Portfolio Management Activities Of JF Asset Management Ltd

Ten companies under consideration

The Asset management wing of JP operates nearly with AUD 500 million which needs to be invested across the pool of 10 stocks which are listed below. The purpose of this summary is to inform the management as part of aiding decision making with respect to portfolio management activities of JF Asset Management Ltd covering detailed information relating to the above companies as well as the overall market for portfolio decisions. The ten companies under consideration are:

We need to understand the performance of the company vis-à-vis the market index (S&P/ASX 200). We also need to look at correlation coefficient of each of these stocks with market index ASX 200.

Commonwealth Bank of Australia: It is one of the largest multinational bank in Australia. It has business span across Fiji, New Zealand and Australia. The company is a provider of all kind of banking services in the regions which it operates and one of the financial powerhouse in the region. The history of the bank goes down more than 100 years when bank started operation in 2011.

BHP Billiton:  The Company is one of the largest mining company of Australia. It is headquartered in Melbourne and as per market values it is the world’s largest mining company. BHP Billiton found that it needed an internal platform to manage all the platforms of its supply chain. An internal digital business platform enables enterprise employees and things to share and enhance digital processes and capabilities or to extend them for mutual benefit. This framework allows for combinations of business models, leadership, talent, delivery and IT infrastructure platforms that power digital business ecosystems. It also enables enterprises to integrate with other digital platforms.

CSL Limited: CSL limited is one of the famous companies of Australia which specializes business in the field of biotechnology. The company specializes in research, manufacturing and marketing many drugs in the field of biotechnology. Some of the main areas where company has product line includes blood plasma, vaccines and antivenom. The company was founded in the year 1916.

Wesfarmers: Wesfarmers, an insurance provider and retailer in Australia, built a new process-based solution on a CE-BPM in a private cloud to support both direct online sales and online sales of white-labeled products by its retail partners.  The company has a very strong retail network across the regions of Australia and one of the strongest retailer in the region.

Telstra: Telstra is a major network service provider in Asia/Pacific. Its capabilities were strengthened through its acquisition of Pacnet, which had a unique joint venture in China and an innovative SDN/NFV network called the Pacnet Enabled Network (PEN). Telstra offers managed SD-WAN using Cisco IWAN and is considering a second SD-WAN vendor. Telstra is also planning a vCPE appliance for multivendor virtual network functions (VNFs). Telstra’s multi-domain orchestration platform, Symphony, will initially cover the vCPE platform and evolve to cover both PEN and the vCPE platform. Telstra interconnects its PEN and MPLS networks to four cloud providers in 10 cities worldwide. Telstra uses network-to-network interface (NNI) agreements to extend its coverage, and has uniquely added instrumentation within its partners’ networks to ensure consistent performance of these connections. Telstra should be considered by organizations requiring strong network coverage in the Asia/Pacific region, but with less extensive requirements in other regions.

Performance of the companies vis-à-vis market index

Woolworths Limited: Woolworths Limited is one of the major Australian company which has revenue in the range of AUD$59 billion in 2016. The company has extensive retail services across the region of Australia and New Zealand. It is the largest take away liquor provider in Australia, the largest poker machine slot provider in the region and as per 2015 it is the 18th largest retailer in the world.

Woodside Petroleum: This Company is an Australian entity which has business interests in the field of exploration and production of oil. It is the largest operator in the region in the space of oil & Gas. This is a public company which is headquarter at Perth. The company started operation in 1954 and has reported revenues of AUD$ 4.49 billion in 2015 and profit of AUD$26 million. The owner of the company is Royal Dutch Shell which is one of the largest business maker in the field.

Transurban Group: It is one of the largest group which operates in the field of toll roads and road networks in Australia. The company has very strong business interest in the region of United States. As per market cap it falls under the top 20 companies of Australia. The company has been in business since the year 1996.

Westfield Group: The Company is one of the largest retailer in Australia and is also owner of many large shopping centers in the region. The company has now splited into two separate entities. Many large, international corporations immediately think of the California Silicon Valley area as a first choice location for an innovation center. This is where the greatest pool of tech talent, supporting services and intense culture is to be found. Examples of innovation centers in Silicon Valley established by nontechnology companies include Australia’s Westfield shopping mall group. However, there is a downside to going with the crowd, which is that it can be tough to attract and retain key talent in a highly competitive geography.

AGL Energy: It is a publically listed company which provides energy products and services to the economy of Australia. The company generates electricity and operates various thermal power stations. The company started operation as early as 1837 and now provides energy solution to more than 3.8 million residents in Australia.

Fortescue Metals Group: This Company managed to deliver near-real-time analytics from diggers and trucks to mining supervisors in the field on a standard mobile device, leveraging mobile and Internet of Things technology. Before this, changes couldn’t be made during mining supervisors’ eight- to 12-hour shifts. This new, digitalized way of working enabled FMG to: (1) Reduce the number of trucks needed to move in a specific volume from 120 to 80; and (2) move the unused trucks to a new mine, resulting in a capital expenditure savings of $200 million. In addition, the finance department made conservative estimates that 20 cents per ton was subtracted from costs, resulting in a savings of up to $30 million a year.

 As we can see from the above table it is CSL, TLS which are the best performers over the period under consideration while FMG has been the biggest loser.

Average Excess Returns in comparison to ASX 200

Correlation Table

The correlation table is indicative of the fact that CBA and BHP moves in very high correlation to the market while the lowest correlation to ASX 200 is provided by TCL, WFD, AGL, and CSL. It means that TCL, WFD, AGL and CSL will provide the strongest diversification to the whole portfolio. These are the set of companies which we needed to evaluate to get understanding of the market dynamics. It is very important to understand that these companies are very large multinational companies based out of Australia. The market dynamics of the region are very competitive and hence performance assessment and risk mitigation strategy need to be in place for proper optimization of returns for the portfolio. It is very important to understand that business dynamics are a function of how the industry is doing and hence a perspective on industry performance is very important too. It is also very important to fundamentally assess all the companies discussed above to get a fair idea of the performance of the whole constructed portfolio.

References:

• Faff, R., Gharghori, P., & Nguyen, A. (2014). Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market.International Review of Economics & Finance, 29, 627-638
• Dou, P. Y., Gallagher, D. R., & Schneider, D. H. (2013). Dissecting anomalies in the Australian stock market.Australian Journal of Management, 38(2), 353-373
• Di Iorio, A., & Faff, R. W. (2015). The effect of intervaling on the foreign exchange exposure of Australian stock returns
• Loh, L. (2013). Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis.Research in International Business and Finance, 29, 1-13.