Details

Portfolio Management in Practice, Volume 1


Portfolio Management in Practice, Volume 1

Investment Management
CFA Institute Investment Series 1. Aufl.

von: CFA Institute

70,99 €

Verlag: Wiley
Format: PDF
Veröffentl.: 11.11.2020
ISBN/EAN: 9781119743712
Sprache: englisch
Anzahl Seiten: 1328

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Beschreibungen

<p><b><i>Portfolio Management in Practice, Volume 1: Investment Management </i>delivers a comprehensive overview of investment management for students and industry professionals.</b></p> <p>As the first volume in the CFA Institute’s new <i>Portfolio Management in Practice </i>series, <i>Investment Management </i>offers professionals looking to enhance their skillsets and students building foundational knowledge an essential understanding of key investment management concepts. Designed to be an accessible resource for a wide range of learners, this volume explores the full portfolio management process.</p> <p>Inside, readers will find detailed coverage of:</p> <ul> <li>Forming capital market expectations</li> <li>Principles of the asset allocation process</li> <li>Determining investment strategies within each asset class</li> <li>Integrating considerations specific to high net worth individuals or institutions into chosen strategies</li> <li>And more</li> </ul> <p>To apply the concepts outlined in the <i>Investment Management </i>volume, explore the accompanying <i>Portfolio Management in Practice, Volume 1: Investment Management Workbook. </i>The perfect companion resource, this workbook aligns chapter-by-chapter with <i>Investment Management </i>for easy referencing so readers can draw connections between theoretical content and challenging practice problems.</p> <p>Featuring contributions from the CFA Institute’s subject matter experts, <i>Portfolio Management in Practice, Volume 1: Investment Management </i>distills the knowledge forward-thinking professionals will need to succeed in today’s fast-paced financial world.</p>
<p>Preface xxi</p> <p>Acknowledgments xxiii</p> <p>About the CFA Institute Investment Series xxv</p> <p><b>Chapter 1 Professionalism in the Investment Industry 1</b></p> <p>Learning Outcomes 1</p> <p>1. Introduction 1</p> <p>2. Professions 2</p> <p>2.1. How Professions Establish Trust 2</p> <p>2.2. Professions Are Evolving 4</p> <p>3. Professionalism in Investment Management 5</p> <p>3.1. Trust in the Investment Industry 6</p> <p>3.2. CFA Institute as an Investment Professional Body 6</p> <p>4. Expectations of Investment Professionals 7</p> <p>5. Framework for Ethical Decision-Making 9</p> <p>5.1. Description of the Framework 9</p> <p>6. Challenges for Investment Professionals 11</p> <p>7. Summary 12</p> <p>References 13</p> <p>Practice Problems 13</p> <p><b>Chapter 2 Fintech in Investment Management 15</b></p> <p>Learning Outcomes 15</p> <p>1. Introduction 15</p> <p>2. What is Fintech? 