R.46 Portfolio Mgmt Process and IPS

Question 1

Objectives for investor types

Answer 1

Question 2

3-Steps of Portfolio Mgmt Process

Answer 2

PM process steps are:

1) Planning

• Objectives & Constraints: analyze
  
  • Relative performance objective references comparison to another portfolio benchmark (inflation not a benchmark)
  • Absolute performance objetive does not refernece comparison to another
• IPS: develop
• Strategy: determine investment strategy
• Asset Allocation: select appropriate AA

2) Execution

• May intentionally differ from SAA due to investor circumstances changing or tactical plays on mkt shifts
• Poor execution leads to high transaction and opportunity costs

3) Feedback

• Monitoring and rebalancing
• Performance evaluation:
  
  • Appraisal: Assessing a manager’s performance relative to a benchmark (or comparison portfolio)
  • Attribution: the process of determining the sources of a portfolio’s returns, e.g. deviations from benchmark weights or security selection within sectors.
  • Measurement: the calculation of a portfolio’s rate of return.