Principles of Investment Planning Flashcards
1
Q
What are the main approaches to asset allocation?
A
- Theoretical Approach
- Pragmatic Approach
- Combined Approach
2
Q
What is the Theoretical Approach to asset allocation
A
- Uses mathematical analysis to obtain the desired risk-return.
- Maximum return from constant volatility
- Also takes into account the correlation between assets
- Based on Modern Portfolio Theory
3
Q
What is the Pragmatic Approach to asset allocation
A
- Use long-run average rates of return and range of returns over different time periods.
- Use forward looking judgement of likely returns/volatility
4
Q
What is Stochastic Portfolio Modelling
A
- Stochastic modelling applies a mathematical technique to generate a probabilistic assessment of returns and volatility.
- Specifies a number of factors that may vary within determined range. e.g. inflation1%-5%
5
Q
What is Strategic Asset Allocation
A
- For the long term and only adjusted in extreme circumstances or if clients circumstances change
6
Q
What is Tactical Asset Allocation
A
- Give a range for the % of capital in each asset class.
7
Q
What is Top down Investment Management?
A
- Determine Asset Allocation within geographies
- choose sector weightings
- decide on the stock
- Pay attention to their benchmarks for stock weightings
8
Q
What is Bottom Up investment Management
A
- Pick stocks purely on their own criteria (value, growth, momentum etc.)
9
Q
What are the 4 most common fund management styles?
A
- Value - value is higher than price is suggesting
- GAARP - companies that have long term sustainable advantage e.g. franchise (value and growth)
- Momentum - performance is likely to persist
- Contrarianism - Average opinion is usually wrong, going against trend
10
Q
Criteria for fund selection (6)
A
- Fund Objective
- Cost and Charges
- Reputation of Mgmt group
- Reputation of fund manager
- Type and Structure of fund
- ESG criteria
