THE ESSENCE OF THE INVESTMENT PORTFOLIO AND INVESTMENT QUALITY OF SECURITIES, The essence of the investment portfolio, the purposes and principles of its formation - Investments


As a result of studying this chapter, the student must:


o essence of the investment portfolio;

o goals and principles of forming an investment portfolio;

o investment qualities of securities;

be able to

o evaluate the value and profitability of securities;


o conceptual apparatus within the framework of this chapter;

o methodology for assessing the value and profitability of securities.

8.1. The essence of the investment portfolio, the goals and principles of its formation

Investment portfolio companies refer to a set of real and financial investment objects, formed in accordance with the investment objectives of the investor, designed to carry out investment activities and treated as an integral management object.

The main goal of forming an investment portfolio is to ensure the implementation of the company's investment strategy by selecting the most effective and safe investment projects and financial instruments.

To achieve these goals, the formation of the company's investment portfolio should be based on certain scientific principles, including:

o implementation of the investment and general enterprise strategy;

o portfolio matching to investment resources;

o Optimization of the ratio of profitability and risk;

o Optimization of the ratio of profitability and liquidity;

o Manageability of the portfolio.

The purpose of the investment portfolio should be clearly correlated with the overall goal of the commercial organization and be aimed at achieving it.

Specific objectives of forming an investment portfolio can be:

o Increasing business value;

o expansion of the scope of activities;

o profit maximization and minimization of investment risks;

o ensuring sufficient liquidity of the investment portfolio;

o improving the financial condition of the enterprise, etc.

The investment portfolio consists of two parts: a portfolio of real investments (a portfolio of real investment projects) and an investment portfolio of securities (financial instruments). In practice, depending on the size of the enterprise, financial condition and investment policy, the investment portfolio can consist of one part - a portfolio of real investments or a portfolio of financial instruments.

It should be noted that these portfolios significantly differ from each other both in essence, in direction, on their basis of tasks, and on other grounds. Let's consider these features in more detail.

Real investment portfolio (portfolio of real investment projects). Real investment is the basis of the enterprise's investment activity, directed:

o for new construction, reconstruction and technical re-equipment of production, modernization, acquisition of new machinery and technology;

o providing the enterprise with working capital;

o purchase of intangible assets.

It follows that the formation and implementation of the portfolio of real investments is primarily aimed at the development of the enterprise (expansion of the sphere of activity, increase in the cost of business) due to the transfer of the enterprise to the innovative way of development, increasing the volume of production (services, works), quality improvement products, increasing the efficiency of using all factors of production, thereby ensuring an increase in cash flow, primarily from operating activities. This is the first advantage of a portfolio of real investments compared to a portfolio of financial investments. The second advantage is that real investments provide a higher level of profitability and higher protection against inflation in comparison with financial investments.

The shortcomings of the portfolio of real investment in comparison with the portfolio of financial investments include:

o higher capital intensity;

o higher risk of moral aging of real investment objects;

o more complex process of managing a portfolio of real investments;

o lower liquidity.

When selecting investment projects and including them in the portfolio of real investments, you must adhere to the following conditions:

o compliance of the investment project of the main enterprise strategy;

o high economic feasibility of the feasibility of implementing an investment project;

o availability of investment resources for the implementation of the investment project;

o the optimal relationship between the profitability and the risk of the investment project.

Realization of investment projects included in the portfolio of real investments will contribute to the development of the enterprise and ensure its sustainable financial condition in the future.

It should be noted that the portfolio of real investments and the investment portfolio of securities are closely interrelated, especially the sources of their formation.

They should unite one - the focus on the implementation of the company's main objectives for the near and more distant future.

Investment portfolio of securities.

The securities portfolio, as a rule, is formed from various types of securities: shares (common and preferred), bonds, as well as derivative securities. Derivative securities include warrants, options, forans, futures, rights.

Depending on the criteria for forming a portfolio, the following types of investors can be identified: strategic, portfolio and speculative.

Strategic investors acquire large packages of securities to secure ownership of a particular enterprise, participate in the management and control of the issuing company, etc. The return on equity values ​​is of less interest to them.

Portfolio investors are interested in the aggregate of the yield of securities. Portfolio investors, depending on the combination of state and non-government securities, can be divided into timid, moderate and aggressive. A shaky investor forms his portfolio mainly at the expense of government securities, a moderate investor seeking to obtain a stable income with minimal risk is approximately equal to the ratio of state and non-government securities, while in the portfolio of an aggressive investor non-state securities predominate (the most risky ones of them - corporate).

Speculative investors acquire securities only for subsequent sale after a certain period of time. These investors tend to get the maximum profit in a short period of time. To implement their strategy, they have to acquire risky shares of newly created companies.

Based on the type of investor, the corresponding type of securities portfolio is formed.

There are three types of portfolio, depending on the investment properties of their securities:

1) growth portfolio;

2) income portfolio;

3) portfolio of growth and income.