16</p> <p>3. Big Data 17</p> <p>3.1. Sources of Big Data 18</p> <p>3.2. Big Data Challenges 20</p> <p>4. Advanced Analytical Tools: Artificial Intelligence and Machine Learning 20</p> <p>4.1. Types of Machine Learning 22</p> <p>5. Data Science: Extracting Information from Big Data 23</p> <p>5.1. Data Processing Methods 23</p> <p>5.2. Data Visualization 24</p> <p>6. Selected Applications of Fintech to Investment Management 25</p> <p>6.1. Text Analytics and Natural Language Processing 26</p> <p>6.2. Robo-Advisory Services 27</p> <p>6.3. Risk Analysis 29</p> <p>6.4. Algorithmic Trading 30</p> <p>7. Distributed Ledger Technology 30</p> <p>7.1. Permissioned and Permissionless Networks 32</p> <p>7.2. Applications of Distributed Ledger Technology to Investment Management 32</p> <p>Summary 34</p> <p>Practice Problems 35</p> <p><b>Chapter 3 Capital Market Expectations, Part 1: Framework and Macro Considerations 37</b></p> <p>Learning Outcomes 37</p> <p>1. Introduction 38</p> <p>2. Framework and Challenges 38</p> <p>2.1. A Framework for Developing Capital Market Expectations 39</p> <p>2.2. Challenges in Forecasting 42</p> <p>3. Economic and Market Analysis 50</p> <p>3.1. The Role of Economic Analysis 51</p> <p>3.2. Analysis of Economic Growth 51</p> <p>3.3. Approaches to Economic Forecasting 57</p> <p>3.4. Business Cycle Analysis 61</p> <p>3.5. Analysis of Monetary and Fiscal Policy 68</p> <p>3.6. International Interactions 77</p> <p>4. Summary 81</p> <p>References 85</p> <p>Practice Problems 85</p> <p><b>Chapter 4 Capital Market Expectations, Part 2: Forecasting Asset Class Returns 93</b></p> <p>Learning Outcomes 93</p> <p>1. Introduction 94</p> <p>2. Overview of Tools and Approaches 94</p> <p>2.1. The Nature of the Problem 94</p> <p>2.2. Approaches to Forecasting 95</p> <p>3. Forecasting Fixed-Income Returns 96</p> <p>3.1. Applying DCF to Fixed Income 96</p> <p>3.2. The Building Block Approach to Fixed-Income Returns 98</p> <p>3.3. Risks in Emerging Market Bonds 104</p> <p>4. Forecasting Equity Returns 107</p> <p>4.1. Historical Statistics Approach to Equity Returns 107</p> <p>4.2. DCF Approach to Equity Returns 107</p> <p>4.3. Risk Premium Approaches to Equity Returns 111</p> <p>4.4. Risks in Emerging Market Equities 115</p> <p>5. Forecasting Real Estate Returns 117</p> <p>5.1. Historical Real Estate Returns 117</p> <p>5.2. Real Estate Cycles 117</p> <p>5.3. Capitalization Rates 118</p> <p>5.4. The Risk Premium Perspective on Real Estate Expected Return 120</p> <p>5.5. Real Estate in Equilibrium 120</p> <p>5.6. Public vs. Private Real Estate 121</p> <p>5.7. Long-Term Housing Returns 122</p> <p>6. Forecasting Exchange Rates 124</p> <p>6.1. Focus on Goods and Services, Trade, and the Current Account 125</p> <p>6.2. Focus on Capital Flows 127</p> <p>7. Forecasting Volatility 132</p> <p>7.1. Estimating a Constant VCV Matrix with Sample Statistics 132</p> <p>7.2. VCV Matrices from Multi-Factor Models 133</p> <p>7.3. Shrinkage Estimation of VCV Matrices 134</p> <p>7.4. Estimating Volatility from Smoothed Returns 135</p> <p>7.5. Time-Varying Volatility: ARCH Models 136</p> <p>8. Adjusting a Global Portfolio 137</p> <p>8.1. Macro-Based Recommendations 138</p> <p>8.2. Quantifying the Views 140</p> <p>Summary 141</p> <p>References 143</p> <p>Practice Problems 145</p> <p><b>Chapter 5 Overview of Asset Allocation 155</b></p> <p>Learning Outcomes 155</p> <p>1. Introduction 155</p> <p>2. Asset Allocation: Importance in Investment Management 157</p> <p>3. The Investment Governance Background to Asset Allocation 158</p> <p>3.1. Governance Structures 158</p> <p>3.2. Articulating Investment Objectives 159</p> <p>3.3. Allocation of Rights and Responsibilities 160</p> <p>3.4. Investment Policy Statement 162</p> <p>3.5. Asset Allocation and Rebalancing Policy 162</p> <p>3.6. Reporting Framework 163</p> <p>3.7. The