Getting the maximum return possible is the main focus in any market to every investor. But along with return, there comes risk. And in managing risk, every investor tries to keep it at minimum while trying to adhere to the targeted return. In doing so, investors have found that diversification of investment through portfolio investment can meet the investment goals in a better way than investing in a single security.
Therefore, to make the maximum return at a given risk preference level, it is important to design and create a portfolio that would provide the optimum return for per unit of risk borne. Here I have constructed an optimum portfolio with different scenarios such as ...view middle of the document...
Step 1: Selecting Companies
* The target Set
To select the companies I have analyzed all the companies in the Dhaka Stock Exchange based on fundamental & technical analysis. I selected 16 securities from 8 different sectors based on the following criteria-
* Fundamental strength of the securities-To understand the fundamental attractiveness, I focused on EPS, PE ratio, Dividend yield, profit growth etc.
* Market performance-I used price behavior, growth, risk, return etc criteria to judge the market performance of a security.
* Liquidity-Liquidity refers to the ease of conversion of a security in to cash. Liquidity can be measured by trade volume to free float ratio, market depth and price continuity.
Sector | Name of the Companies | EPS | NAV | P/E | Dividend yield (%) | Year Price on 2012 |
Bank | Islami Bank | 3.84 | 27.10 | 11.15 | 1.87 | 42.8 |
| Southeast Bank | 1.89 | 22.65 | 10.58 | 7.50 | 20 |
| National Bank | 1.01 | 15.74 | 21.88 | 2.71 | 22.1 |
Cement | Heidelberg Cement | 22.85 | 111.49 | 11.58 | 1.89 | 264.7 |
| Meghna Cement | 6.28 | 33.81 | 16.69 | 2.39 | 104.8 |
Engineering | Aftab Auto | 5.36 | 52.65 | 29.93 | - | 85 |
| Singer Bd | 9.99 | 51.74 | 16.43 | 7.62 | 164.1 |
Food & Allied | BATBC | 65.69 | 117.22 | 12.78 | 5.96 | 839.5 |
| AMCL (Pran) | 6.53 | 53.37 | 19.60 | 2.42 | 122 |
Fuel & Power | LINDE BD | 31.70 | 140.75 | 17.32 | 5.65 | 549.1 |
| Summit power | 3.17 | 19.24 | 16.81 | - | 53.3 |
Pharmaceutical & Chemical | Square Pharma | 9.76 | 51.57 | 24.31 | 1.05 | 168.6 |
| Reckitt Benckiser | 27.16 | 78.89 | 26.52 | 2.08 | 720.2 |
| ACI Limited | -6.98 | 132.86 | - | 5.67 | 141.2 |
Textile | Square Textile | 6.17 | 39.07 | 16.67 | 1.75 | 102.8 |
NBFI | Lanka Bangla | 1.57 | 31.07 | 37.58 | - | 59 |
* Final Selection for Portfolio
Finally I selected the following 8 securities among 16 of different sectors.
Sector | Name of the Companies |
Bank | Islami Bank |
| Southeast Bank |
Engineering | Aftab Auto |
Food & Allied | BATBC |
Fuel & Power | Linde Bd |
| Summit Power |
Pharmaceutical & Chemical | Square Pharma |
Cement | Heidelberg Cement |
Reason for selection:
Islami Bank Bangladesh Ltd-It is one of the most safe and fundamentals and liquid stock in our bourses. Though most of the Bank stocks generated negative return in the last few years due plunging share market, Islami Bank generated a positive return (1.46%) with around 11.71% risk. Islami Bank is one of blue chip stock in our country.
Southeast Bank Ltd- The stock produces high dividend yield. Price earnings ratio is also quite low compared to the market P/E or sector P/E. Most importantly the stock is trading under NAV value. If the market improves within a short time the stock is supposed to generate a good percentage of return. The stock generated negative return with 13.68% risk.
Aftab Automobiles- The stock bit risky (δ=21.29%) but generated 3.43% return in the last...