Executive Summary
An investment portfolio is a model selection of investment instruments (stocks, bonds, ETFs) that meet a certain risk level and aim to achieve investment goals. Depending on the type or format of provision of ready-made investment portfolios, they may be aimed at achieving various goals: aggressive capital growth, capital growth combined with dividend payments, and receiving maximum dividend income. The provided investment portfolio is aimed at long-term investment in securities with a minimum level of risk. The portfolio includes companies that demonstrate stable growth of shares. The companies were chosen from different business areas, considering the forecast for the economy for the next ten years, also given in this portfolio. Thus, the risks are reduced to a minimum, and the capital itself is steadily exaggerated.
Introduction
Depending on the objectives of the portfolio, the composition may include stocks or ETF funds. For low- and moderate-risk portfolios, ETF funds comprise a significant portion of the portfolio. This is because a selection of ETFs tends to be more diversified and less volatile than individual stocks. Such portfolios are ideal for beginning investing or those who do not want to take on much risk. Portfolios with an aggressive focus include stocks and ETFs. Even narrowly focused ETF funds can achieve high returns with moderate risks with the right approach.
This approach allows one to include all the instruments one needs in a ready-made investment portfolio, including the most reliable positions and hedging vehicles, while maintaining high liquidity. For example, using a model portfolio that includes bond and gold ETFs, one can instantly get the cash from the sale of fund units on the exchange instead of actual raw materials or bonds. This portfolio that has been composed is aimed at minimal risk and long-term exaggeration of capital. The type of this portfolio is a dividend portfolio. It is focused on passive income and minimal growth of securities value.
Forecast of the Economy Over the Next Ten Years
According to the forecasts of international financial organizations, in the next ten years, the growth rate of the world economy will be stable – at the level of 3% per year. The OECD, World Bank (W.B.), and International Monetary Fund (IMF) do not include a recession in their baseline forecasts. However, the probability of a crisis by 2030 is still high (International Monetary Fund, 2021). The world economy develops with cyclical fluctuations, with each cycle lasting about ten years. According to IMF, the developing countries, in the perspective of 10-12 years, will reduce the gap with the developed countries, increasing their share of world GDP from 38% to 48% in 2030 (2021). Thus, the developing countries will be the driver of global economic growth and consumer demand. According to the estimates of W.B. and IMF analysts, the world’s fastest-growing economy will be India.
According to the W.B. and IMF estimates, by 2030, the list of the world’s largest economies will not change significantly (The World Bank, n.d.). The leadership will belong to those countries that are already winning the world competition in technology and innovation and are leaders in the research and development of new technologies. Digitalization, artificial intelligence (AI), and robotization will be the main drivers of global economic growth by 2030 (OECD, 2021). Economic growth will be associated with full automation of processes, increased productivity, and fundamentally new business models.
New segments related to creative fulfillment and leisure time will be created, and new types of demand for atypical goods and services will emerge. New technologies will also influence the competitive environment of the world. As A.I. and robots are brought into production processes and services, labor cost will become less of a factor in determining a country’s competitiveness, and technological competence, on the contrary, will become more critical. Technologies such as big data will help to optimize production processes, reduce operating costs, and develop new products and services. The size of the economy and the well-being of each country’s citizens in 2030 will depend on how much is invested in innovation over the next ten years with how much intensity.
The first of the threats to the global economy until 2030 is the aging of the population and the slowdown of productivity growth in developed countries. This factor will be the main threat to the economic growth of developed countries by 2030. Avoiding stagnation will be able to those countries that will rapidly increase investment in innovation and radically increase labor productivity. The problem may be solved by full automation of processes and artificial intelligence. According to OECD, A.I.’s contribution to global GDP by 2030 could be $15.7 trillion, which exceeds the current GDP of China and India combined (OECD, 2021).
