PERSONAL FINANCE INVESTMENT IN QATAR: INVESTING QR 1000000
Abstract
This article describes a personal finance project which entails the investment of QR 1000000 in a short time frame, from 1 March to 27 May 2016. We first define personal finance and establish the five steps of a personal financial planning process, which entails: (1) assessment of the individual’s financial situation; (2) determination of the individual’s financial goals; (3) creation and details of the financial plan, based upon the determined goals; (4) execution of the aforementioned plan; (5) monitoring and reassessment of the plan. For each one of the five stages, we carry out the required research, take the necessary decisions and perform the calculations. Such measures allow us to adequately document and support the monetary investment, which is carried out in a theoretical portfolio. In the end, we evaluate the results of our theoretical portfolio investment and compare them to the stated objective. The appendix includes the print screens which substantiate the asset prices used in the calculations.
Keywords: personal finance, planning, portfolio investment
Index Page
Abstract 2
Index Page 3
Investment Portfolio 7
Returns Outcomes 11
References 15
Appendix 16
Managing Personal Finances
Personal finance is the financial management performed by an individual to budget, save, and spend money over his lifetime, considering financial risks and future life events, such as marriage, rearing children, retirement, and estate planning. To properly plan for personal finances, the individual has to consider the adequacy to his needs of a series of banking products (such as checking or savings accounts), investments (for example, in the stock market or bonds) and even insurance products (Personal Finance, 2016).
An individual must have personal finance education, also known as financial literacy, to make rational decisions concerning finance throughout his life. This knowledge will allow for the process of personal financial planning take place. Such plan usually involves five steps (Personal Finance, 2016):
Goal Setting: There can be a number of different goals, such as “retire at the age of 60”, “have a net worth of Euro 1500000”, “purchase a house and pay all its debt in five years”. Such financial goals help to direct financial planning.
Plan Creation: This plan details how to accomplish the goals. I will point out measures such as reduce expenses or invest in a portfolio of diversified assets.
Execution: This step often requires discipline and perseverance, as it is considered to be difficult to always and systematically steer the investment portfolio in the desired direction, especially under financial hardships and unexpected events.
Monitoring and Reassessment: The financial plan must be scrutinized for possible tunings or revisions.
For this project report, the assessment will be simplified in the following manner: we assume that the individual has one million Qatari Riyals (QR 1000000) freely available to invest and no liabilities. Moreover, for the sake of this project, his income and expenses are not relevant – suffice to state that his expenses are not larger than his income, so the individual will not drain from his fortune of QR 1000000 to pay for his personal expenses. We also assume that the person is 28 years old and away from retirement age.
For the goal setting, we have to consider project instructions that indicate that the investment period is decided as from 01 March 2016 to 27 May 2016. For this short time, a simple goal would be to increase the individual's net worth. Anything above QR 1000000 will be considered successful.
Concerning the plan creation, we find two main axes: the goal of increasing the net worth of QR 1000000 and project constraints that indicate the following selection of investments:
a. Stock Market Investment. (National/International)
b. Bank deposits. (Only Non-Islamic Qatari Banks)
c. Gold & Other Metals.
d. Bond / Debenture Investment. (International Market)
e. Forex Market. (Currencies)
Furthermore, project instructions indicate there must be a choice from three to five investments in the above categories. Some useful rules of thumb (Investing - Personal Finance, 2016) indicate that a very common recommendation in the United States is a three-fund portfolio which consists of:
US Total Stock Market Index Fund
Total International Stock Market Index Fund
Total Bond Market Index Fund
Adapting such theoretical portfolio to the Qatari reality, we must work on, as well as project guidelines and the short period of investment, we decided to invest on:
Selected stocks from the Qatar Stock Exchange, as a replacement of the US Stock Market Index Fund
Currencies in the Forex Market, to allow for international exposure (standing for the International Stock Fund)
International bond investments.
The final two steps in the personal financial planning (namely, execution and monitoring and reassessment) will be carried out in the next portions of this report. At this point, we will also use another steadfast rule (Investing - Personal Finance, 2016) to define which should be the percentage investment in bonds.
