This course provides a basis for the coverage of portfolio management at Levels II and III.
The first reading introduces the concept of a portfolio approach to investments. After discussing the investment needs of various types of individual and institutional investors, the reading compares the types of pooled investment management products that are available to investors.
The second reading introduces risk management, including a risk management framework and sources of risk.
The following two readings cover portfolio risk and return measures and introduce modern portfolio theory—a quantitative framework for portfolio selection and asset pricing.
The last reading focuses on the portfolio planning and construction process, including the development of an investment policy statement.
Students will be able to complete the preparation of this subject in a week, even if they are able to devote less than 30 minutes everyday to this topic, with the help of this course. They will also be able to get a better understanding of Portfolio Management which will help them immensely in Level 2 and Level 3.
At the end of this lecture, the student will be able to describe the portfolio approach to investing;
At the end of this lecture, the student should be able to describe types of investors and distinctive characteristics and needs of each and describe defined contribution and defined benefit pension plans;
At the end of this lecture, the student should be able to describe the steps in the portfolio management process;
At the end of this lecture, the student should be able to describe mutual funds and compare them with other pooled investment products.
This lecture defines the Risk management process. Risk management is the process by which an organization or individual defines the level of risk to be taken, measures the level of risk being taken, and adjusts the latter toward the former, with the goal of maximizing the company’s or portfolio’s value or the individual’s overall satisfaction, or utility.
This lecture goes into the details of the risk management process. Taking risk is an active choice by boards and management, investment managers, and individuals. Risks must be understood and carefully chosen and managed.
Risk exposure is the extent to which an entity’s value may be affected through sensitivity to underlying risks.
Risk management is a process that defines risk tolerance and measures, monitors, and modifies risks to be in line with that tolerance.
This lecture discusses the risk management framework. A risk management framework is the infrastructure, processes, and analytics needed to support effective risk management; it includes risk governance, risk identification and measurement, risk infrastructure, risk policies and processes, risk mitigation and management, communication, and strategic risk analysis and integration.
This lecture talks about the Risk management framework in an Enterprise context
In this lecture we take an enterprise view on Risk Governance. Risk governance is the top-level foundation for risk management, including risk oversight and setting risk tolerance for the organization.Risk identification and measurement is the quantitative and qualitative assessment of all potential sources of risk and the organization’s risk exposures.Risk infrastructure comprises the resources and systems required to track and assess the organization’s risk profile.Risk policies and processes are management’s complement to risk governance at the operating level.Risk mitigation and management is the active monitoring and adjusting of risk exposures, integrating all the other factors of the risk management framework.Communication includes risk reporting and active feedback loops so that the risk process improves decision making.Strategic risk analysis and integration involves using these risk tools to rigorously sort out the factors that are and are not adding value as well as incorporating this analysis into the management decision process, with the intent of improving outcomes.Employing a risk management committee, along with a chief risk officer (CRO), are hallmarks of a strong risk governance framework.Governance and the entire risk process should take an enterprise risk management perspective to ensure that the value of the entire enterprise is maximized.
We understand Risk tolerance through this lecture. Risk tolerance, a key element of good risk governance, delineates which risks are acceptable, which are unacceptable, and how much risk the overall organization can be exposed to.
This lecture discusses risk budgeting, which is any means of allocating investments or assets by their risk characteristics.
At the end of this lecture, the student should be able to calculate and interpret major return measures and describe their appropriate uses; describe characteristics of the major asset classes that investors consider in forming portfolios;
At the end of this lecture, the student should be able to calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;
At the end of this lecture, the student should be able to explain risk aversion and its implications for portfolio selection; calculate and interpret portfolio standard deviation; and describe the effect on a portfolio's risk of investing in assets that are less than perfectly correlated;
At the end of this lecture, the student should be able to describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio; and explain the selection of an optimal portfolio, given an investor's utility (or risk aversion) and the capital allocation line.
At the end of this lecture, the student should be able to a describe the implications of combining a risk-free asset with a portfolio of risky assets;
At the end of this lecture, the student should be able to explain the capital allocation line (CAL) and the capital market line (CML);
At the end of this lecture, the student should be able to explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk; and explain return generating models (including the market model) and their uses;
At the end of this lecture, the student should be able to calculate and interpret beta
At the end of this lecture the student should be able to explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML);
At the end of this lecture the student should be able to calculate and interpret the expected return of an asset using the CAPM; and describe and demonstrate applications of the CAPM and the SML.
At the end of this lecture the student should be able to describe the reasons for a written investment policy statement (IPS); describe the major components of an IPS; describe risk and return objectives and how they may be developed for a client; and distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor's financial risk tolerance;
At the end of this lecture, the student should be able to describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets; explain the specification of asset classes in relation to asset allocation; and describe the principles of portfolio construction and the role of asset allocation in relation to the IPS.
test your knowledge
Answer these questions in less than 15 minutes
This lecture will help you plan the last month preceding the exam in a more effective and efficient way, thereby increasing your chances to clear the exam.
At the end of this lecture, the student should be able to explain how risk tolerance affects risk management; and describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods.
A CFA charter holder, I have extensive experience in the field of F&A outsourcing and have worked on various projects within the F&A Arena. I have 11 years of experience in F&A delivery, handling end to end finance and accounting processes, F&A practice and process improvement. I am also a visiting faculty with International College of Financial Planning, New Delhi where I have taken classes for CFA L 2 and 3. I have my own channel on Youtube on Finance and Investments.
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