Global Investments- Portfolio Building Essay Example | Topics and Well Written Essays - 2000 words

Global Investments- Portfolio Building - Essay Example Modern Portfolio Theory developed by Nobel Prize winner Professor Harry Markowitz demonstrates how the risk-adjusted returns of a portfolio can be improved by diversification of investments across assets with varied correlations. This paper takes this theory philosophy, and it will be the foundation in which portfolios will be constructed (Riley, 21-38). Considering that investment management involves much of art as science, qualitative considerations will play a critical role in this portfolio development (Reilly, 47). Precise distinctions among asset classes is subjective, therefore no clear distinctions exists. Returns and correlations are difficult to forecast, though historical data may provide a guide, which will be modified to incorporate structural changes and compensate for anomalous periods. Taking into account the prevailing market conditions, this paper makes the below judgment on market returns and their associated risks. Mixing the above assets will produce a real return of 11.5%, with an expected growth of 6.3% annually, and a standard deviation (risk) of 10.2%. Available resources for current operations will utter the purchase power of assets, and this pushes this impacts investment policy. The above mix of assets is defined by their differences expected in their response to economic conditions, among them price inflation, interests rates and economic growth. Over the past few decades, most of the University’s endowment funds invested highly on US marketable securities, and were there core factors in their investments. Taking into account the prevailing economic times, this paper finds that it will be wiser to commit some of it assets to developed markets outside the United State with a percentage of 6.5% and a standard deviation of 14.3%. These markets are given preference taking into account the globalization of trade, where these markets operate