Z plc is a long-established company with interests mainly in retailing and property development. Its current market capitalisation is £750 million. The company trades exclusively in the UK, but it is planning to expand overseas either by acquisition or joint venture within the next two years. The company has built up a portfolio of investments in UK equities and corporate and government debt. The aim of developing this investment portfolio is to provide a source of funds for its overseas expansion programme. Summary information on the portfolio is given below.

Approximately 25 per cent of the UK equities are in small companies' shares, some of them trading on the Alternative Investment Market. The average return on all UK equities, over the past 12 months, has been 12 per cent. On US equities, it has been 12.5 per cent.
Ignore taxation throughout this question.
Required
Discuss the advantages and disadvantages of holding such a portfolio of investments in the circumstances of Z plc.

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Average % return over the last 12 months Value million 23.2 94 5.3 11.4 3.2 Type of security UK equities UK corporate debt Long-term government debt Three-month Treasury bonds 15.0 13.5 8.2 7.4 6.0