Portfolio Management: Planning and Construction Flashcards
Asset class
A group of assets that have similar characteristics, attributes, and risk/return relationships.
Best-in-class
An ESG implementation approach that seeks to identify the most favorable companies in an industry based on ESG considerations.
Capital market expectations
An investor’s expectations concerning the risk and return prospects of asset classes.
ESG integration
The integration of qualitative and quantitative environmental, social, and governance factors into traditional security and industry analysis.
Exclusionary screening
An ESG implementation approach that excludes certain sectors or companies that deviate from an investor’s accepted standards.
Minimum-variance portfolio
The portfolio with the minimum variance for each given level of expected return.
Negative screening
An ESG investment style that focuses on the exclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific ESG criteria.
Nonsystematic risk
Unique risk that is local or limited to a particular asset or industry that need not affect assets outside of that asset class.
Portfolio planning
The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.
Rebalancing policy
The set of rules that guide the process of restoring a portfolio’s asset class weights to those specified in the strategic asset allocation.
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
Security selection
The process of selecting individual securities; typically, security selection has the objective of generating superior risk-adjusted returns relative to a portfolio’s benchmark.
Self-investment limits
With respect to investment limitations applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.
Shareholder engagement
The process whereby companies engage with their shareholders.
Strategic asset allocation
The set of exposures to IPS-permissible asset classes that is expected to achieve the client’s long-term objectives given the client’s investment constraints.
Sustainable investing
The practice of identifying companies that can efficiently manage their financial, environmental, and human capital resources to generate attractive long-term profitability.
Systematic risk
Risk that affects the entire market or economy; it cannot be avoided and is inherent in the overall market. Systematic risk is also known as non-diversifiable or market risk.
Tactical asset allocation
The decision to deliberately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative performance of asset classes.
Thematic investing
An ESG implementation approach that focuses on investing in companies within a specific sector or industry theme.
Tracking error
The standard deviation of the differences between a portfolio’s returns and its benchmark’s returns.
Tracking risk
The standard deviation of the differences between a portfolio’s returns and its benchmarks returns.
Value at risk
A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
