6.

0 Actual Asset Recommendations

This section will discuss the actual asset allocation for each of the asset segments that

were part of the recommended asset allocation strategy as discussed in chapter 5.

6.1 Local Equity

Consideration in the actual allocation of assets in the equity portfolio are

a. Sufficient diversification over the different segments of the market

b. Liquidity of the individual equities or funds. Not all equities in Indonesian are

particularly liquid. It would be recommended to stay within the realm of liquid

shares only. The risk otherwise would be that James once he wants to liquidate

will be forced to do so at a significant cost.

c. Growth potential of each individual equity; the growth potential would be

analyzed through the current P/E ratio, and how this P/E ratio compares with

peers. Also some real analysis might be needed with regards to business

opportunity and market growth for the particular industry a company is operating

in and how well that particular company is positioned to take advantage of those

opportunities.

d. Risk of each individual equity, measured through its beta

e. Correlated risk profile of the total equity portfolio (correlation of risk)

Insert more detailed analysis of particular equities in week 7

As mentioned in Chapter 5 is would be recommended to consider the use of a fund

manager, as managing an equity portfolio would require James to define his own trading

strategy and/or execute is consistently. Also since he does not have any technical skills or

tools to monitor and make investment decisions, he’s more likely to make a higher return

on his investment despite the cost he has to pay for the service.

There is a number of quality fund manager operational in Jakarta that have equity fund

available. Following is a comparison of the different fund features of these providers;

Fund Fund name Investment Past 12 month Past 5 year Fees

Manager parameters performance performance
Fortis
Schroders
Manulife
Dana Reksa

Based on the above details it is recommended to James to choose either … or …

because ….

6. 2 Local Fixed Income

Consideration in the actual allocation of assets in the fixed income portfolio are

a. Sufficient diversification over the different segments of the market,

b. Liquidity of the individual bonds; some corporate bonds in Indonesia are highly

illiquid, which can be a concern unless the duration is fit to hold to maturity; if

this is not the case James might have a risk of not being able to sell the bond
 quickly when needed. It needs to be remarked here that the illiquidity of bonds is

often rather a function of lack of seller, than a function of a lack of buyers.

c. Yield of each individual bond

d. Credit risk of each individual bond, measured through the rating that is attached to

it by the local rating agencies. Since yields on corporate bonds in Indonesia are

already quite attractive, there seems no need to buy anything below investment

grade.

e. Correlated risk profile of the total bond portfolio. (correlation of risk)

Insert more detailed analysis of particular bonds in week 7

As mentioned in Chapter 5 is would be recommended to consider the use of a fund

manager, as managing a bond portfolio might be hard due to the relative steep

requirement on minimum lot sizes on each particular bond, which might make it hard for

James to create his own well diversified portfolio.

There is a number of quality fund manager operational in Jakarta that have bond fund

available. Following is a comparison of the different fund features of these providers;

Fund Fund name Investment Past 12 month Past 5 year Fees

Manager parameters performance performance
Fortis
Schroders
Manulife
Dana Reksa
 Based on the above details it is recommended to James to choose either … or …

because ….

Property

The primary consideration on the property side would be to buy a house or an

apartment. There is currently many apartment complexes under construction in Jakarta

and a concern would be that due to continued high volumes of construction that might

actually lead to oversupply there would be concern whether buying an apartment would

provide the optimal capital appreciation over time. A house and particularly ownership of

land in a strategically picked location will likely be more effective in that respect.

Therefore a house would the preferred solution.

Foreign Equity

Consideration in the actual allocation of assets in the foreign equity portfolio are

f. Sufficient diversification over the different geographies.

g. Liquidity of the individual equities or funds. This will be less of a problem than it

is with the local equities, as the range of liquid foreign equities is much broader.

h. Growth potential of each individual equity; the growth potential would be

analyzed through the current P/E ratio, and how this P/E ratio compares with

peers. Also some real analysis might be needed with regards to business

opportunity and market growth for the particular industry a company is operating

in and how well that particular company is positioned to take advantage of those

opportunities.

i. Risk of each individual equity, measured through its beta

 j. Correlated risk profile of the total equity portfolio (correlation of risk)

Insert more detailed analysis of particular equities in week 7

As mentioned in Chapter 5 is would be recommended to consider the use of a fund

manager, as managing an equity portfolio would require James to define his own trading

strategy and/or execute is consistently. Also since he does not have any technical skills or

tools to monitor and make investment decisions, he’s more likely to make a higher return

on his investment despite the cost he has to pay for the service.

There is a many quality fund manager operational in different territories that offer have

equity fund available. Following is a comparison of the a number of different fund

features of these providers;

Fund Fund name Investment Past 12 month Past 5 year Fees

Manager parameters performance performance

Cash

The cash and money market instruments are recommended to be invested in high

quality banks as well as in money market mutual funds. The money market mutual funds

offer the advantage that capital gains and interest income is exempted from withholding

tax, which is charged on deposits or money market instruments that are directly held be
an individual investor. For this reason investing through a mutual fund might give higher

expected returns.