Growth portfolio is formed from the shares of companies, which are expected to increase the exchange value of their shares.

The purpose of this type of portfolio is to increase the market value of the portfolio along with the receipt of dividends. However, dividend payments are made in the normal size, so it is the rate of growth in the exchange value of the aggregate of shares in the portfolio, and determine the types of portfolios included in this group.

There are three subtypes of the growth portfolio:

1) portfolio of aggressive growth;

2) portfolio of conservative growth;

3) medium growth portfolio.

The portfolio of aggressive growth is aimed at maximizing capital growth. This type of portfolio includes shares of young fast-growing companies. Investments in this type of portfolio are risky enough, but at the same time they can bring the highest income.

The portfolio of conservative growth is the least risky among the portfolios of this group. It consists mainly of shares of large well-known companies, characterized by a low but steady rate of growth in the exchange value. The composition of the portfolio remains stable for a long period of time. A portfolio of this type is aimed at preserving capital.

The portfolio of medium growth is a combination of investment properties of portfolios of aggressive and conservative growth. This type of portfolio includes, along with reliable securities purchased for a long period, risky equity instruments, whose composition is periodically updated. At the same time, an average capital gain and a moderate degree of investment risk are provided. Reliability is provided by securities of conservative growth, and profitability - by securities of aggressive growth. This type of portfolio is the most common portfolio model and is very popular with investors who are not prone to high risk.

The income portfolio is focused on obtaining a high current income - interest and dividend payments. The income portfolio is composed mainly of income shares, characterized by a moderate increase in the exchange value and high dividends; bonds; other securities, the investment property of which are high current payments. The peculiarity of this type of portfolio is that the purpose of its creation is to obtain an appropriate level of income, the value of which would correspond to the minimum degree of risk acceptable to a conservative investor. In connection with this portfolio investment objects are highly reliable instruments of the stock market with a high ratio of a stably paid interest and a market value.

There are two subtypes of the income portfolio:

1) a regular income portfolio;

2) a portfolio of income securities.

The regular income portfolio is formed from highly reliable securities and brings in an average return with a minimum level of risk.

The portfolio of income securities consists of high-yield corporate bonds, securities that yield high returns with an average level of risk.

The portfolio of growth and income is formed to avoid possible losses in the stock market, both from a drop in the exchange value, and from low dividend or interest payments. One part of the financial assets that make up this portfolio brings the owner the growth of capital value, and the other - income. The loss of one part of the income can be compensated by the increase of the other.

There are two subtypes of this portfolio:

1) a dual-use portfolio;

2) a balanced portfolio.

The portfolio of dual-purpose includes paper that brings its owner a high income with the growth of invested capital. In this case, we are talking about securities of dual-purpose investment funds. They issue their own shares of two types: the first bring a high return, the second - capital gains. The investment characteristics of the portfolio are determined by the significant content of these securities in the portfolio.

A balanced portfolio implies a balance of not only income, but also the risk that accompanies transactions with securities, and therefore in a certain proportion consists of securities with fast-growing exchange value and high-yield securities. The portfolio can include high-risk securities. As a rule, this portfolio includes ordinary and preferred shares, as well as bonds. Depending on the market conditions, most of the funds are invested in certain stock instruments included in this portfolio.

Modern practice shows that a portfolio that is uniform in content does not provide a standard return to the portfolio holder. That is why the diversified portfolio, a portfolio with the most various securities is more widespread.

The current state of the financial market makes it necessary to react quickly and adequately to its changes, so the role of managing the investment portfolio of securities increases dramatically and lies in finding the boundary between liquidity, profitability and risk that would allow choosing the optimal portfolio structure.

In practice, there are two ways to manage a portfolio of securities - independent and trust (trust).

The first way is to perform all managerial functions related to the stock portfolio, its holder independently.

The second way is to transfer all or most of the portfolio management functions to another legal entity in the form of a trust (trust transactions with securities). Commercial banks (their trust departments) can act as such trustee (trust); trust companies created by banks; investment banks and funds.

With an independent way of managing a portfolio of securities, a special structural unit (fund department) is created at the enterprise. The functions of this department include:

o Definition of goals and portfolio type;

o Development of strategy and tactics of portfolio management;

o Operational planning of the movement of securities within the limits of the set goals;

o implementation of operations related to portfolio management;

o analysis and identification of factors affecting the composition, structure and dynamics of the movement of securities entering the portfolio;

o adoption and implementation of practical solutions aimed at adjusting the composition and structure of the stock portfolio.

For companies with a small stock portfolio, the functions of the fund department can be performed by one qualified specialist.

In the second way, the portfolio holder trusts to manage it to another legal entity (banks, trust companies) on the basis of a trust management agreement. With the help of such a contract (trust), it is possible to manage the stock portfolio of joint-stock companies, insurance companies, extra-budgetary funds, charitable and public organizations (when they place temporarily idle funds).

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