It is not prudent for anyone to be invested 100% in stocks or 100% in bonds. Historically, equity investments are more volatile than bonds. On the other hand, bonds do not offer the same protection towards inflation as stocks do. A mix of the two most important asset classes is a prudent and safe measure to protect investments.
A traditional rule indicates that an individual may subtract his age from 100 or 110, allocate that percentage to stocks, and the remainder to bonds. In the case of our theoretical person, aged 28, we can have 28% in bonds and the rest in stocks. As the Forex Market have characteristics not dissimilar to that of the stock market, we can decide on the following allocation:
We allocated one-quarter of the 72% total investments in stocks (72% X 25% = 18%) totaling 18% in currencies in the forex market. The selection of stocks, currencies and bonds will take place in the next sections.
Investment Portfolio
As stated in the previous section, "Managing Personal Finances," our portfolio allocation of selected stocks is 54%. As a measure of diversification, we choose from the five companies which were the top holdings at the end of 2015 of the Qatar Investment Fund. This fund is a well-known, respected fund, traded on the London Stock Exchange. Its primary objective is to capture the opportunities for growth offered by the Qatari economy (Investing for growth, 2016).
Qatar Investment Fund’s top investments at the end of 2015 were as follows:
Qatar National Bank S.A.Q. (QNBK), according to Yahoo Finance (2016), QNBK “provides commercial and Islamic banking products and services in Qatar and internationally. The company operates through four segments: Corporate Banking, Consumer Banking, Asset and Wealth Management, and International Banking.” Furthermore, “as of January 31, 2016, the company operated through 635 branches and approximately 1,390 ATM machines. Qatar National Bank S.A.Q. was founded in 1964 and is based in Doha, Qatar.”
Masraf Al Rayan Q.S.C. (MARK), according to Yahoo Finance (2016), MARK “engages in Islamic banking, financing, investing, and brokerage activities in Qatar and internationally. It operates through four segments: Corporate Banking, Retail Banking, Asset Management, and International Operations segments.” Moreover, “the company operates through 13 branches in Qatar. Masraf Al Rayan (Q.S.C.) was incorporated in 2006 and is based in Doha, Qatar.”
As we can see, both companies are Qatari banks in similar business. As QNBK is much more traditional (founded in 1964, vs. MARK in 2006), we will choose QNBK as a safer play, and avoid investing in two companies in the same business segment.
Industries Qatar Q.S.C. (IQCD), according to Yahoo Finance (2016), “engages in petrochemical, fertilizer, and steel businesses primarily in Qatar. () The company was founded in 1969 and is based in Doha, Qatar. Industries Qatar Q.S.C. is a subsidiary of Qatar Petroleum.”
Gulf International Services Q.S.C., (GISS), as described by Yahoo Finance (2016) “engages in the insurance, aviation, catering, and drilling businesses in Qatar and internationally. It offers a range of insurance and reinsurance services; and helicopter transportation and maintenance services, emergency medical services, and ancillary equipment. The company also provides catering, soft facilities management, and manpower services; and contract land and offshore drilling services to oil and natural gas exploration and production companies. Gulf International Services Q.S.C. was founded in 2008 and is headquartered in Doha, Qatar.”
We can clearly notice that both IQCD and GISS are both plays in the oil business, one a Qatari major business sector. As a measure of risk minimization and in accordance with recent trends of the global oil industry – which favors the profitability of oil service providers over traditional sectors, such as petrochemicals – we decide to choose GISS over IQCD.
Qatar Electricity & Water Company Q.S.C. (QEWS). This last company is described by Yahoo Finance (2016) as “engaging in the generation of electricity and desalination of water in Qatar. It has power generation capacity of 5,432 MW; and water desalination capacity of 258 MIGD. The company was founded in 1990 and is based in Doha, Qatar.”
