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What is a Portfolio? List out the Securities. What is an Investment? List out the characteristics of Investment What is Investment Management? What are the different types of Investors? What are the distinguish characteristics of Investors? Recap
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Portfolio Management
Unit – 1Session No.2
Topic: Portfolio Management Process
Session Plan• Recap the Previous Session• What is Portfolio Management Process?• What is Planning Step?– Four Stages in Planning Step– Investor’s Objectives and Constraints– Investment policy Statement– Capital Market Expectations– Strategic Asset Allocation
• What is a Portfolio?• List out the Securities.• What is an Investment?• List out the characteristics of Investment• What is Investment Management?• What are the different types of Investors?• What are the distinguish characteristics of
Investors?
Recap
What is a Portfolio Management Process?• Involves decisions an active or passive
investment approach• Relationships between various investment
alternatives• Investor is to hold an optimal portfolio• Three elements:– Planning Step– Execution Step– Feed back Step
Give elements of Portfolio management process.
What is a Portfolio Management Process?Planning Step• Understanding client
needs• Preparing an
investment policy statement (IPS)
Execution Step• Asset allocation• Security analysis• Portfolio construction
Feedback Step• Portfolio monitoring
and rebalancing• Portfolio measurement
and reporting
What is a Portfolio Management Process?
What is a Planning Step?• Investor related input factors – Investor Objectives– Constraints and, – Preferences
• Economic, Social, political consideration • To attainment of Investor’s Objectives
What is general objective of an investor? What kind constraints generally faced by an
investor?
What is a Planning Step?• Planning Step – Stages:
A. Identification and specifying the Investor’s Objectives and Constraints
B. Creating the Investment Policy StatementC. Forming Capital Market ExpectationD. Creating the Strategic Asset Allocation
What is a Planning Step?A.Identification and specifying the
Investor’s Objectives and Constraints• Investment Objectives – Desired
investment Outcomes• Constraints – Limitations (Internal &
External)• Internal – Client’s Specific Liquidity
needs, time and unique• External – Tax issues and legal &
regulatory requirements
What is a Planning Step?B. Creating the Investment Policy Statement• Governing document for all investment decision
making• Includes –• Brief client description• Purpose of establishing policies and guidelines• Duties and responsibilities of parties• Statement of investment goals, objectives and
constraints• Schedule of review• Performance measures• Guidelines for rebalancing the portfolio on feedback
What is a Planning Step?B.Creating the Investment Policy Statement• Elaboration of Investment Strategy – Clarifies
the basis for investment Decisions.• Three Approaches:
a. Passive Investment Approach – Does not react to changes in Capital market expectations
b. Active Investment Approach – Portfolio manager will respond to changing CME
c. Semi active , risk-controlled active or enhanced index approach
What is a Planning Step?C.Forming Capital Market Expectation• Long run forecast• Risk and return characteristics• Asset classes• Maximize expected return and minimize
risk
What is a Planning Step?D.Creating the Strategic Asset Allocation• Determine target asset class weights• Combine IPS and Capital market
expectations• Specification of risk control mechanism
(Single-period and Multi-period perspectives)• Single period – Advantage of Simplicity• Multi-period – Liquidity and Tax
considerations
Summarizing• What is the need for investment objectives?• Give an example for Internal and External
Constraints.• What is IPS?• How the investment strategies broadly
categorized?• What is the need for the forming capital
expectations?• What is Asset Allocation?
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