The second threat is protectionism and trade wars. Historical statistics indicate that global economic growth slows during protectionism periods and accelerates during global trade liberalization. Since the 2008 crisis, the global economy has entered a phase of protectionism. According to the IMF report, the number of discriminatory trade measures aimed at protecting domestic producers in G20 countries quadrupled from 2009 to 2016 (2021). In 2018, the confrontation between the U.S. and China intensified; a trade war began between the countries. This trend is expected to continue over the next 3-5 years (International Monetary Fund, 2021). Countries that have entered into trade wars will seek to emerge victorious from them; tariff barriers will grow. Increased uncertainty about trading partners’ actions will negatively impact global investment, and economic growth will be under pressure. At the same time, an imminent rollback to liberal trade principles is predicted in the longer term. This will be necessary for maintaining positive trade volumes between countries and further growth of the global economy.
Another challenge for the economy will be the end of the low-interest rates and quantitative easing period. This factor carries three main risks for the world economy. Firstly, it is the persistence of low prices for commodity assets, which are the source of income for most developing countries. Secondly, it is the devaluation of their national currencies and capital outflows from the developing markets, an increase in the cost of servicing dollar debts, and defaults on the bonds of developing countries. The third risk is the global financial crisis and global economic recession. Commodity prices are traditionally denominated in U.S. dollars. The strengthening of the dollar, with other factors remaining unchanged, contributes to decreasing commodity asset prices. This, in turn, will lead to the reduction of income of the countries-exporters of raw materials and the weakening of their national currencies.
The fall of stocks and bonds of developing countries can trigger a new wave of financial crisis. After all, with the rising cost of servicing foreign debts, the ability to support economic growth in developing countries will be severely limited. The slowdown of growth rates in developing countries and providing 70-80% of the growth of the world economy may be a harbinger of a global recession. It is essential to understand that the “era of cheap money” has come to an end. The costs of the corporate sector will grow, which will hurt the profitability of projects and manufacturers’ investment plans. Moreover, less investment means more prerequisites for slower economic growth. Finally, a significant risk is the global crisis of capitalism.
The shrinking middle class in the U.S., and the accumulated debts of both the corporate sector and households and governments worldwide mean that further economic growth within the capitalist mode of production is in doubt. Corporate profit margins are falling, and costs, including loan servicing, are rising. To maintain profitability, businesses are forced to cut investment and research spending. If the trend continues, it will lead to a global reduction in investment demand and, consequently, a slowdown in economic growth.
Portfolio
All of the companies in the portfolio will have an equal share of stock. The first company selected for investment is Stellus Capital Investment Corporation. It is a closed-end, non-diversified, externally managed investment management company. The organization is regulated as a business-developing corporation under the Investment Company Act of 1940. The company’s venture objective is to maximize the complete return to shareholders in the form of current income and capital gains. This is accomplished by investing primarily in private middle-market companies between $5.0 million and $50.0 million (U.S. Security and Exchange Commission, n.d.). Investment is made through a first lien, second lien, unitranche, and mezzanine debt financing and related equity investments.
The second company to enter the portfolio is the Global X SuperDividend REIT ETF. The exchange-traded fund seeks investment performance that broadly matches the price and yield, before fees, of the Solactive Global SuperDividend® REIT index. The fund invests at least 80% of its total assets in the underlying index securities. Investments are also made in American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) based on the underlying index securities (The World Bank, n.d.). The benchmark index tracks the results of REITs, which are some of the top-earning REITs in the world, as measured by Solactive AG, the vendor of the benchmark index.
Another organization, OMEGA Healthcare Investors, Inc., is a real estate investment trust (REIT). The fund invests in and provides financing to long-term care businesses. OMEGA manages healthcare facilities in the United States that independent healthcare companies manage. Omega Healthcare Investors, Inc. is engaged in financing the long-term care industry, focusing on skilled nursing facilities. Its portfolio consists of long-term leases and mortgages. The company was founded on March 31, 1992, and is headquartered in Hunt Valley, MD.
The following company in the portfolio, Philip Morris International, Inc., is a holding company that manufactures and sells cigarettes, tobacco, and nicotine-containing products. It operates in the following geographic segments: European Union, Eastern Europe, Middle East, Africa, South, and Southeast Asia, East Asia and Australia, Latin America, and Canada. The firm was established by Philip Morris in 1847 and is based in New York. (IMF, 2021). Philip Morris International, or PMI, is the world market leader in tobacco and tobacco products. Today many known cigarette brands are produced in the company’s factories.
