ASSIGNMENTON

Portfolio Management

Submitted To:Dr. Sadiq Shahid

Submitted By:

Umer FarooqRoll # 139M.B.A (Executive)3rd SemesterSession: 2014-2016

BAHAUDDIN ZAKARIYA UNIVERSITY,MULTAN

ACKNOWLEDGEMENT

All praises to Almighty Allah, the most Gracious, the most Beneficent and the most

Merciful, who enabled me to complete this assignment.

I feel great pleasure in expressing my since gratitude to my teacher, for his guidance

and support for providing me an opportunity to complete my Project.

I will keep my hopes alive for the success of given task to submit this report to my

honorable teacher Dr. Sadiq Shahid, whose guidance; support and encouragement

enable me to complete this assignment.

EXECUTIVE SUMMARY

Portfolio is a financial term denoting a collection of investments held by an

investment company, hedge fund, financial institution or individual. The term

portfolio refers to any collection of financial assets such as stocks, bonds and cash.

Portfolio management is all about strengths, weaknesses, opportunities and threats

in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and

many other tradeoffs encountered in the attempt to maximize return at a given

appetite for risk. Where the portfolio management process is the process an investor

takes to aid him in meeting his investment goals.

Arif Habib Investments Limited is an Asset Management, Investment Advisory and

Pension Fund Management Company, managing Open-end Mutual Fund and Pension

Funds. It has 16 Mutual Funds, 2 Pension Funds and 9 Investments Plans in its

product portfolio to meet the investment needs of its growing clientele.

All investments in mutual funds and securities are subject to market risk. The NAV

based price of these units and any dividends and return thereon are dependent on

forces and factors affecting the capital markets. These may go up or down based on

market conditions. Past performance is not necessarily indicative of future results.

AHI is doing well and increasing the wealth of Fund/Stock holders but there are some

weaknesses in the Portfolio management process that can be removes by acting on

the recommendations.

Table of Contents

Contents Page No

1. Title page 01

2. Acknowledgement 02

3. Abstracts 03

4. Table of contents 04

5. Introduction to the topic 05

6. Practical study of organization 09

7. Data collection methods 13

8. SWOT analysis 14

9. Conclusion 16

10. Recommendations 17

11. References 19

Introduction to the Topic

Portfolio

“A group   of   financial   assets such  as   stocks,   bonds   and   cash   equivalents,   as  well 

as their   mutual,   exchange-traded   and   closed-fund   counterparts.   Portfolios   are 

held directly by investors and/or managed by financial professionals.”

Portfolio is a financial term denoting a collection of investments held by an

investment company, hedge fund, financial institution or individual. The term

portfolio refers to any collection of financial assets such as stocks, bonds and cash.

Portfolios may be held by individual investors and/or managed by financial

professionals, hedge funds, banks and other financial institutions. It is a generally

accepted principle that a portfolio is designed according to the investor's risk

tolerance, time frame and investment objectives.

Portfolio ManagerThe person or persons responsible for investing a mutual, exchange-traded or closed-

end fund's assets, implementing its investment strategy and managing the day-to-

day portfolio trading.

Portfolio Management“The art and science of making decisions about investment mix and policy, matching 

investments   to   objectives,   asset   allocation   for   individuals   and   institutions,   and 

balancing risk against performance”

Portfolio management is all about strengths, weaknesses, opportunities and threats

in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and

many other tradeoffs encountered in the attempt to maximize return at a given

appetite for risk.

The Portfolio Management Process:The portfolio management process is the process an investor takes to aid him in

meeting his investment goals. The procedure is as follows:

1. Create a Policy Statement:  A policy statement is the statement that

contains the investor's goals and constraints as it relates to his investments.

2. Develop an Investment Strategy: This entails creating a strategy that

combines the investor's goals and objectives with current financial market and

economic conditions.

3. Implement the Plan Created: This entails putting the investment

strategy to work, investing in a portfolio that meets the client's goals and

constraint requirements.

4. Monitor and Update the Plan: Both markets and investors' needs

change as time changes. As such, it is important to monitor for these changes

as they occur and to update the plan to adjust for the changes that have

occurred.

Policy Statement:A policy statement is the statement that contains the investor's goals and constraints

as it relates to his investments. This could be considered to be the most important of

all the steps in the portfolio management process. The statement requires the

investor to consider his true financial needs, both in the short run and the long run. It

helps to guide the investment portfolio manager in meeting the investor's needs.

When there is market uncertainty or the investor's needs change, the policy

statement will help to guide the investor in making the necessary adjustments the

portfolio in a disciplined manner.

Portfolio Management Strategies:There are two basic approaches to investment management:

A. Active asset management is based on a belief that a specific style of

management or analysis can produce returns that beat the market. It seeks to

take advantage of inefficiencies in the market and is typically accompanied by

higher than average costs (for analysts and managers who must spend time to

seek out these inefficiencies).

