Jane recently passed her CFA Level II exam and joined Overseas United Bank (OUB) as a...

  

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Jane recently passed her CFA Level II exam and joined Overseas United Bank (OUB) as a wealth manager. On her first day at work, she meets with her supervisor, Jacky, CFA, who introduces Jane to his team of wealth managers, who are responsible for a combined $1 billion in assets. Most of the accounts the team services are advisory in nature, although the team also manages some monies on a discretionary basis. Before Jane joined OUB, she had already heard about its notoriously bad legacy information systems. Things got so bad that when OUB's equity research analysts make a revision to their recommendations, it takes a day before the updated reports are published on their system for customer access. So as to prevent its discretionary customers from being disadvantaged relative to those of competitors, Jacky instructed his team to check with the equity research team twice a day to check for updates, and to communicate updates immediately to the customers of their discretionary accounts. Jacky advises Jane to do this as well, and she complies. A week in, Jacky asks Jane to meet with Kate, a prospective client, on an urgent basis as Kate will only be in town for a short time and will be flying off the next day. Since this is Jane's first potential client, she is eager to onboard the client. So she hurriedly schedules a first meeting with Kate for the next morning and quickly puts together six "stock" portfolios. At their first meeting, Jane plans to recommend one of these portfolios to Kate. At the meeting, Jane notes that Kate is a 40-year-old property agent living in the United States, with investable assets of USD20 million. Of this amount, Kate needs about $2 million three months from now in order to make a housing downpayment. She is not a big spender but hopes to fund at least part of her annual expenses, which are highly predictable, from her investment portfolio for the next twenty years. She is concerned, however, about the general increase in the prices of goods and services over time. Furthermore, Kate would like a portfolio that can be liquidated quickly and at fair value. She strongly supports American businesses and would like her investments to primarily contribute to the overall growth of the US economy. Jane tells Kate that she has six portfolios that suit her needs and presents them to Kate: Expected Standard Portfolio Weights Asset class Return Deviation 1 2 3 5 Cash and equivalents 10% 10% 12.5% 5% 10% 5% US equities 11.00% 20.0% 20% 20% 12.5% 40% 45% 20% International equities 9.00% 18.0% 20% 5% 12.5% 10% 10% 0% US intermediate-term bonds 4.00% 7.0% 10% 15% 12.5% 10% 5% 30% US long-term bonds 4.75% 8.0% 10% 20% 12.5% 10% 15% 30% International bonds 5.00% 9.50% 0% 5% 12.5% 5% 5% 0% Domestic real estate 7.00% 14.0% 15% 20% 12.5% 15% 5% 5% Hedge funds 17.40% 7.20% 15% 5% 12.5% 5% 5% 10% As Kate is rushing off for the flight, she promptly decides a portfolio. However, before she leaves, she asks Jane to destroy all notes that were taken during that meeting due to privacy concerns. Since OUB is customer centric, Jane obliges, records the minimum needed to open an account, and invests Kate's monies in her the portfolio that she selected. Shortly after Kate has left for the United States, a pandemic caused national lockdowns and severe travel restrictions. Jane is forced to work from home. Fortunately, the pandemic caused the OUB to make some much needed IT upgrades, almost everything is stored in the cloud, and all Jane had to do was to bring home a case of client business cards, which her predecessor at OUB had left for her. As she browsed through the cards, she came across the card of an old frenemy, which reads, "Tracy Morgan, CFA Level I, expected completion 2021". Jane smiles, realising that she is ahead. Jane's happiness is shortlived, however, as she subsequently loses her job due to the pandemic. To make ends meet, she starts selling investment-linked plans as a freelancer by reaching out to the contacts in the case of business cards. Question 1 Discuss how Kate's circumstances will affect her allocation to each asset class and rate each allocation as low, medium, or high and, hence, recommend a portfolio that is most suitable for her. No calculations are required. (50 marks) Jane