Cfa Review Course The Portfolio Management Process Sandy G 1227785626204616 8

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Cfa Review Course The Portfolio Management Process Sandy G 1227785626204616 8

  1. 1. By:- Yogesh dundoo (29) Angad singh (1) Aditya (20) Khaleem (38) Construction of a Portfolio
  2. 2. What is a Portfolio.? <ul><li>A portfolio is an appropriate mix of collection of investments held by institutions or a private Individual. </li></ul><ul><li>The assets in the portfolio could include stocks , bonds , options , warrants , gold certificates , real estate , futures contracts . </li></ul>FOR MORE INFO...
  3. 3. What is Portfolio management <ul><li>Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. </li></ul>
  4. 4. Strategy used by the portfolio managers <ul><li>Many strategies have been developed to form a portfolio. </li></ul><ul><li>equally-weighted portfolio </li></ul><ul><li>An equally weighted portfolio would have the same amount of money invested in each unique stock. Therefore, the number of shares of each stock would be different, with more shares of cheaper stocks </li></ul><ul><li>capitalization-weighted portfolio </li></ul><ul><li>Long-term financing used by a firm </li></ul>
  5. 5. Strategy used by the portfolio managers <ul><li>price-weighted portfolio </li></ul><ul><li>optimal portfolio (for which the Sharpe ratio is highest) </li></ul><ul><li>. Minimize Risk & Maximizing Return </li></ul>
  6. 6. Building a portfolio from specifications Matching the client with the markets
  7. 7. A dynamic flow <ul><li>Investor objectives and constraints </li></ul>Economic & social conditions Portfolio policies, strategy Capital market ex-pectations Build the optimal portfolio Investment results. Portfolio Performance Is the world changing? Good enough?
  8. 8. Top - down <ul><li>Three step process </li></ul>A.Gilles Economic & social conditions Capital market ex-pectations Macroeconomy, big picture Three step process Three step process Industries, sectors Company & Stock
  9. 9. The Investor <ul><li>If she wants high growth, high returns … portfolio policy will be aggressive. Buy stocks and venture capital, risky assets. </li></ul><ul><li>If she wants safety and security,… portfolio policy will stress low-risk assets, invest in bonds and cash. </li></ul>A.Gilles Investor objectives and constraints Portfolio policies, strategy Style: ACTIVE, trade often Style: PASSIVE. Just buy and hold, for years
  10. 10. The Investor <ul><li>Who should be an aggressive investor, by necessity? </li></ul><ul><li>(who wants money to grow fast) </li></ul><ul><li>Who should stick to low-risk assets, invest in bonds and cash. </li></ul><ul><li>(who doesn’t want any losses?) </li></ul>A.Gilles Investor objectives and constraints Portfolio policies, strategy Style: ACTIVE, trade often Style: PASSIVE. Just buy and hold, for years
  11. 11. Optimize or maximize? <ul><li>The investor’s objectives could be aggressive: thus maximize the RETURNS. </li></ul><ul><li>If the investor wants to be safe, you minimize the RISK. </li></ul><ul><li>Most investors are in between, they want maximum return for no risk. </li></ul><ul><li>Unrealistic. Dreamers. </li></ul>A.Gilles Build the optimal portfolio
  12. 12. Study the results <ul><li>Good enough? Maintain policy </li></ul><ul><li>Not good? Rethink policy. Not necessarily “change” … just evaluate if still relevant. </li></ul><ul><li>Measure performance: as good as expected? Better than expected? Better than the market as a whole? Better than other investors? </li></ul>A.Gilles Investment results. Portfolio performance. Investment results. Portfolio performance.
  13. 13. What the client can buy Investable instruments
  14. 14. Risk-return tradeoff A.Gilles Risk-return tradeoff Risk-return tradeoff Low risk . . . . . . . . . . . . . . . . . High risk High .. .. .. .. Low Returns in Percent % T-Bills Bonds Stocks Futures Venture capital New ideas ! ? ? ? ?
  15. 15. IF Client is conservative <ul><li>Pension fund </li></ul><ul><li>University endowment </li></ul><ul><li>Hospital retirement fund </li></ul><ul><li>Teachers’ benefit fund </li></ul><ul><li>Cooperative’s savings </li></ul><ul><li>Community chest </li></ul><ul><li>Savings & Loan association </li></ul>A.Gilles
  16. 16. Pension fund segments A.Gilles Looks conversative to me ...
  17. 17. Client is Daring? <ul><li>Dashing, debonaire </li></ul><ul><li>Foolish, spendthrift </li></ul><ul><li>Totally aggressive </li></ul><ul><li>Young and restless </li></ul><ul><li>Dabbles in futures for thrill </li></ul>A.Gilles
  18. 18. Aggressive <ul><li>High-flying stocks target 100% returns, junk bonds yield over 20%, futures zoom ... </li></ul>A.Gilles
  19. 19. A.Gilles All kinds of things T-Bills Bonds Stocks Real estate Venture cap Collectibles Futures Biotech Dot.Coms Low risk . . . . . . . . . . . . . . . . . . . . High risk High .. .. .. .. Low Returns in Percent % ? ? ? ?
  20. 20. Long-term expectations <ul><li>May not hold true, in short-term </li></ul><ul><li>Highest to lowest returns... </li></ul><ul><ul><li>Venture Capital </li></ul></ul><ul><ul><li>Stocks </li></ul></ul><ul><ul><li>Real Estate </li></ul></ul><ul><ul><li>Bonds </li></ul></ul><ul><ul><li>Money-market / cash </li></ul></ul>A.Gilles
  21. 21. Major Markets, 1986-’94 Pacific Basin Exam question: why is it wise to confine your search to the efficient frontier? 10 15 20 25 30 35 40 45 % St.Dev. Rate of return % 18 16 14 12 10 8 6 Canada USA Europe Italy Spain Japan Australia U.K. France World Europe & Pacific “ Ideal” assets in this sector are elusive, hard to find. There’s plenty down here that you don’t want to buy...
  22. 22. www.fundmetrics.com <ul><li>Review course for Chartered Financial Analysis exams, levels 1, 2, 3. Manila, Jakarta, Sydney </li></ul><ul><li>Review courses in Manila for US CPA review </li></ul><ul><li>Customized training courses for banks, brokers, insurance companies, etc. </li></ul><ul><li>Development of e-Learning modules for corporate training. </li></ul><ul><li>See www.fundmetrics.com </li></ul>Advertisement

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