Investment Strategy and Portfolio Management

Seminar paper from the year 2010 in the subject Business economics - Investment and Finance, grade: A, California State University, East Bay, language: English, abstract: Portfolio management majorly involves two types of investing: passive and active. In passive portfolio management the investment manager tracks an index passively by trying to replicate the performance of a benchmark index. This benchmark index is chosen by the portfolio manager based on certain criteria. In active portfolio management the investment manager tries to beat the benchmark index by outperforming the index. This is achieved by superior stock selection and superior weight allocation (Grinold & Kahn, 2000).
Norris Capital's aim is to achieve significant growth in the value of its investments. Currently the company is also facing a lot of competition from depository institutions, mutual funds and other investment options. The company needs to achieve higher growth and superior returns in comparison to its counterparts. Hence the company should actively manage majority of its portfolio in order to achieve superior returns. Further the company should diversify the asset base and invest in assets of developing nations in order to improve returns. UK is a developed nation and the scope of growth in developed economies is much less as compared to the developing economies (Obstfeld, 2009).
Company expected outflows in cash after adjusting for the inflows is expected to be 3% of the total assets. In order to keep up with this outflow, the company should have a minimum of 3% of the total assets in liquid assets like cash and short- term investments. Currently company has 10% of its total investments in cash and short term investments so it is in a safe situation with cash flows. Money market instruments, commercial deposits, bank safe deposits are some of the liquid assets which can be liquidated immediately to get cash in order to meet any urgent requirements. Company needs to maintain sufficient amount of liquidity in its portfolio in order to manage the outflows which are expected to occur. If the company doesn't invest in such instruments it may have to go for distressed sale of other assets and can incur losses.