1. Portfolio Management: Course Introduction
01/05/09

2. What is Portfolio Management?
Portfolio management is an ongoing process that involves formulating, modifying, implementing and evaluating investment strategies based on the objectives and constraints of the client (portfolio beneficiary).

3. What are the steps in this process?
Planning Step
Execution Step
Feedback Step

4. Planning Step
Identifying and specifying the investor’s objectives and constraints.
Objectives pertain to return and risk
Constraints are limitations on the investor’s ability to take full advantage of particular investments

5. Planning Step Creating the investment policy statement (IPS)
This statement represents the governing document for all investment decision making.

6. Planning Step Elaborating on an appropriate investment strategy
This strategy clarifies the basis for investment decisions and identifies the manager’s approach to investment analysis and security selection
It can be passive or active.
The portfolio composition does not change in a passive investment approach.
Active investment approaches can range from index-tilt strategies to tactical asset allocation where portfolio composition changes as short-term market expectations change.

7. Planning Step Forming capital market expectations
Long-run forecasts of risk and return characteristics for various asset classes form the basis for choosing portfolios that maximize expected return for given levels of risk, or minimize risk for given levels of expected returns.
Short-run forecasts are used in active strategies.

8. Planning Step Creating the Strategic Asset Allocation
This requires integrating the investor’s objectives, risk tolerance, and investment constraints with capital market expectations to establish exposures to IPS-permissible asset classes.

9. Execution Step Portfolio construction and optimization
This requires selecting an optimal set of securities based on the investor’s IPS and capital market expectations

10. Feedback Step Monitoring and rebalancing
Changes in investor-related factors and/or market and economic factors may require portfolio rebalancing. These factors have to be monitored.
Rebalancing may be required to maintain the client’s objectives.

11. Feedback Step Performance evaluation
Evaluating the performance of the portfolio allows us to:
Determine how well the portfolio is doing relative to an appropriate benchmark
Determine the manager’s security selection and market timing skills