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MIP > Intro > Flashcards

Intro Flashcards

1
Q

Portfolio Management Process

A

Integrated set of steps

undertaken in a consistent manner

to create and maintain

a portfolio appropriate to meet clients’ stated goals

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2
Q

Investment Policy Statement

A

Written document that clearly sets out client’s:

  • Return objective
  • Risk tolerance
  • Relevant time horizon
  • Applicable constraints:
    • Liquidity needs,
    • Tax considerations,
    • Regulatory Requirements,
    • Unique circumstances
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3
Q

PortManProc Elements

A
  • Planning
  • Execution
  • Feedback
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4
Q

Capital Markets Expectations concern…

A

Risk-Return Characteristics Of capital market instruments

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5
Q

Strategic Asset Allocation

A

Establish Acceptable exposures to InPoSt-permissible asset classes to achieve client’s long run Objectives & Constraints

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6
Q

Investment Management

A

The service of professionally investing money

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7
Q

An investment management firm’s size is judged by…

A

the amount of assets under management

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8
Q

An investment manager’s revenue…

A

is fee driven

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9
Q

Investment manager’s Fees are based on:

A
  • A percentage of the average amount of assets under management
  • The type of investment program run for the client
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10
Q

Types of investors

A
  • Institutional
  • Individual
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11
Q

Institutional Investors

A
  • Pension funds
  • Foundations and Endowments
  • Insurance Companies
  • Banks
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12
Q

Individual Investors

A
  • Individuals
  • Families
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13
Q

The Investment Policy Decisions of Institutional Investors

A

Are typically made by investment committees or trustees. They also bear a fiduciary relationship to the funds. Such a relationship imposes some legal standards regarding processes and decisions.

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14
Q

Institutional investors committees or trustees

A

Bear a fiduciary relationship to the funds. Such a relationship imposes some legal standards regarding processes and decisions.

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15
Q

Family Offices

A

Organized and owned by a family.

Are entities that assume responsibility for investment services: Financial planning, Estate planning, Asset management. Some family offices open access to their services to other families (multifamily offices)

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16
Q

Investment Management Companies employ

A
  • Portfolio managers,
  • analysts,
  • traders
  • Marketing and support personnel
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17
Q

Portfolio managers may use

A
  • Outside research produced by sell-side analysts (employed by brokerages) and
  • Research generated by buy-side (in-house) analysts
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18
Q

The staffing of in-house research departments depends on

A
  • The size of the investment management firm.
  • The variety of investment offerings.
  • The investment disciplines employed.
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19
Q

The Portfolio Perspective focus is…

A

on the aggregate of all the investoris holdings: the portfolio

20
Q

Modern Porfolio Theory

A

The analysis of rational portfolio choices based on the efficient use of risk

21
Q

MPT revolutionized investment management

A

The importance of the portfolio perspective in achieving investment objectives is recognized. MPT helped spread the knowledge and use of quantitative methods in portfolio management

22
Q

Three Developments in the Investment Community that Created Demand for the Portfolio Perspective

A
  • Institutional investing plays a dominant role in financial markets so controlling the risk is imperative.
  • The advance in technology and lower cost allows for implementing MPT portfolio concepts.
  • The investment management field is professionalized
23
Q

Portfolio Management As a Process

A

An integrated set of activities that combine in a logical, orderly manner to produce a desired product

24
Q

Portfolio Management As a Process view applies to:

A
  • To all types of portfolio investments
    • bonds,
    • stocks,
    • real estate,
    • gold,
    • collectibles
  • To various organizational types
    • trust companies,
    • investment counsel firms,
    • insurance companies,
    • mutual funds
  • To a full range of investors
    • individuals,
    • pension plans,
    • endowments, foundations,
    • insurance companies, banks
25
Q

Portfolio Management As a Process view is independent of…

A
  • Manager
  • Location
  • Investment philosophy
  • Style
  • Approach
26
Q

Elements in Managing any Business Process

A
  1. Planning
  2. Execution
  3. Feedback
27
Q

The Planning Step

A
  1. Identify and specify the investor’s objectives and constraints
  2. Create the investment policy statement
  3. Form capital market expectations
  4. Create the strategic asset allocation
28
Q

Investment objectives

A

Are desired investment outcomes (risk and return)

29
Q

Constraints

A

Limitations

on the investor’s abilitiy

to take full or partial adventage

of particular investments

30
Q

Types of constraints

A
  • Internal
    • Liquidity needs
    • Time horizon
    • Unique circumstances
  • External
    • Tax issues
    • Legal and regulatory requirements
31
Q

The IPS serves as the…

A

governing document

for all

investment decision making

32
Q

IPS elements

A
  • Brief client description
  • Purpose of establishing policies and guidelines
  • Duties and investment responsabilities of parties involved
  • Statement of
    • Investment goals
    • Objectives
    • Constraints
  • Schedule of review of
    • Investment performance
    • IPS
  • Performance evaluations
    • Performance measures
    • Benchmarks
  • Any considerations in the developement of Strategic Asset Allocation
  • Investment Strategies and Investment Styles
  • Guidelines for rebalancing portfolio based on feedback
33
Q

Investment strategy

A

Manager’s approach to

investment analysis and

security seletion

34
Q

Types of investment strategies

A
  1. Passive
  2. Active
  3. Semiactive (risk controlled active or enhanced index)
35
Q

Pasive Investment Strategies

A

Portfolio composition does not react to changes in capital expectations

36
Q

Pasive Investment Strategies Types

A
  • Indexing
  • Buy and hold
37
Q

Indexing Strategy

A

Hold a portfolio of securities

designed to replicate the returns on a

specified index of securities

38
Q

Buy and hold strategy

A

Buy and hold

the investment until maturity

or the end of the investment period

39
Q

Active Strategies

A
  • A portfolio manager will react to changes in capital market expectations
  • Its holdings differ from the portfolio benchmark
    • Attemps to produce positive excess risk-adjusted returns (positive alpha)
  • Securities held in different-from-benchmark weights reflect expectations of the porfolio manager
40
Q

Semiactive strategies

A

Seek positive alpha while

keeping tight control over risk relative to the portfolio’s benchmark

41
Q

Investment style

A

Group investment disciplines

that have some predictive power in explaining

the future dispersion in returns

42
Q

Forming capital market expectations

A

Create long-run forecasts of

risk and return characteristics

for various asset classes

to optimize the risk-return relationship.

43
Q

Creating the strategic asset allocation

A

The manager combines the

IPS and Capital Market Expectations

to determine target assets class weights.

May consider both single-period and multiperiod perspectives.

44
Q

A multiperiod perspective can address…

A
  1. The liquidity and tax considerations that arise from rebalancing portfolios overtime
  2. Serial correlations in returns
45
Q

Execution step decisions…

A
  1. Portfolio selection/compsition decision
    • Select specific assets for the portfolio
  2. Portfolio implementation decision
    • Initiate

MIP (1 decks)

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