Portfolio Management

Portfolio Management - Core

    Modern Portfolio Theory (CFA Level II Suggested Reading)

  • Risk averse nature of investors
  • Efficient frontier
  • Investor utility
  • Diversification and portfolio management
  • Security valuation and the identification of over/undervalued assets

Asset Pricing Models (CFA Level II Suggested Reading)

  • Combining the risk-free asset with the market portfolio on the efficient frontier can result in the highest risk-return trade-off for your clients
  • Capital asset pricing model (CAPM)
  • Securities market line (SML)
  • Critical assumptions that are made in CAPM and SML

Investment and Rebalancing Strategies (CFA Level III Suggested Reading)

  • Investment management is an ongoing process
  • Periodic assessment of a portfolio is required to ensure that it meets the objectives of the client
  • With movements in capital markets, the weights of the various asset classes in the portfolio may deviate substantially from the initial weights
  • Asset allocation strategies: do nothing, keep a constant proportion of stocks (risky assets) in the portfolio, keep a safety cushion, rapidly increase risks as the portfolio value rises

Asset Allocation Drivers (CFA Level III Suggested Reading)

  • Managing an investment portfolio requires ongoing decisions at the strategic and tactical levels The strategic drivers include forecasts of long-term expected returns, risk and correlations, while the tactical drivers include valuation, business cycle, liquidity, risk and technical indicators
  • The portfolio may be rebalanced using mechanistic asset allocation strategies such as buy and hold strategy, constant mix and constant proportion
  • The top-down and bottom-up approaches of portfolio management

Investor Psychology (CFA Level III Suggested Reading)

  • Psychology the study of investor psychology and behavioural finance helps create a more structured approach to investment
  • How to avoid making decisions based on insufficient analysis or information, to making decisions on loss-making stocks with the same disciplines used for profit making positions, etc
  • Recognition of investment errors and more rational approach to investment
  • Managing relationships between financial advisors and customers

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