Governance Audit 163</p> <p>4. The Economic Balance Sheet and Asset Allocation 165</p> <p>5. Approaches to Asset Allocation 169</p> <p>5.1. Relevant Objectives 171</p> <p>5.2. Relevant Risk Concepts 172</p> <p>5.3. Modeling Asset Class Risk 173</p> <p>6. Strategic Asset Allocation 180</p> <p>6.1. Asset Only 182</p> <p>6.2. Liability Relative 188</p> <p>6.3. Goals Based 191</p> <p>7. Implementation Choices 195</p> <p>7.1. Passive/Active Management of Asset Class Weights 196</p> <p>7.2. Passive/Active Management of Allocations to Asset Classes 196</p> <p>7.3. Risk Budgeting Perspectives in Asset Allocation and Implementation 200</p> <p>8. Rebalancing: Strategic Considerations 201</p> <p>8.1. A Framework for Rebalancing 203</p> <p>8.2. Strategic Considerations in Rebalancing 204</p> <p>9. Summary 206</p> <p>References 207</p> <p>Practice Problems 209</p> <p><b>Chapter 6 Principles of Asset Allocation 211</b></p> <p>Learning Outcomes 211</p> <p>1. Introduction 212</p> <p>2. Developing Asset Only Asset Allocations 213</p> <p>2.1. Mean–Variance Optimization: Overview 213</p> <p>2.2. Monte Carlo Simulation 225</p> <p>2.3. Criticisms of Mean–Variance Optimization 228</p> <p>2.4. Addressing the Criticisms of Mean–Variance Optimization 230</p> <p>2.5. Allocating to Less Liquid Asset Classes 241</p> <p>2.6. Risk Budgeting 243</p> <p>2.7. Factor-Based Asset Allocation 246</p> <p>3.1. Characterizing the Liabilities 250</p> <p>3.2. Approaches to Liability-Relative Asset Allocation 253</p> <p>3.3. Examining the Robustness of Asset Allocation Alternatives 264</p> <p>3.4. Factor Modeling in Liability-Relative Approaches 266</p> <p>4. Developing Goals-Based Asset Allocations 266</p> <p>4.1. The Goals-Based Asset Allocation Process 268</p> <p>4.2. Describing Client Goals 270</p> <p>4.3. Constructing Sub-Portfolios 272</p> <p>4.4. The Overall Portfolio 276</p> <p>4.5. Revisiting the Module Process in Detail 277</p> <p>4.6. Periodically Revisiting the Overall Asset Allocation 281</p> <p>4.7. Issues Related to Goals-Based Asset Allocation 281</p> <p>5. Heuristics and Other Approaches to Asset Allocation 283</p> <p>5.1. The “120 minus your age” rule. 283</p> <p>5.2. The 60/40 stock/bond heuristic. 284</p> <p>5.3. The endowment model. 285</p> <p>5.4. Risk parity. 286</p> <p>5.5. The 1/<i>N </i>rule. 288</p> <p>6. Portfolio Rebalancing in Practice 288</p> <p>7. Conclusions 292</p> <p>References 294</p> <p>Practice Problems 296</p> <p><b>Chapter 7 Asset Allocation with Real-World Constraints 307</b></p> <p>Learning Outcomes 307</p> <p>1. Introduction 307</p> <p>2. Constraints in Asset Allocation 308</p> <p>2.1. Asset Size 308</p> <p>2.2. Liquidity 314</p> <p>2.3. Time Horizon 317</p> <p>2.4. Regulatory and Other External Constraints 321</p> <p>3. Asset Allocation for the Taxable Investor 327</p> <p>3.1. After-Tax Portfolio Optimization 321</p> <p>3.2. Taxes and Portfolio Rebalancing 331</p> <p>3.3. Strategies to Reduce Tax Impact 332</p> <p>4. Revising the Strategic Asset Allocation 337</p> <p>4.1. Goals 337</p> <p>5. Short-Term Shifts in Asset Allocation 343</p> <p>5.1. Discretionary TAA 344</p> <p>5.2. Systematic TAA 345</p> <p>6. Dealing with Behavioral Biases in Asset Allocation 349</p> <p>6.1. Loss Aversion 349</p> <p>6.2. Illusion of Control 350</p> <p>6.3. Mental Accounting 351</p> <p>6.4. Representativeness Bias 352</p> <p>6.5. Framing