The next company in the portfolio is ONEOK, Inc. It is a diversified corporation whose energy services business is the gathering, processing, transportation, storage, and marketing of natural gas. It is a leading midstream service provider and owner of one of the largest liquefied natural gas systems. The company has been ranked by Fortune 500 Business Magazine as one of the most successful organizations for several years (U.S. Security and Exchange Commission, n.d.). Its customers include commercial and municipal businesses and marketing associations. Its infrastructure includes processing plants, fractionators and storage systems in Central and North America. The main market centers where the products are delivered are in Kansas and Texas.
Another similar company, Enterprise Products Partners L.P., is an American oil production company headquartered in Houston, Texas. Enterprise Products Partners L.P. operates thousands of kilometers of pipeline, six platforms, and 25 refineries. The turning point in the business was the IPO in 1998 (IMF, 2021). The initial public offering of Enterprise Products Partners allowed the company to show phenomenal growth of assets by 4,755% within 14 years (U.S. Security and Exchange Commission, n.d.). The next company in the portfolio is SLR Investment Corp. This closed-end investment company has chosen to be treated as a business development company. It provides customized debt financing solutions to U.S. middle-market companies and intermediaries for working capital financing, acquisitions, refinancing, and growth capital requirements.
The eighth company in the portfolio, AT&T, is the largest telecommunications company in the United States and the world’s largest telecommunications operator by revenue. AT&T provides cellular service, mobile and home Internet, pay satellite and cable television, and subscriptions to HBO and HBO Max streaming video services. AT&T is headquartered in Dallas, Texas, but AT&T operates worldwide in North America, Latin America, EMEA, Asia-Pacific, and the Caribbean (IMF, 2021). However, AT&T gets its primary revenue from its business in the United States. AT&T employees work worldwide, but most are based in Mexico and other Latin American countries.
The following company, the Invesco QQQ Trust ETF, is among the oldest successful ETFs on the planet. The index basket closely replicates the NASDAQ 100 index (IMF, 2021). The shares of this fund are the easiest way to invest in the most prominent American companies. Today, the Invesco QQQ Trust ETF is priced at $358.01 (U.S. Security and exchange commission, n.d.). Invesco is managed by Invesco PowerShares and headquartered in Wheaton, Illinois. The issue was 447.8 million shares. The fund has over $90 billion under management, which ranks among the leaders in this indicator.
The next company, Alibaba, the Chinese Internet giant, operates in the field of e-commerce. A significant part of its income comes from operations on the world’s largest B2-B trading platform. It also actively invests in cloud computing infrastructure, gaming, and media. The business is well diversified. Alibaba’s IPO was held in September 2014 (Freeman, 2017). Since then, the company has not paid dividends to shareholders, reinvesting profits in business development. The IPO raised $21.8 billion, which was a complete record at the time (IMF, 2021).
Newmont Mining Corporation is a U.S. mining company, one of the world’s largest gold producers. William Boyce Thompson founded the company in 1916 in New York as a diversified holding company (Freeman, 2017). Today, the Newmont Mining Corporation is engaged in developing ore deposits in various world countries – both independently and through the ownership of shares in the authorized capital of industry companies. The corporation has active mines in Nevada (USA), Indonesia, Australia, New Zealand, Ghana, and Peru. The next company, Merck & Co., is an international pharmaceutical company. It develops, manufactures, and distributes vaccines and drugs. It also publishes non-profit medical journals and reference books. The company’s products are sold under the Merck Sharp & Dohme brand in all countries except the U.S. and Canada. Another company in the portfolio, Broadcom Limited, is a prominent American company established in the 1960s as a division of Hewlett-Packard (Freeman, 2017). It specializes in developing, manufacturing, and distributing products based on analog and digital semiconductor technology. The company’s developments are designed for wireline infrastructure, wireless communications, corporate data storage systems, and industrial needs. The company has more than 5,000 patents (The World Bank, n.d.).
