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:

describe types of investors and distinctive characteristics and needs of each

 

1.         Individual Investors

a.  Individual investors can be defined in a variety of ways based on the level of their confidence, aggression, their attitude towards people, their sense of optimism or pessimism, etc.

b.  These investors define risk as “losing money” or sometimes “doing something that makes them feel uncomfortable”.

c.  These investors can be financially strong in terms of the wealth they possess and the financial goals they have.

d.  Their needs may range from ‘safety’ to ‘growth’.

e.  Their investment horizon may be range from ‘very short-term’ to ‘40+ years’.

f.  They may be risk-averse as well as risk-tolerant.

2.         Institutional Investors

Institutional investors are the financial institutions, which collect and invest money on a long-term basis on the behalf of individuals or corporate. They include pension funds, life insurance companies, which write long-term insurance business, general insurance companies, which write short-term non-life insurance business, investment trusts, and unit trusts.

Some of the important institutional investors are:

2.1.     Pension Funds

Pension funds are characterized by:

a.  long-term investment horizon,

b.  the main focus is on earning income and growth,

c.  low liquidity needs, and

d.  moderate risk tolerance.

2.2.     Endowment Foundations

They are mainly characterized by:

a.  ‘preservation of capital’ motive (on an inflation-adjusted basis),

b.  perpetual life, thus a very long-term investment horizon,

c.  moderate to high-risk tolerance,

d.  low liquidity needs, and

e.  income and growth objectives.

2.3.     Banks

These are mainly characterized by:

a.  low-risk tolerance,

b.  very high liquidity needs,

e.  short-term investment horizon, and

f.  income objectives.

2.4.     Insurance Companies

These are characterized by:

a.  Low-risk tolerance,

b.  high-to-moderate liquidity needs,

c.  investment time horizon, and capital preservation priority are dependent on the policy type,

d.  the objective of safety, growth, and income.

2.5.     Investment Companies

The characteristics of an investment company vary depending upon its type.

2.6.     Sovereign Wealth Fund

It is a government-owned investment fund, usually charged with investing revenues from a finite source, such as oil, petroleum, etc., to benefit the future generation or to manage the foreign exchange reserves.

 

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