16 Flashcards
tactical asset allocation
TAA allows short-term, tactical deviations from long-term strategic allocations to capitalize on investment opportunities. The manager will return the portfolio to the strategic asset mix once the opportunity is perceived as over.
trough
bottom of business cycle not reached but has begun to advance due to falling interest rates and expectations of an economic recovery
laddering
a portfolio containing a variety of terms to maturity (durations)
duration
measure of bond price volatility. ~price change for a bond/bond portfolio for a 1% change in interest rates. Higher the duration of a bond the greater its risk.
Sharpe ratio
Sharpe ratio compares the return of the portfolio to the riskless rate of return, taking the portfolio’s risk into account. Formula: (Portfolio Return Rp – Riskless rate of return Rf)/standard deviation
interest rate anticipation fund management
Managing through interest rate anticipation means lengthening the average term of a portfolio when interest rates are expected to fall, and shortening the term or taking refuge in cash when interest rates are expected to rise.
what yield curve shape works best for interest rate anticipation strategies
Interest rate anticipation works best when the yield curve is normal and there is a wide gap between short-term and long term rates. If the yield curve is flat, it is not advantageous to extend the term to maturity of the portfolio.
dynamic asset allocation
portfolio management technique where asset mix is adjusted to re-balance portfolio to its long-term, strategic asset mix. common reasons: (1) cash build-up (2) major capital market moves (eg. 1987)
tactical asset allocation
short term tactical deviations from long-term asset mix dictated by investment policy statement
integrated asset allocation
blends all other asset allocation methods
strategic asset allocation
long-term asset mix that will be adhered to by monitoring and - as necessary - rebalancing.
