Introduction We decided to invest in seven companies

Standard deviation of portfolio return

Systematic + Unsystematic = Total Risk

(excluding gold), as too many would overly complicate our portfolio, and there is a limit to diversification, as shown in the graph. In choosing companies to invest in, the first thing we did was to look at the sectors as a whole. There were sectors that, due to the

Unsystematic risk that can be diversified

current economic climate, we felt it prudent to not invest in.

Market-risk (cannot be diversified away)

One such sector was the entertainment industry, which has not done well throughout the recession. The past year has seen a dramatic fall in film and music revenues, with DVD and CD sales dropping consistently. Despite the rise of

Number of holdings

sites such as iTunes which allows people to buy songs for as little as 79p, illegally downloading represents an even cheaper option and when funds are low in the recession, many people have traded in scruples for saving pennies. The print industry is also in decline. Most newspapers upload full versions of their articles online, and thus people access the content this way for free instead of buying hard copies. Also, with the negatitivty News Corporation received last Summer following the phone hacking scandal, the newspaper industry as a whole has taken a hit. So for these reasons, we thought it wise to refrain from investing in the entertainment industry. Another sector we thought, in line with our risk-averse tactics, should be avoided, was the banking industry, which has been hit hard by the financial crisis, resulting in shrinking investment subject to market volatilities and uncertainties as well as redundancies. Following the scandal of Kweku Adoboli, the UBS rogue trader, the bank incurred a huge loss of $2.3 billion for unauthorised trading. Goldman Sachs, one of the largest investment banks, experienced a 58% drop in fourth quarter earnings and chances of obtaining safe and consistent earnings from investment in this industry are slim. Banks involvement in the unsustainable Eurozone sovereign debt continuously jeopardises returns on investment in their shares, with an increasing of proportions of assets got written off, and contagion effect on its peripheral countries. Share prices for some of the major UK banks, such as Barclays, HSBC, Lloyds and RBS, are still worth much less than their values before crisis. By comparison, security and protection has been doing stably regardless of financial climate. According to the outlook produced by the IFSEC, the budgets for security provided in the means of various technology, such as surveillance systems are increasing on 2011 despite the gloomy global

economy(5). The predictions by Trend Micro suggest the data breach and cybercriminal attacks would also add to the necessity of security protection (7). The market for this is hence growing sustainably. In regards to the telecommunications sector the incumbent main players in the industry have been relatively unscathed by the current crisis. Firms consider telecommunications as vital to growth and many have looked to technology to cut costs. The emergence of competitors to the Apples iPhone in the last few years has made it an extremely competitive industry sparking market share wars between the top players on further innovation amidst Smart phones. Fights over patents and copyright issues have become common, most recently Googles takeover of Motorola to gain more pulling power in legal battles through increased number of patents. In a recession, competition is even more important because it allows a product to truly stand out, and as such the wave of R&D in the telecommunications sector has aided its solid growth throughout the crisis. Another sector that displayed healthy returns throughout the passage of financial turmoil was the pharmaceutical sector. This is partly because demand for health tends to be price inelastic because medicine and healthcare are still necessities that people cannot forgo. Another reason it is a fairly safe investment is because pharmaceutical research is not much damaged by banks pulling out as much of its research and development is funded by retained earnings from profits derived from patent rights, thus we expect investment in the pharmaceutical sector would not only outperform the banking sector but also act as a quasi-safe-haven for our portfolio. Pharmaceutical companies have a heavy reliance on export. Many big pharmaceutical companies, while may be listed in one or more markets, have businesses in many other countries. Therefore the inclusion of the sector would also serve to diversify our portfolio internationally. Lastly, population in OECD countries are ageing and people live longer with chronic disease are relatively inevitable facts, regardless of the economic outlook. From a long-term perspective, therefore, it is worth noting that pharmaceutical sector would serve not only as a hedge against current financial turmoil but a longterm strategic investment. Generally, the retail sector experience a tough year in 2011 and will continue to face a tough year ahead in 2012, with the spill-over effects still proceeding from the year before, as the Eurozone debt crisis gets worse. The UK has very high sales per square metre and that has been one of the main strengths in the UK retail sector for years. However, online shopping through the Internet has been putting an increasing pressure on every UKs retail sales per square metre. When the intensity of UK sales per square metre falls, the ability to afford expensive properties reduces. Hence, the other key factor that constantly challenges the UK retail sector is the ability of the retailers to make wise decisions quickly to start closing under-performing stores. However, in the words of the Financial Times, data suggests a hint of spring in retail and the Mervyn King admits that whilst times will be hard, retail growth is certainly not impossible. Furthermore, events such as the Olympics and the Euros will surely give the retail sector a boost in sales of items such as alcohol and sporting

memorabilia. Furthermore, employment in the retail sector could take a turn for the better this year as rising labour costs in China are now causing companies to recruit labour from within the UK.

Thus, as we wanted to invest in companies that were seen as risk-free as possible, the sectors of pharmaceuticals, security and telecommunications appealed to us greatly. Our first point of investment was gold, which are described in Financial Times as held up as a weather vane for risk appetite and thus in line with our
jewelry industrial applications investment purposes

risk-averse dollar ahead has of

tactics. Recently, the gone

gold bonds as the bastion of safe haven, but due to being unable in the dollar, gold represents a

strong second best, Financial Times writing, Even after a fall of nearly 20 per cent from its September peak, gold is still the best performing major commodity over the year so far. Although gold prices have fallen recently from an all-time high since last September and was described in Breakout, an online video as overbought, it still represents a good alternative and as such invested 27% of our wealth in it, because it was the closest thing to avoiding market risk.