Bias 352</p> <p>6.6. Availability Bias 354</p> <p>7. Summary 357</p> <p>References 359</p> <p>Practice Problems 360</p> <p><b>Chapter 8 Currency Management: An Introduction 369</b></p> <p>Learning Outcomes 369</p> <p>1. Introduction 369</p> <p>2. Review of Foreign Exchange Concepts 370</p> <p>2.1. Spot Markets 371</p> <p>2.2. Forward Markets 373</p> <p>2.3. FX Swap Markets 376</p> <p>2.4. Currency Options 377</p> <p>3. Currency Risk and Portfolio Return and Risk 377</p> <p>3.1. Return Decomposition 378</p> <p>3.2. Volatility Decomposition 380</p> <p>4. Currency Management: Strategic Decisions 383</p> <p>4.1. The Investment Policy Statement 384</p> <p>4.2. The Portfolio Optimization Problem 385</p> <p>4.3. Choice of Currency Exposures 386</p> <p>4.4. Locating the Portfolio Along the Currency Risk Spectrum 389</p> <p>4.5. Formulating a Client-Appropriate Currency Management Program 393</p> <p>5. Currency Management: Tactical Decisions 395</p> <p>5.1. Active Currency Management Based on Economic Fundamentals 396</p> <p>5.2. Active Currency Management Based on Technical Analysis 397</p> <p>5.3. Active Currency Management Based on the Carry Trade 399</p> <p>5.4. Active Currency Management Based on Volatility Trading 401</p> <p>6. Tools of Currency Management 406</p> <p>6.1. Forward Contracts 407</p> <p>6.2. Currency Options 414</p> <p>6.3. Strategies to Reduce Hedging Costs and Modify a Portfolio’s Risk Profile 416</p> <p>6.4. Hedging Multiple Foreign Currencies 424</p> <p>6.5. Basic Intuitions for Using Currency Management Tools 431</p> <p>7. Currency Management for Emerging Market Currencies 435</p> <p>7.1. Special Considerations in Managing Emerging Market Currency Exposures 435</p> <p>7.2. Non-Deliverable Forwards 437</p> <p>8. Summary 438</p> <p>References 441</p> <p>Practice Problems 441</p> <p><b>Chapter 9 Overview of Fixed-Income Portfolio Management 453</b></p> <p>Learning Outcomes 453</p> <p>1. Introduction 453</p> <p>2. Roles of Fixed-Income Securities in Portfolios 454</p> <p>2.1. Diversification Benefits 454</p> <p>2.2. Benefits of Regular Cash Flows 456</p> <p>2.3. Inflation Hedging Potential 457</p> <p>3. Fixed-Income Mandates 459</p> <p>3.1. Liability-Based Mandates 460</p> <p>3.2. Total Return Mandates 464</p> <p>4. Bond Market Liquidity 468</p> <p>4.1. Liquidity among Bond Market Sub-Sectors 468</p> <p>4.2. The Effects of Liquidity on Fixed-Income Portfolio Management 469</p> <p>5. A Model for Fixed-Income Returns 471</p> <p>5.1. Decomposing Expected Returns 471</p> <p>5.2. Estimation of the Inputs 475</p> <p>5.3. Limitations of the Expected Return Decomposition 475</p> <p>6. Leverage 476</p> <p>6.1. Using Leverage 477</p> <p>6.2. Methods for Leveraging Fixed-Income Portfolios 477</p> <p>6.3. Risks of Leverage 481</p> <p>7. Fixed-Income Portfolio Taxation 481</p> <p>7.1. Principles of Fixed-Income Taxation 482</p> <p>7.2. Investment Vehicles and Taxes 483</p> <p>8. Summary 484</p> <p>References 486</p> <p>Practice Problems 486</p> <p><b>Chapter 10 Liability-Driven and Index-Based Strategies 493</b></p> <p>Learning Outcomes 493</p> <p>1. Introduction 494</p> <p>2. Liability-Driven Investing 495</p> <p>3. Interest Rate Immunization—Managing the Interest Rate Risk of a Single Liability 498</p> <p>4. Interest Rate Immunization—Managing the Interest Rate Risk of Multiple Liabilities 511</p> <p>4.1. Cash Flow Matching 