Qualcomm is an American company specializing in wireless communication technologies and systems on a chip (SoC). The company’s products are used in smartphones, networking and broadband equipment, home appliances, electronics, and other devices. The company produces some of the most popular SoCs and modems, which may increase in the coming years due to the new processors’ growth in performance metrics and functionality (Freeman, 2017). The Snapdragon family of processors is currently used by the vast majority of leading smartphone manufacturers. The company owns several patents on advanced wireless communication standards, which creates a growth driver in the spread of 5G. The combination of patent rights to established wireless standards makes Qualcomm one of the primary beneficiaries of the 5G super-cycle, preserving the scalability of previous-generation standards.
Johnson & Johnson is an American corporation consisting of three large consumer and pharmaceutical products and medical equipment blocks. It includes more than 250 subsidiaries in more than 60 countries (Freeman, 2017). Johnson & Johnson manufactures hygiene products, first-aid drugs, and medical equipment. The holding company has 250 companies with three lines of business: pharmaceuticals, consumer products, and medical devices (U.S. Security and Exchange Commission, n.d.). Johnson & Johnson products are sold in 175 countries.
The next company in the portfolio, Nio, was established in 2014, with its global headquarters in Shanghai and R&D centers in Hefei, Beijing, San Jose, Oxford, and Munich. Deliveries of Nio electric vehicles are limited to the Chinese market (as of early 2021). However, the company has announced plans to deliver in Europe as early as the second half of 2021. A feature of Nio’s operations is to offer customers a battery as a service. Customers have the opportunity to buy an electric car at a lower price but pay a monthly subscription fee for battery rental.
The following company, Salesforce.com, is an American company, the developer of the CRM system of the same name, provided to customers exclusively on the SaaS model. Under the Force.com name, the company provides a PaaS platform for independent application development. Under the Database.com brand – a cloud database management system. CRM stock traded at $115.90 per share in March 2020, when the WHO announced the coronavirus pandemic (IMF, 2021). Since then, Salesforce stock has been up 135.46% and now trades at $272.90.
Vanguard S&P 500 is an ETF that tracks the S&P 500 index of the U.S. stock market. The quotation of this security exactly repeats the movements of the leading U.S. market index. VOO is a quality choice for investors seeking overall capitalization and diversification (Freeman, 2017). The fund contains more than 500 securities. This fund can serve as a building block for many portfolios, especially for minimizing expenses. The fund competes with SPY and IVV, which track the same index. Also, all three funds have minimal costs. Technically, the ETF is part of Vanguard’s more extensive portfolio, including S&P 500 mutual funds classes, which have virtually no impact on VOO investors.
The next company is the Vanguard Total Stock Market ETF. The fund’s investment strategy is to follow the CRSP US Total Market Index. This index includes almost 100% of the U.S. stocks one can invest in, stocks of large-, mid-, small- and micro-cap companies traded on the NYSE and NASDAQ (The World Bank, n.d.). C.F. Industries Holdings, Inc. manufactures and distributes nitrogen and phosphate fertilizer products in North America and foreign markets, the final company in the portfolio. It is currently among the stock’s growth leaders. The company’s stock has been up 5.37% in the past 24 hours.
Conclusion
Therefore, all of the above companies make a decent and reliable investment portfolio. Its advantage is that the risk to the capital is minimal, which was the main task. Trading in the securities market has always been characterized by stability and growth of stocks. Therefore, it is ideal to invest the gift money that the institution has received. With this investment portfolio, one can predict that the college will earn a steady passive income in the future and be able to spend that money on infrastructure improvements.
References
Freeman, M. (2017). Atlas of the world economy. Routledge.
International Monetary Fund. (2021). Fault lines widen in the global recovery. International Monetary Fund. Web.
OECD. (2021). More efforts are needed to boost trust in A.I. in the financial sector says OECD. OECD.
The World Bank. (n.d.). Global Economic Prospects. The World Bank. Web.