We select QEWS as our third choice of investment in stocks. All of the three companies (QNBK, GISS, and QEWS) are traded on the Qatar Stock Exchange, are liquid (as they offer daily quotes on their share price), and, as prime selections of the Qatar Investment Fund, we can infer that they are safe investments. Furthermore, they are all traded in Qatari Riyals, hence do not expose us to foreign exchange risk.
We considered that we invested a third of our QR 540000 in each QNBK, GISS, and QEWS, as a measure of diversification. All of these investment transactions took place on 1 March 2016. The screen prints with the price evidence for the stocks, all from Yahoo Finance, are located in the Appendix of this report.
Qatar National Bank (QNBK) – we invested QR 180000, each share price was purchased at QR 136.10, and hence, we bought 1322 shares. A small amount of QR 75.80 remained.
Gulf International Services (GISS) – we invested QR 180000, each share price was acquired at 36.25, so we bought 4965 shares. A small amount of QR 18.75 remained.
Qatar Electricity & Water Co (QEWS) – we invested QR 180000, each share price was purchased at 193.90. Therefore, we acquired 928 shares. QR 60.80 was left over.
All the leftovers amounted to QR 75.80 + QR 18.75 + QR 60.80 = QR 155.35. We purchase a single share from QNBK at QR 136.10, remaining QR 19.25. Total stocks purchased:
QNBK: 1323 shares, at QR 136.10, totaling QR 180060.30
GISS: 4965 shares, at QR 36.25, totaling QR 179981.25
QEWS: 928 shares, at QR 193.90, totaling QR 179939.20
Remainder of QR 19.25
Grand total of QR 540000
As for currencies in the Forex market, we decided to purchase Euros, as we wagered that this currency had a higher upside than the US Dollar or the British Pound. The Euros were also purchased on 1 March 2016 at a rate of QR 3.9587 per Euro 1. As per the previous chapter, we invested QR 180000, and hence we purchased Euro 45469. There was a remainder of QR 1.87. The evidence for this price of QR 3.9587 came from the Euro to Qatari Riyal exchange rate history (2016), and the print screen is in the Appendix.
Finally, as for the International Bonds, we had available QR 280000 to invest. We decided to invest in a UK Government 30 year bond, UK Government 4.25% Treasury Gilt 2046, purchased at GBP 143.310 (DMO, 2016), with the print screen in the Appendix.
In order to buy these bonds, we had to purchase each GBP on 1 March at QR 5.0818 (British Pound to Qatari Riyal exchange rate history, 2016). In other words, we converted QR 280000 into GBP 55098 (remainder of QR 2.98), and this pounds purchased 384 bonds at GBP 143.310 each, remaining GBP 66.96.
After all these transactions on 1 March 2016, our portfolio is:
The Qatar Riyals and the British Pounds are remainders of financial transactions and will remain in the portfolio until their total conversion in Riyals.
Returns Outcomes
Reviewing our personal financial plan from section “Managing Personal Finances", in this section we will now finish the execution phase (which started in section "Investment Portfolio") by selling the assets. Afterward, we will proceed to the monitoring and reassessment phase, recalling that for the goal setting, we had chosen to increase the individual's net worth. Thus, any wealth above QR 1000000 will be considered successful.
First, we sold our stocks on April 28 at their closing prices:
QNBK – QR 144.00 per share
GISS – QR 34.75 per share
QEWS – QR 208.80 per share
Yahoo Finance (2016) provided all of this information, and the print screens can be found in the Appendix. Comparing to our original buying prices, we can make the following table:
As we can see, our portfolio made money on QNBK and QEWS but lost money on GISS. However, the overall result was a purchasing price of QR 539980.75 and a selling price of QR 556812.15. In other words, the gains at QNBK and QEWS offset the losses at GISS, and the overall result was a 3.12% increase.
Second, we had a Forex investment of Euro 45469, purchased on 1 March, and we sold it on 29 April 2016 at 4.167 (as with all other evidence, the screens that support this transaction are found in the Appendix). The results are found in the following table:
Our Forex investment yielded 5.26%, an excellent result for the short time frame (from 1 March to 29 April 2016).