511</p> <p>4.2. Duration Matching 514</p> <p>4.3. Derivatives Overlay 520</p> <p>4.4. Contingent Immunization 524</p> <p>5. Liability-Driven Investing—An Example of a Defined Benefit Pension Plan 526</p> <p>6. Risks in Liability-Driven Investing 536</p> <p>7. Bond Indexes and the Challenges of Matching a Fixed-Income Portfolio to an Index 541</p> <p>8. Alternative Methods for Establishing Passive Bond Market Exposure 547</p> <p>9. Benchmark Selection 553</p> <p>10. Laddered Bond Portfolios 556</p> <p>11. Summary 559</p> <p>References 563</p> <p>Practice Problems 564</p> <p><b>Chapter 11 Overview of Equity Portfolio Management 573</b></p> <p>Learning Outcomes 573</p> <p>1. Introduction 573</p> <p>2. The Roles of Equities in a Portfolio 574</p> <p>2.1. Capital Appreciation 574</p> <p>2.2. Dividend Income 575</p> <p>2.3. Diversification with Other Asset Classes 576</p> <p>2.4. Hedge Against Inflation 577</p> <p>2.5. Client Considerations for Equities in a Portfolio 577</p> <p>3. Equity Investment Universe 579</p> <p>3.1. Segmentation by Size and Style 579</p> <p>3.2. Segmentation by Geography 581</p> <p>3.3. Segmentation by Economic Activity 583</p> <p>3.4. Segmentation of Equity Indexes and Benchmarks 585</p> <p>4. Income and Costs in an Equity Portfolio 585</p> <p>4.1. Dividend Income 586</p> <p>4.2. Securities Lending Income 586</p> <p>4.3. Ancillary Investment Strategies 587</p> <p>4.4. Management Fees 588</p> <p>4.5. Performance Fees 588</p> <p>4.6. Administration Fees 589</p> <p>4.7. Marketing and Distribution Costs 589</p> <p>4.8. Trading Costs 589</p> <p>4.9. Investment Approaches and Effects on Costs 590</p> <p>5. Shareholder Engagement 590</p> <p>5.1. Benefits of Shareholder Engagement 591</p> <p>5.2. Disadvantages of Shareholder Engagement 592</p> <p>5.3. The Role of an Equity Manager in Shareholder Engagement 592</p> <p>6. Equity Investment across the Passive–Active Spectrum 594</p> <p>6.1. Confidence to Outperform 594</p> <p>6.2. Client Preference 595</p> <p>6.3. Suitable Benchmark 596</p> <p>6.4. Client-Specific Mandates 596</p> <p>6.5. Risks/Costs of Active Management 596</p> <p>6.6. Taxes 596</p> <p>Summary 597</p> <p>References 598</p> <p>Practice Problems 598</p> <p><b>Chapter 12 Passive Equity Investing 601</b></p> <p>Learning Outcomes 601</p> <p>1. Introduction 601</p> <p>2. Choosing a Benchmark 603</p> <p>2.1. Indexes as a Basis for Investment 603</p> <p>2.2. Considerations When Choosing a Benchmark Index 604</p> <p>2.3. Index Construction Methodologies 606</p> <p>2.4. Factor-Based Strategies 612</p> <p>3. Approaches to Passive Equity Investing 615</p> <p>3.1. Pooled Investments 615</p> <p>3.2. Derivatives-Based Approaches 619</p> <p>3.3. Separately Managed Equity Index-Based Portfolios 623</p> <p>4. Portfolio Construction 625</p> <p>4.1. Full Replication 625</p> <p>4.2. Stratified Sampling 627</p> <p>4.3. Optimization 628</p> <p>4.4. Blended Approach 629</p> <p>5. Tracking Error Management 630</p> <p>5.1. Tracking Error and Excess Return 630</p> <p>5.2. Potential Causes of Tracking Error and Excess Return 632</p> <p>5.3. Controlling Tracking Error 632</p> <p>6. Sources of Return and Risk in Passive Equity Portfolios 633</p> <p>6.1. Attribution Analysis 633</p> <p>6.2. Securities Lending 635</p> <p>6.3. Investor Activism and Engagement by Passive Managers 637</p> <p>Summary 638</p> <p>References 640</p> <p>Practice