recently passed her CFA Level II exam and joined Overseas United Bank (OUB) as a wealth manager. On her first day at work, she meets with her supervisor, Jacky, CFA, who introduces Jane to his team of wealth managers, who are responsible for a combined $1 billion in assets. Most of the accounts the team services are advisory in nature, although the team also manages some monies on a discretionary basis. Before Jane joined OUB, she had already heard about its notoriously bad legacy information systems. Things got so bad that when OUB's equity research analysts make a revision to their recommendations, it takes a day before the updated reports are published on their system for customer access. So as to prevent its discretionary customers from being disadvantaged relative to those of competitors, Jacky instructed his team to check with the equity research team twice a day to check for updates, and to communicate updates immediately to the customers of their discretionary accounts. Jacky advises Jane to do this as well, and she complies. A week in, Jacky asks Jane to meet with Kate, a prospective client, on an urgent basis as Kate will only be in town for a short time and will be flying off the next day. Since this is Jane's first potential client, she is eager to onboard the client. So she hurriedly schedules a first meeting with Kate for the next morning and quickly puts together six "stock" portfolios. At their first meeting, Jane plans to recommend one of these portfolios to Kate. At the meeting, Jane notes that Kate is a 40-year-old property agent living in the United States, with investable assets of USD20 million. Of this amount, Kate needs about $2 million three months from now in order to make a housing downpayment. She is not a big spender but hopes to fund at least part of her annual expenses, which are highly predictable, from her investment portfolio for the next twenty years. She is concerned, however, about the general increase in the prices of goods and services over time. Furthermore, Kate would like a portfolio that can be liquidated quickly and at fair value. She strongly supports American businesses and would like her investments to primarily contribute to the overall growth of the US economy. Jane tells Kate that she has six portfolios that suit her needs and presents them to Kate: Expected Standard Portfolio Weights Asset class Return Deviation 1 2 3 5 Cash and equivalents 10% 10% 12.5% 5% 10% 5% US equities 11.00% 20.0% 20% 20% 12.5% 40% 45% 20% International equities 9.00% 18.0% 20% 5% 12.5% 10% 10% 0% US intermediate-term bonds 4.00% 7.0% 10% 15% 12.5% 10% 5% 30% US long-term bonds 4.75% 8.0% 10% 20% 12.5% 10% 15% 30% International bonds 5.00% 9.50% 0% 5% 12.5% 5% 5% 0% Domestic real estate 7.00% 14.0% 15% 20% 12.5% 15% 5% 5% Hedge funds 17.40% 7.20% 15% 5% 12.5% 5% 5% 10% As Kate is rushing off for the flight, she promptly decides a portfolio. However, before she leaves, she asks Jane to destroy all notes that were taken during that meeting due to privacy concerns. Since OUB is customer centric, Jane obliges, records the minimum needed to open an account, and invests Kate's monies in her the portfolio that she selected. Shortly after Kate has left for the United States, a pandemic caused national lockdowns and severe travel restrictions. Jane is forced to work from home. Fortunately, the pandemic caused the OUB to make some much needed IT upgrades, almost everything is stored in the cloud, and all Jane had to do was to bring home a case of client business cards, which her predecessor at OUB had left for her. As she browsed through the cards, she came across the card of an old frenemy, which reads, "Tracy Morgan, CFA Level I, expected completion 2021". Jane smiles, realising that she is ahead. Jane's happiness is shortlived, however, as she subsequently loses her job due to the pandemic. To make ends meet, she starts selling investment-linked plans as a freelancer by reaching out to the contacts in the case of business cards. Question 1 Discuss how Kate's circumstances will affect her allocation to each asset class and rate each allocation as low, medium, or high and, hence, recommend a portfolio that is most suitable for her. No calculations are required. (50 marks)

Answer rating: 100% (QA)

Kates circumstances and preferences can be analyzed to determine the most suitable portfolio allocat... View the full answer