe ratio 0.51
When Calculating the Maximum Sharpe Ratio, I assumed that all the factors in the next 10 years remained the same. The formular
for calculating sharpe ratio applied in this section is:
MSR = (PR - Risk-free rate) / SD
The Maximum Sharpe ratio attained after executing the calculation is 0.51. Therefore, this
is an indication that the S&P 500 might generate positive risk-adjusted returns over the
next 10 years assuming all the variables remain constant (Gupta et al., 2023).
In general, the use of the historical data was significant because forecasts on market
performance are conducted using such data sets. By accessing the data of S&P 500 a
volatility percentage of 9.3 was evaluated indicating that investors should carefully
consider their risk tolerance and investment objectives before investing in the S&P 500
(Olawale et al., 2023)
17. In conclusion, this presentation provides a detailed analysis of Dow Jones and S&P stock and bond
performance. Besides, to acquire the best and detailed analysis very reliable data sources were used to
retrieve the performance of each entity based on the past years’ records.
According to the findings of this presentation, S&P 500 outstands as the best choice for investing
when it comes to financial market analysis since the entity has shown credibility and significant
growth of investments over the years. On the other hand, Dow Jones has been distinguished to have
been encountering fluctuations that have caused poor performance of the entity’s stock market
making it more risky investing in Dow Jones compared to its competitor.
Therefore, investors should conduct through research on financial assets before making an
investment to access the performance of the asset. This minimizes the risk of an investment loosing
its value since it enables investors to inject their investments in profitable investment portfolios.
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