Problems 641</p> <p><b>Chapter 13 Active Equity Investing: Strategies 647</b></p> <p>Learning Outcomes 647</p> <p>1. Introduction 647</p> <p>2. Approaches to Active Management 648</p> <p>2.1. Differences in the Nature of the Information Used 650</p> <p>2.2. Differences in the Focus of the Analysis 651</p> <p>2.3. Difference in Orientation to the Data: Forecasting the Future vs. Analyzing the Past 652</p> <p>2.4. Differences in Portfolio Construction: Judgment vs. Optimization 652</p> <p>3. Types of Active Management Strategies 654</p> <p>3.1. Bottom-Up Strategies 654</p> <p>3.2. Top-Down Strategies 661</p> <p>3.3. Factor-Based Strategies 664</p> <p>3.4. Activist Strategies 677</p> <p>3.5. Other Strategies 684</p> <p>4. Creating a Fundamental Active Investment Strategy 687</p> <p>4.1. The Fundamental Active Investment Process 687</p> <p>4.2. Pitfalls in Fundamental Investing 690</p> <p>5. Creating a Quantitative Active Investment Strategy 694</p> <p>5.1. Creating a Quantitative Investment Process 694</p> <p>5.2. Pitfalls in Quantitative Investment Processes 698</p> <p>6. Equity Investment Style Classification 701</p> <p>6.1. Different Approaches to Style Classification 702</p> <p>6.2. Strengths and Limitations of Style Analysis 708</p> <p>7. Summary 710</p> <p>References 711</p> <p>Practice Problems 712</p> <p><b>Chapter 14 Hedge Fund Strategies 719</b></p> <p>Learning Outcomes 719</p> <p>1. Introduction 719</p> <p>2. Classification of Hedge Funds and Strategies 721</p> <p>3. Equity Strategies 725</p> <p>3.1. Long/Short Equity 725</p> <p>3.2. Dedicated Short Selling and Short-Biased 728</p> <p>3.3. Equity Market Neutral 732</p> <p>4. Event-Driven Strategies 736</p> <p>4.1. Merger Arbitrage 737</p> <p>4.2. Distressed Securities 740</p> <p>5. Relative Value Strategies 744</p> <p>5.1. Fixed-Income Arbitrage 744</p> <p>5.2. Convertible Bond Arbitrage 749</p> <p>6. Opportunistic Strategies 753</p> <p>6.1. Global Macro Strategies 753</p> <p>6.2. Managed Futures 756</p> <p>7. Specialist Strategies 760</p> <p>7.1. Volatility Trading 761</p> <p>7.2. Reinsurance/Life Settlements 765</p> <p>8. Multi-Manager Strategies 767</p> <p>8.1. Fund-of-Funds 768</p> <p>8.2. Multi-Strategy Hedge Funds 770</p> <p>9. Analysis of Hedge Fund Strategies 774</p> <p>9.1. Conditional Factor Risk Model 775</p> <p>9.2. Evaluating Equity Hedge Fund Strategies 779</p> <p>9.3. Evaluating Multi-Manager Hedge Fund Strategies 784</p> <p>10. Portfolio Contribution of Hedge Fund Strategies 787</p> <p>10.1. Performance Contribution to a 60/40 Portfolio 787</p> <p>10.2. Risk Metrics 789</p> <p>11. Summary 793</p> <p>References 796</p> <p>Practice Problems 796</p> <p><b>Chapter 15 Overview of Private Wealth Management 803</b></p> <p>Learning Outcomes 803</p> <p>1. Introduction 803</p> <p>2. Private Clients versus Institutional Clients 804</p> <p>2.1. Investment Objectives 804</p> <p>2.2. Constraints 805</p> <p>2.3. Other Distinctions 806</p> <p>3. Understanding Private Clients 807</p> <p>3.1. Information Needed in Advising Private Clients 807</p> <p>3.2. Client Goals 812</p> <p>3.3. Private Client Risk Tolerance 815</p> <p>3.4. Technical and Soft Skills for Wealth Managers 817</p> <p>4. Investment Planning 819</p> <p>4.1. Capital Sufficiency Analysis 819</p> <p>4.2. Retirement Planning 823</p> <p>5. Investment Policy Statement 827</p> <p>5.1. Parts of the Investment