PORTFOLIO MANAGEMENT

ROGELIO R. MAGANTE JR.

 CASE: Rogelio Magante Jr.
OVERVIEW:
• Single, 36 yrs. Old, 29 yrs. To retirement.
• Started working on Federal Express since July 2005.
• Salary of P180,000 per year pays all current expenses and leaves
P36,000 savings in 1 and ½ years.
• Has saved P173,000 in cash equivalent.
• Excellent health: employer-paid health insurance until December
2008.
• Has a life insurance with a face amount of P300,000.
• Taxes at 35%, to continue in the future.
• 4% inflation to continue in the future.
• Would accept a 3% real after-tax return on investment, with only
less than 10% annual downside risk.
• Would received a separation pay amounting to P144,000 on
December 2008.
 CASE: Rogelio Magante Jr.
Objectives:
• Return investment- by the time of retirement should earn
P561,000 annually on investment.
• Return requirements gross of tax and inflation is 10.8%.
By retirement, will have P1,307,588 assuming the
P36,000 & P173,000 earns 10.8% + P144,000 to be
invested in stocks + P300,000 insurance.
• To earn P561,000 annually, his P1,007,588 should yield
43% pa.
• Risk Tolerance – average to above average risk
tolerance – acceptable downside risk less than 10%
 CASE: Rogelio Magante Jr.
• Constraints
Multi-stage: 1st stage: before retirement
Time horizon
2nd stage: retirement
Minimal; salary meets expenses, no healthcare
Liquidity cost concerns, no planned needs for cash even
after Federal Express relocation.
Taxes 35% tax rate; careful tax planning is necessary.
Laws & bound by insider trading rules because of
regulations investment on stocks.
Stock shares dominate portfolio; exit strategy
Unique
for stock shares should be developed as soon
circumstances
as is practical and appropriate.
 CASE: Rogelio Magante Jr.
• Constraints

Unique
Relocation of hub on December 2008.
Circumstances
Unforseen
Possible things that may occur unpredictably.
events
 CASE: Rogelio Magante Jr.
Asset Projected Expected Asset Allocation (% weight)
Class return σ A B C D E
(%)
Cash 6.5 3 10 5 20 0 10
equivalents
Sunlife 11.97 2.02 20 25 30 25 30

Small cap 18.0 51.0 30 35 0 25 30

stocks
Venture 33.0 0 40 35 50 50 30
capital
Total 100 100 100 100 100
 CASE: Rogelio Magante Jr.
• ASSET ALLOCATION ALTERNATIVES

A B C D E

Projected 21.64% 21.16% 21.39% 23.99% 19.54%

return
Projected 14.06% 13.76% 13.9% 15.59% 12.70%
after-tax return
Real after-tax 10.06% 9.75% 9.9% 11.59% 8.70%
return
Expected σ 16% 1.85% 1.21% 13.25% 1.62%
 CASE: Rogelio Magante Jr.
• Acceptable worst-case return is 10% or lower

A B C D E

Expected 21.64 21.16 21.39 23.99 19.54

return
Expected σ 16 1.85 1.21 13.25 1.62

Worst case -32 -3.7 -2.42 -26.5 -3.24

return
(expected
return – 2σ)
CASE: Rogelio Magante Jr.