Performance of Stock of TESCO PLC
Choose a company in a part of the world and domain where you feel at ease, and which has both shares on the stock market and corporate bonds outstanding.Describe the company, consider the recent performance (e.g. five years) of the shares and the bond you have selected.You should probably use Morningstar as your source but you are not obliged to.Had you invested 50/50 in the bond and the share, what would your average annual return over the last five years have been.
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Performance of Stock of TESCO PLC
If one had invested in the share of TESCO PLC in the year 2011 at GBP 430, then the present price of the stock is GBP 188 which shows that there is a loss of 56% over the last five years. Hence The average loss is about 11% per year. Investors would have lost half the wealth has they invested in the stock of TESCO PLC. The main reason for the fall in the share price is the large amount of debt that has been accumulated in the year 2014. Hence, the investors consider the company risky which reduces the return on equity and in turn the return to the investor. Hence the annualized return on the stock is -11.15% annually
Performance of Bonds of TESCO PLC
TESCO has bonds issued with a five year horizon, a coupon rate of 5.5% with a price of 106 GBP on a face value of GBP 100. The current yield to maturity of these bonds stands at 3.65%. Hence the investor would have got better returns by investing in the bond rather than the stock of TESCO PLC.
The annual return assuming you invested 50% in stock would be -11.15% and in bond would be 5.5%. Taking the average it would be -2.8%.The most difficult part of this assignment was to collate the data an identify reasons for the performance of the stock.
Question 2 – Building a personal portfolio
Based on the age of the person, the time horizon and also on the specific goals in mind, one has to design a portfolio.
This is because the time horizon is near. However, the returns may be lower and may require a larger corpus to begin with. Secondly, for goals that are further away, say 10 years and later, we can select assets classes which have some volatility and give better returns, but should not be very risky. Lastly, for very long term goals, we can choose risky assets with higher volatility since there a large amount of time available and highly volatile assets always give better returns and beat inflation by a big margin. These assets are chosen when the goals are very long, say more than 30 years and specifically for retirement (Costa, 2011).
Portfolio for Goal 1: Purchasing a home in about five years time
For my first goal, that is to purchase my own home in about five years time, I would have to choose debt assets specifically AAA rated corporate debt funds and long term government funds which give stable returns. The five funds for this specific short term goal are as follow. The table below gives the name of the funds as well as the five year return % as in the morning star funds database:
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