85. Portfolio Management: Overvew Flashcards

1
Q

Portfolio perspective

A

Evaluating individual investments by their contribution to risk and return to portfolio

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2
Q

Modern portfolio theory

A

Extra risk from holding single security is not rewarded with higher expected returns

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3
Q

Diversification ratio

A

Risk of equally weighted n securities / Risk of single security selected randomly from the n amount

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4
Q

Diversification ratio = 1

A

No diversification benefits

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5
Q

Diversification ratio < 1

A

Risk-reduction benefit exists from diversification

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6
Q

Limitations of diversification

A
  • Equal weighted portfolios are not always the optimal ones
  • Portfolio diversification works best when markets are operating normally
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7
Q

Steps of Portfolio Management

A

Planning: Analysis of risk tolerance, return objectives, time, tax, liquidity, income, unique circumstances that leads to IPS
Execution: Analysis of various asset classes and allocation
Feedback: Rebalancing portfolios periodically to changing demands

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8
Q

Top-down analysis

A

Examining economic conditions, forecasts and identify attractive asset classes

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9
Q

Individual investors

A
  • Planning for house purchase, children or retirement
  • Often subject to tax benefits
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10
Q

Endowment

A

Fund dedicated to providing financial support for specific purpose (ex - universities)

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11
Q

Foundation

A

Fund established for charitable purposes

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12
Q

Banks

A

Earn more on loans and investments than the deposit payments

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13
Q

Insurance companies

A

Invest premiums to fund customer claims as they occur

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14
Q

Mutual funds

A

Manage pooled funds in particular styles like index investing, growth investing

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15
Q

Sovereign wealth funds

A

Pool of assets owned by governments

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16
Q

Defined contribution pension plan

A

Company contributes a sum each period to retirement account

17
Q

Defined benefit pension plan

A

Make periodic payments to employees after retirement

18
Q

Full service asset managers

A

Managers that offer a variety of investment styles and asset classes

19
Q

Specialist asset managers

A

Focus on particular investment styles

20
Q

Multi-boutique

A

Holding company that includes a number of different specialist asset managers

21
Q

Active management

A

Outperform benchmark through manager skill

22
Q

Passive management

A

Replicate performance of chosen benchmark index

23
Q

Mutual funds

A

Pooled investments where each investor owns share - ownership of overall portfolio

24
Q

Open-end fund

A

Investors can buy newly issued shares - meaning they can invest additional capital

Investors may also redeem shares

25
NAV (net asset value)
Total net value of assets in fund / Number of shares
26
No-load funds
No additional fees for purchasing shares or for redeeming
27
Load funds
Charge up-front fees / redemption fees or both
28
Closed-end funds
Professionally managed money that does not take new investments / does not allow redemption of shares
29
Money market funds
Short term debt securities and provide interest income with very low risk of change
30
Bond mutual
Invest in fixed-income securities differentiated by maturities, credit ratings, issuers and types
31
Stock mutual bonds
Index funds - passively managed (portfolio is constructed to match index) Actively managed - management selects individual securities to return greater than index
32
ETFs
Closed-end funds where purchases and sales are made in the market rather than the fund
33