Before looking at the securities, it is important to look at the market or economy where the intended investment will be made. In this case Mr Fourier intends to invest his money in either European or US securities. Economic Conditions Europe is beginning to exhibit positive signs of economic growth, with low inflation and unemployment at its lowest level for seven years and an increase in productivity.
Klaus Regling, Director-General of DG Economic and Financial Affairs, European Commission, said that the EU’s Annual Progress Report showed that the euro zone and the EU-25 had seen more growth than forecast, with economic improvement driven by domestic demand “desaving. ” Inflation is nearly down to 2% and public finances have steadily improved, as governments have used the good times to consolidate their position, with euro-zone deficits at 2%, compared to 3% in the US, many investors have substantial concerns about the future prospects for returns from broad equity indices in the US.
They are concerned that future growth in the will be sufficiently lower than historical averages primarily due to housing bubble resulting in a lower overall GDP growth. Inflation figures from Italy, France and Germany earlier this month confirmed the falling inflation rate trend in July, which was helped by a strengthening of the euro on currency markets and a slowdown in oil prices. However, one cannot be assured of a long term growth trend on the basis of this, Shares are classified by their betas.
Betas measure the tendency of a portfolio to move up or down with a reference market, these are described by some writers as aggressive, defensive or neutral: Aggressive shares- if beta is greater then market average it is classified as a aggressive share therefore tend to go up faster in a ‘bull’ market, and they fall more in a ‘bear’ market then the average share. Defensive shares- if a share has a beta whish is less then the market then it is known as defensive share in a ‘bull’ market it will therefore enjoy less risk but, will be safer in a downturn then a aggressive share.
Neutral share- if a share has a beta of 1 it is expected to fluctuate in line with the market For highly risk-averse investors a portfolio of low beta securities may be chosen. If the average beta of the portfolio is 0. 7 then for every 1% change in the market index the portfolio is only expected to change by only 0. 7%. Similarly a high-risk portfolio could be created which consisted of high beta stocks and this will be expected to outperform the market in an upswing but under perform in a market correction.
The way Mr Fourier can limit exposure to broad economic swings in equity markets is by investing in low beta companies. Looking at his risk profile, Mr Fourier is recommended that he should invest a less amount in equity securities as to debt securities. Approaches Mr Fourier can take: Equity Securities These represent an ownership claim on the earnings and assets of a corporation. The unique feature of investing in stock market is that shareholder has as limited liability.
This does not mean that it has low risk all this means is that if company goes Bankrupt you would only lose your original investment Tesco Plc This is a well established business and ever expanding in the UK and other countries. Tesco is one of the biggest retailers and has been performing excellent for several years now and on April 17 2007 Tesco unveiled profits of i?? 2. 55bn which was a 13% in full year underlying Profits. Tesco plans to create 25,000 new jobs worldwide this year which shows relation to people’s spending power increasing leading to generation more business for the company
Coca-Cola The Atlanta-based Coca-Cola Company is the world’s largest beverage company, producing nearly 400 beverage brands in over 200 countries around the world. As well as Coca-Cola, recognised as the world’s best-known brand, the company markets four of the world’s top five soft drink brands, including diet Coke, Fanta and Sprite. The company also has ownership interests in a number of bottling and canning operations worldwide.