Course Content
PORTFOLIO MANAGEMENT: AN OVERVIEW
This topic is covered in study session 18 of the material provided by the Institute. After reading this chapter, a student shall be able to: a. describe the portfolio approach to investing; b. describe the steps in the portfolio management process; c. describe types of investors and distinctive characteristics and needs of each; d. describe defined contribution and defined benefit pension plans; e. describe aspects of the asset management industry; f. describe mutual funds and compare them with other pooled investment products.
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Portfolio Approach to Investing
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Portfolio Management Process
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Types of Investors
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Pension Plans
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Aspects of Assets Management Industry
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Pooled Investments
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PORTFOLIO RISK AND RETURN: PART I
This topic is covered in study session 18 of the material provided by the institute. After reading this chapter, a student shall be able to: a. calculate and interpret major return measures and describe their appropriate uses; b. compare the money-weighted and time-weighted rates of return and evaluate the performance of portfolios based on these measures; c. describe characteristics of the major asset classes that investors consider in forming portfolios; d. calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data; e. explain risk aversion and its implications for portfolio selection; f. calculate and interpret portfolio standard deviation; g. describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated; h. describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio; i. explain the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line.
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Return Measures
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Money Weighted vs. Time Weighted Rate of Returns
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Risk Aversion
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Measures of Risk
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Portfolio Risk
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Minimum Variance Portfolio
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PORTFOLIO RISK AND RETURN: PART II
This topic is covered in study session 18 of the material provided by the institute. After reading this chapter, a student shall be able to: a. describe the implications of combining a risk-free asset with a portfolio of risky assets; b. explain the capital allocation line (CAL) and the capital market line (CML); c. explain systematic and nonsystematic risk, including why an investor should not expect to receive an additional return for bearing nonsystematic risk; d. explain return-generating models (including the market model) and their uses; e. calculate and interpret beta; f. explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML); g. calculate and interpret the expected return of an asset using the CAPM; h. describe and demonstrate applications of the CAPM and the SML. i. calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha.
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Risky and Risk-free Asset’s Portfolio
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Capital Allocation Line/ Capital Market Line
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Systematic and Non-Systematic Risk
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Return Generating Models
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Calculation and Interpretation of Beta
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CAPM and SML
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Application of CAPM
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BASICS OF PORTFOLIO PLANNING AND CONSTRUCTION
This topic is covered in study session 19 of the material provided by the institute. After reading this chapter, a student shall be able to: a. describe the reasons for a written investment policy statement (IPS); b. describe the major components of an IPS; c. describe risk and return objectives and how they may be developed for a client; d. distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance; e. describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets; f. explain the specification of asset classes in relation to asset allocation; g. describe the principles of portfolio construction and the role of asset allocation in relation to the IPS. h. describe how environmental, social, and governance (ESG) considerations may be integrated into portfolio planning and construction.
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Investment Policy Statements
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Risk-Return Objectives
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Investment Constraints
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Asset Allocation
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ESG Considerations in Portfolio Management
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INTRODUCTION TO RISK MANAGEMENT
This topic is covered in study session 19 of the material provided by the institute. After reading this chapter, a student shall be able to: a. define risk management; b. describe features of a risk management framework; c. define risk governance and describe elements of effective risk governance; d. explain how risk tolerance affects risk management; e. describe risk budgeting and its role in risk governance; f. identify financial and non-financial sources of risk and describe how they may interact; g. describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods.
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Risk Management
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Risk Management Framework
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Risk Governance
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Risk Tolerance
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Risk Budgeting
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Sources of Risk
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Measuring & Modifying Risk Exposure
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TECHNICAL ANALYSIS
This topic is covered in study session 19 of the material provided by the institute. After reading this chapter, a student shall be able to: a. explain principles of technical analysis, its applications, and its underlying assumptions; b. describe the construction of different types of technical analysis charts and interpret them; c. explain uses of trend, support, resistance lines, and change in polarity; d. describe common chart patterns; e. describe common technical analysis indicators (price-based, momentum oscillators, sentiment, and flow of funds); f. explain how technical analysts use cycles; g. describe the key tenets of Elliott Wave Theory and the importance of Fibonacci numbers; h. describe intermarket analysis as it relates to technical analysis and asset allocation.
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Technical Analysis Explained
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Technical Analysis Charts
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Trend, Support, Resistance Lines, and Change in Polarity
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Common Chart Patterns
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Technical Indicators
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Cycles
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Inter-Market Analysis
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Portfolio Management
About Lesson

LOS C requires us to:

explain uses of trend, support, resistance lines, and change in polarity.

 

 

Trend

a.  A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.

b.  The trend is a very important thing to analyze for technical analysts. A lot of their decisions and positions are based on trends.

Two Aspects of Trends: Uptrends and Downtrends

Uptrends

a.  The uptrend line is the trend line for the stocks or securities showing upwards movement in the prices of the stocks.

b.  The main feature of the uptrend line is that every following low hit by the stock is higher than the previous low and so is every following high.

c.  The slope of the trend line connecting every low is upward The trend line is drawn by joining every successive low.

The reason behind joining the lows is that whenever the prices reach a new high, there is a retracement until it finds resistance towards resuming the upwards trend.

d.  The trend line for an uptrend acts as a support until the trend is over and there is a breakdown.

An example of the uptrend line is:
Market Uptrend Portfolio Management CFA level 1 Study Notes

Downtrend

a.  The downtrend line is the trend line for the stocks or securities showing downwards movement in the prices of the stocks.

b.  The main feature of the downtrend line is that every following high and low hit by the stock is lower than the previous lows and highs.

c.  The slope of the trend line connecting every high is downwards sloping. The trend line is drawn by joining every successive high.

The reason behind joining the highs is that whenever the prices reach a new low, there is a retracement until it resumes the downwards trend.

d.  The trend line for a downtrend acts as resistance until there is a breakdown from the downtrend.

e.  An example of the downtrend line is:

Market Downtrend Portfolio Management CFA level 1 Study Notes

Support and Resistance

a.  A support price is a price level at which falling prices have stopped falling and either moved sideways or reversed direction; usually seen as a price chart pattern.

b.  Support line is a trendline drawn on a price chart through the troughs of an upward price movement in a market. It indicates the points where the market is finding support.

c.  It is the low price range in which the further price fall can be averted through some buying activities in the market.

d.  Resistance is a price level at which the rising prices have stopped rising and either moved sideways or reversed direction; usually seen as a price chart pattern

e.  The resistance level indicates the level at which the increase in the price of a share has repeatedly halted as there are more sellers at that particular price than buyers. If at a subsequent rise, the price penetrates the line, it is supposed to signify a bull phase, taking the price upwards.

f.  A resistance line is a line on a chart, that indicates the price level at which rising prices have stopped rising and have moved sideways or reversed direction.

Change in Polarity

a.  The Principle of Polarity states that once a Resistance (Support) level is breached, it changes its nature and becomes Support (Resistance) the next time it is approached.

b.  This mainly happens due to changes in the levels of demand and supply. So once the resistance is breached, the new value that is reached becomes the support level.

c.  For example, if there is a stock that never crosses a mark of $ 45 in the long run. Now if the price finally breaks to the $ 47 mark, then $ 47 becomes the new support level. But an important thing to note here is that the breach should be of a significant amount.

 

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