For those who favor an active management approach, stock selection is typically

based on one of two styles:

1. Top-down: Managers who use this approach start by looking at the

market as a whole, and then determine which industries and sectors are

likely to do well give the current economic cycle. Once these choices are

made, they then select specific stocks based on which companies are

likely to do best within a particular industry.

2. Bottom-up: This approach ignores market conditions and expected

trends. Instead, companies are evaluated based on the strength of their

financial statements, product pipeline, or some other criteria. The idea

is that strong companies are likely to do well no matter what market or

economic conditions prevail.

B. Passive asset management is based on the concept that markets

are efficient, that market returns cannot be surpassed regularly over time, and

that low cost investments held for the long term will provide the best returns.

Passive management concepts to know include the following:

1. Efficient market theory: This theory is based on the idea that

information that affects the markets (such as changes to company

management, Fed interest rate announcements, etc.) is instantly available

and processed by all investors. As a result, this information is always taken

into account in market prices. Those who believe in this theory believe

there is no way to consistently beat market averages.

2. Indexing: One way to take advantage of the efficient market theory is to

use index funds (or to create a portfolio that mimics a particular index).

Since index funds tend to have lower than average transaction costs and

expense ratios, they can provide an edge over actively managed funds

which tend to have higher costs.

Modern portfolio theory

Modern portfolio theory (MPT) is a theory of finance which attempts to maximize

portfolio expected return for a given amount of portfolio risk, or equivalently

minimize risk for a given level of expected return, by carefully choosing the

proportions of various assets. Although MPT is widely used in practice in the financial

industry and several of its creators won a Nobel memorial prize for the theory, in

recent years the basic assumptions of MPT have been widely challenged by fields

such as behavioral economics.

MPT is a mathematical formulation of the concept of diversification in investing, with

the aim of selecting a collection of investment assets that has collectively lower risk

than any individual asset. That this is possible can be seen intuitively because

different types of assets often change in value in opposite way. For example, to the

extent prices in the stock market move differently from prices in the bond market, a

collection of both types of assets can in theory face lower overall risk than either

individually. But diversification lowers risk even if assets' returns are not negatively

correlated—indeed, even if they are positively correlated.

Factors influencing Portfolio Management:Capital investment decisions are not governed by one or two factors, because the

investment problem is not simply one of replacing old equipment by a new one, but

is concerned with replacing an existing process in a system with another process

which makes the entire system more effective. We discuss below some of the

relevant factors that affects investment decisions:

1. Management Outlook: lf the management is progressive and has an

aggressively marketing and growth outlook, it will encourage innovation and

favor capital proposals which ensure better productivity on quality or both. In

some industries where the product being manufactured is a simple

standardized one, innovation is difficult and management would be extremely

cost conscious. In contrast, in industries such as chemicals and electronics, a

firm cannot survive, if it follows a policy of 'make-do' with its existing

equipment. The management has to be progressive and innovation must be

encouraged in such cases.

2. Competitor’s Strategy: Competitors' strategy regarding capital

investment exerts significant influence on the investment decision of a

company. If competitors continue to install more equipment and succeed in

turning out better products, the existence of the company not following suit

would be seriously threatened. This reaction to a rival's policy regarding

capital investment often forces decision on a company'

3. Opportunities created by technological change: Technological changes

create new equipment which may represent a major change in process, so

that there emerges the need for re-evaluation of existing capital equipment in

a company. Some changes may justify new investments. Sometimes the old

equipment which has to be replaced by new equipment as a result of

technical innovation may be downgraded to some other applications, A

proper evaluation of this aspect is necessary, but is often not given due

consideration. In this connection, we may note that the cost of new

equipment is a major factor in investment decisions. However the

management should think in terms of incremental cost, not the full

accounting cost of the new equipment because cost of new equipment is

partly offset by the salvage value of the replaced equipment. In such analysis

an index called the disposal ratio becomes relevant.

Disposal ratio = (Salvage value, Alternative use value) / Installed cost

4. Market forecast: Both short and long run market forecasts are influential

factors in capital investment decisions. In order to participate in long-run

forecast for market potential critical decisions on capital investment have to

be taken.

5. Fiscal Incentives: Tax concessions either on new investment incomes or

investment allowance allowed on new investment decisions, the method for

allowing depreciation deduction allowance also influence new investment

decisions.

6. Cash flow Budget: The analysis of cash-flow budget which shows the flow

of funds into and out of the company may affect capital investment decision

in two ways. 'First, the analysis may indicate that a company may acquire

necessary cash to purchase the equipment not immediately but after say, one

year, or it may show that the purchase of capital assets now may generate the

demand for major capital additions after two years and such expenditure

might clash with anticipated other expenditures which cannot be postponed.

