Portfolio Management

Portfolio processes

management involved in

comprises the

all

the and

creation

maintenance of an investment portfolio.

Purpose of Portfolio Management

Portfolio management primarily involves reducing

risk rather than increasing return

Portfolio Management
Market efficiency and portfolio management A properly constructed portfolio achieves a given level of expected return with the least possible risk Portfolio managers have a duty to create the best possible collection of investments for

each customers unique needs and

circumstances
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The Investment Process

A description of the process is: 1. Set investment policy Objectives Amount Choice of assets 2. Conduct security analysis Examine securities (identify those which are mispriced?) Use a. Technical analysis the examination of past prices for trends b. Fundamental analysis true value based on future expected returns

The Investment Process

3. Portfolio Construction Identify assets Choose extent of diversification 4. Portfolio Evaluation Assess the performance of portfolio 5. Portfolio Revision Repeat previous three steps

The Portfolio Managers Job

Begins with a statement of

investment policy, which outlines:

Return requirements Investors risk tolerance Constraints under which the portfolio must operate
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The Six Steps of Portfolio Management

1) 2) 3) 4) 5) 6) Learn the basic principles of finance Set portfolio objectives Formulate an investment strategy Have a game plan for portfolio revision Evaluate performance Protect the portfolio when appropriate

Integrated asset allocation

Investors assets, liabilities, and net worth Capital market conditions

Predictions

Investors risk tolerance function

Expected returns, risk, correlations

Investors objectives

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