Lastly, we had invested in UK Bonds, a UK Government 4.25% Treasury Gilt 2046. This investment was particular in the sense that it offered us both Forex exposure (as it was denominated in British Pounds, GBP) as well as debt exposure, in the form of the government bond itself.
These bonds had been purchased at GBP 143.31 each. Their selling price was GBP 140.87 (29 April, evidence in the Appendix). As such, in principle, we had a loss of this investment of 1.73%. However, the Qatar Riyal devalued against the British Pound in the same period: we had purchase GBP at QR 5.0818 and sold on 29 April at QR 5.3184: a gain of 4.66%, which offset the loss of 1.73%. As shown in the table below:
As we can see, we made an investment of QR 279656.74 in 384 bonds (denominated in GBP). These were sold, converted in Qatari Riyals which resulted in QR 287693.96, an increase of 2.87%.
Lastly, we had some remainder amounts in Qatari Riyals and British Pounds (QR 24.10 and GBP 66.96). These British Pounds were sold on 29 April 2016 yielding a gain. All of these aggregate transactions – which conclude the execution portion of our financial plan – are shown in the table:
As we can see, our investment of QR 1000000 resulted in QR 1034355.65, a gain of 3.44% between 1 March and 29 April 2016.
The fifth and last portion of our personal finance plan involves Monitoring and Reassessment, in which the financial plan must be scrutinized for possible tunings or revisions. We have to recall now that our time frame ends on 27 May 2016, and that our goal was to increase the net worth of the individual above QR 1000000. As we reached our goal in advance (29 April), the conservative approach we favor is to put the proceeds of QR 1034355.65 in a money market account, or any other safe investment in a local bank, to yield some interest in the remaining month.
Conversely, were we looking at a longer time frame – such as a year or beyond – we would go back to the initial steps of our personal finance plan and rebalance the portfolio in a fitting manner, with a different investment goal. As the investment goal stands at increasing the net worth above QR 1000000, and we were very successful with a 3.44% return on investment, our surest bet is to deposit the QR 1034355.65 in a very safe local investment for the remainder of the investment period, until 27 May 2016.
References
British Pound to Qatari Riyal exchange rate history. (n.d.). Retrieved May 02, 2016, from
http://www.exchangerates.org.uk/GBP-QAR-exchange-rate-history.html
Euro to Qatari Riyal exchange rate history. (n.d.). Retrieved May 02, 2016,
Investing - Personal Finance. (n.d.). Retrieved May 02, 2016, from
https://www.reddit.com/r/personalfinance/wiki/investing
Investing for growth. (n.d.). Retrieved May 02, 2016, from
http://www.qatarinvestmentfund.com/
Personal Finance. (n.d.). Retrieved May 02, 2016, from
https://en.m.wikipedia.org/wiki/Personal_finance
UK Debt Management Office (DMO). (n.d.). Retrieved May 03, 2016,
Yahoo! Finance. (n.d.). Retrieved May 03, 2016, from
http://finance.yahoo.com/q/hp?s=QEWS.QA Historical Prices
Appendix
QNBK.QA – Qatar National Bank
Purchase on 01 March 2016, 136.10
QNBK.QA – Qatar National Bank
Sell on 28 April 2016, 144.00
QEWS.QA – Qatar Electricity & Water Company
Purchased 1 March 2016 at 193.90,
QEWS.QA – Qatar Electricity & Water Company
Sold 28 April 2016 at 208.80
Gulf International Services GISS.QA
Purchased 1 March 2016 at 36.25
Gulf International Services GISS.QA
Sold 28 April 2016 at 34.75
Euro to Qatari Riyals: purchased on 1 March at QR 3.9587,
Euro to Qatari Riyals: Sold in 29 April at QR 4.167
UK Government 4.25% Treasury Gilt 2046, purchased on 1 March 2016 at GBP 143.310
UK Government 4.25% Treasury Gilt 2046, Selling price on April 29 at GBP 140.87
GBP purchased on March 1 at QR 5.0818
GBP sold on 29 April at QR 5.3184