Secondly, the cash flow budget shows the timing of cash flows for alternative

investments and thus helps management in selecting the desired investment

project.

7. Non-economic factors: new equipment may make the workshop a

pleasant place and permit more socializing on the job. The effect would be

reduced absenteeism and increased productivity. It may be difficult to

evaluate the benefits in monetary terms and as such we call this as non-

economic factor. Let us take one more example. Suppose the installation of a

new machine ensures greater safety in operation. It is difficult to measure the

resulting monetary saving through avoidance of an unknown number of

injuries. Even then, these factors give tangible results and do influence

investment decisions.

Practical Study of the Organization

Company Profile:Arif Habib Investments Limited is an Asset Management, Investment Advisory and

Pension Fund Management Company, managing Open-end Mutual Fund and Pension

Funds. The Company is registered with the Securities & Exchange Commission of

Pakistan (SECP) and regulated under the Non-Banking Finance Companies (NBFC)

Rules 2003, NBFC and Notified Entities Regulations 2008 and Voluntary Pension

System Rules 2005.

Arif Habib Investments Limited manages over Rs. 34.86658 billion, as of 31stMarch

2012. It has 16 Mutual Funds, 2 Pension Funds and 9 Investments Plans in its

product portfolio to meet the investment needs of its growing clientele. The

Company was conceived in the year 2000 and, in March 2002, two of its flagship

Funds, the Pakistan Stock Market Fund (PSM) and the Pakistan Income Fund (PIF)

were launched.

Arif Habib Investments has been an industry leader, setting international standards

and bringing innovative products to market.

AHI enjoys the highest Asset manager Quality rating of ‘AM2 (With Positive

Outlook)’ by PACRA in the industry

MCB Dynamic Stock Fund has been assigned 5-star ranking for long term due

to its outstanding performance by PACRA based on returns achieved up to

30th June 2011.

AHI's new index tracker Fund 'AH Dow Jones SAFE Pakistan Titans 15 Index

Fund' is the only Fund structured on an index by International Index Provider

in Pakistan.

Pakistan Income Fund launched in March 2002 by AHI was the 1st Income

Fund in the mutual fund industry.

AHI brought first private sector equity fund that is Pakistan Stock Market Fund

in the country, which was created an Alpha of 170% since inception in March

2002.

Pakistan Cash Management Fund became the 1st Money Market Fund to be

assigned stability rating of ‘AAA (f)’ in the country.

Metro bank Pakistan Sovereign Fund-Perpetual, established in 2003 was the

first sovereign risk income fund in the industry.

PIEF rewrote history in the fixed income Funds category (inception in

Aug’2008) by earning highest ever annualized return of 18.33% in f FY’09.

Arif Habib Investments Fund; the Pakistan Premier Fund Limited (PPFL), was

also placed in KSE's top 25 companies in 2005 and 2006.

Pakistan International Element Islamic Fund (PIIF) of Arif Habib Investments

Limited is the first Mutual Fund in the country with permission from the State

Bank of Pakistan to also invest overseas.

AHI was the first AMC to introduce ATM card withdrawal facility for retail

clients, now offering VISA Debit card in association with a commercial bank

AHI was the first AMC to convert closed end fund (Pakistan Capital Market

Fund) into an open end fund in 2006 keeping investor’s interest supreme.

1st AMC to develop unique software based administrative investment plans

tailor made for retail as well as corporate investors.

Mission Statement“To become a preferred Savings and Investment Manager in the domestic and

regional markets, while maximizing stakeholders’ value”

Vision Statement“To become synonymous with Savings”

Practical Study of the Organization with respect to the Issue

The Portfolio Management Process of Arif Habib

Investments Limited:

The portfolio management process of Arif Habib Investments Limited is outlined

as follows:

1. Each investor identifies objectives, constraints, and preferences as part of an

orderly framework to guide them in managing their portfolios.

2. Capital market expectations for the economy, industries and sectors, and

individual securities are considered and quantified.

3. Strategies are developed and implemented. This involves asset allocation,

portfolio optimization, and selection of securities.

4. Portfolio factors are monitored and responses are made as investor

objectives and constraints and/or market expectations change.

5. The portfolio is rebalanced as necessary by repeating the asset allocation,

portfolio strategy, and security selection steps.

6. Portfolio performance is measured and evaluated to ensure attainment of

the investor objectives.

Arif Habib Investments Limited Structure Portfolio

for the following Funds: Arif Habib Investments Limited id offering the following funds for their customers,

1. Mutual Funds

A. Open Ended Funds

1. PAK STOCK MARKET FUND

2. PAKISTAN INTERNATIONAL ELEMENT ISLAMIC ASSET

ALLOCATION FUND

3. PAK INCOME FUND

4. PAK CAPITAL MARKET FUND

5. METROBANK-SOVEREIGN FUND

6. PAK CASH MANAGEMENT FUND

7. PAK INCOME ENHANCEMENT FUND

8. PAK CAPITAL PROTECTED FUND

9. PAK STRATEGIC ALLOCATION FUND

10.PAK PREMIER FUND

11.MCB DYNAMIC CASH FUND

12.MCB CASH MANAGEMENT OPTIMIZER FUND

13.MCB DYNAMIC STOCK FUND

14.MCB ISLAMIC INCOME FUN

2. Pension Funds

A. PAK PENSION FUND

B. PAK ISLAMIC PENSION FUND

3. Investment Plans

A. MONTHLY SAVINGS

B. PENSION BUILDER

C. MONTHLY INCOME PLAN

D. SMART PORTFOLIO

E. BALANCED PORTFOLIO

F. SMART TRADER

G. HAJJ SAVER ACCOUNT

H. DYNAMIC INCOME PROVIDE

The Portfolio Management for Pakistan Market Fund

(PSM):

Investment Objective:The objective of the fund is to provide investors long term capital appreciation

from its investment in Pakistani equities.

Fund Profile:Pakistan Stock Market Fund (PSM) is an open end equity fund that invests in

quality stocks listed in Pakistan.

The fund is actively managed and fundamental research drives the investment

process. Fundamental outlook of sectors/companies and DCF (discounted cash

flow) valuations are the primary factors in sectors’ allocation and stock selection.

Major portion of the fund’s portfolio is high quality liquid stocks. The funds which

are not invested in equities are required to be kept in bank deposits and short-

term money market instruments/ placements. PSM is a long only fund and cannot

undertake leveraged investments. Under the NBFC Rules, it is only allowed to

borrow up to 15% of net assets for up to 90 days to meet redemption needs.

Benchmark: KSE-100 Index

Quick Stats Date of Inception 11th March 2002

Fund Type Open-end Equity

Minimuminvestment Rs. 5,000

Fund Manager M.Asim,CFA

Rating by PACRA

Full year - Jul 09 - Jun 1036 months - Jul 07 - Jun 10

Initial Public Offer PKR 50.00

Currency PKR Registrar Arif Habib Investments Limited

Trustee Central Depository Company of Pakistan Ltd. (CDC)

Auditors KPMG Taseer Hadi & Co, Chartered Accountants

Holding Stock of the Portfolio:

Top Ten Holdings

Dividend History:

Dividend History

Financial Year % of Face Value Payout /unit (Rs.) Form Bonus

reinvested

2010-11 12.60 6.30 Bonus -2009-10 19.40 9.7 Bonus 19.542008-09 0 - - -2007-08 34 17 Bonus 26.34 2006-07 50 25 Bonus 29.73 2005-06 60 30 Bonus 35.59 2004-05 50 25 Bonus 27.75 2004-05 20 10 Cash 2003-04 60 30 Bonus 36.59 2002-03 40 20 Bonus 28.98

2001-02* 2.70 1.35 Bonus 2.75

* Dividend is not for the full year as the fund was launched in March-2002. Face value is Rs.50 All investments in mutual funds and securities are subject to market risk. The NAV based price of these units and any dividends and return thereon are dependent on forces and factors affecting the capital markets. These may go up or down based on market conditions. Past performance is not necessarily indicative of future results.

SWOT analysis

Strength: Low risk on selected stocks

Experience Annalists

Good Reputation

Weakness: Lack of future forecast

Low return due to Low risk

No proper Technical analysis

Opportunities: Stocks of Multinational Companies

Stocks of Cement industry

Threats: Economic condition of Pakistan

Problems of power sector

Recommendations

I would like to recommend the followings:

AHI should have to invest in the stocks of multinational companies because

these are cost conscious and generate high return.

AHI should have to focus on cement industry because the construction

activities are increasing in Afghanistan and in other countries.

Portfolio Manager should have too much concentrate on Technical analysis

before selecting the stock.

Accurate future forecasting should have to done for the better results.

Conclusion

I have concluded that,

Portfolio is a financial term denoting a collection of investments held by an

investment company, hedge fund, financial institution or individual.

Portfolio Management is the art and science of making decisions about

investment mix and policy, matching investments to objectives.

AHI has an effective Portfolio Management Process due to which

Stock/Fund holders are taking good return.

But there are still some weaknesses in the process like lack of future

forecast and proper technical analysis.

Return is not as good as can be because selected stock is less risky, so return

can be high by taking high risk.

AHI should also have to focus on the stock of multinational companies and

cement industry because these Companies can generate high return.