Policy Statement 827</p> <p>5.2. Sample Investment Policy Statement for a Private Client 833</p> <p>6. Portfolio Construction and Monitoring 838</p> <p>6.1. Portfolio Allocation and Investments for Private Wealth Clients 838</p> <p>6.2. Portfolio Reporting and Review 842</p> <p>6.3. Evaluating the Success of an Investment Program 845</p> <p>7. Ethical and Compliance Considerations in Private Wealth Management 848</p> <p>7.1. Ethical Considerations 848</p> <p>7.2. Compliance Considerations 849</p> <p>8. Private Client Segments 850</p> <p>8.1. Mass Affluent Segment 851</p> <p>8.2. High-Net-Worth Segment 851</p> <p>8.3. Ultra-High-Net-Worth Segment 851</p> <p>8.4. Robo-Advisors 852</p> <p>Summary 853</p> <p>References 854</p> <p>Practice Problems 855</p> <p><b>Chapter 16 Topics in Private Wealth Management 863</b></p> <p>Learning Outcomes 863</p> <p>1. Introduction 864</p> <p>2. General Principles of taxation 866</p> <p>2.1. Taxation of the Components of Return 866</p> <p>2.2. The Tax Status of the Account 869</p> <p>2.3. The Jurisdiction That Applies to the Investor 871</p> <p>3. Measuring Tax Efficiency with After-Tax Returns 878</p> <p>3.1. Tax Efficiency of Various Asset Classes and Investment Strategies 878</p> <p>3.2. Calculating After-Tax Returns 879</p> <p>4. Analyzing the Impact of Taxes IN taxable, Tax-Exempt, and Tax-Deferred Accounts 888</p> <p>4.1. Capital Accumulation in Taxable, Tax-Deferred, and Tax-Exempt Accounts 889</p> <p>4.2. Asset Location 890</p> <p>4.3. Decumulation Strategies 894</p> <p>4.4. Tax Considerations in Charitable Giving 895</p> <p>5. Tax Management Strategies 896</p> <p>5.1. Basic Portfolio Tax Management Strategies 897</p> <p>5.2. Application of Tax Management Strategies 897</p> <p>6. Managing Concentrated Positions 904</p> <p>6.1. Risk and Tax Considerations in Managing Concentrated Single-Asset Positions 904</p> <p>6.2. Strategies for Managing Concentrated Positions in Public Equities 906</p> <p>6.3. Strategies for Managing Concentrated Positions in Privately Owned Businesses 913</p> <p>6.4. Strategies for Managing Concentrated Positions in Real Estate 915</p> <p>7. Directing and transferring wealth 917</p> <p>7.1. Objectives of Gift and Estate Planning 917</p> <p>7.2. Gift and Estate Planning Strategies 921</p> <p>7.3. Managing Wealth across Generations 933</p> <p>8. Summary 940</p> <p>References 943</p> <p>Practice Problems 943</p> <p><b>Chapter 17 Portfolio Management for Institutional Investors 949</b></p> <p>Learning Outcomes 949</p> <p>1. Introduction 950</p> <p>2. Institutional Investors: Common Characteristics 951</p> <p>2.1. Scale 951</p> <p>2.2. Long-Term Investment Horizon 952</p> <p>2.3. Regulatory Frameworks 952</p> <p>2.4. Governance Framework 954</p> <p>2.5. Principal–Agent Issues 955</p> <p>3. Overview of Investment Policy 955</p> <p>4. Pension Funds 958</p> <p>4.1. Stakeholders 960</p> <p>4.2. Liabilities and Investment Horizon 962</p> <p>4.3. Liquidity Needs 966</p> <p>4.4. External Constraints Affecting Investment 968</p> <p>4.5. Risk Considerations of Private Defined Benefit Pension Plans 970</p> <p>4.6. Investment Objectives 974</p> <p>4.7. Asset Allocation by Pension Plans 976</p> <p>5. Sovereign Wealth Funds 980</p> <p>5.1. Stakeholders 981</p> <p>5.2. Liabilities and Investment Horizons 982</p> <p>5.3. Liquidity Needs 984</p> <p>5.4. External Constraints Affecting Investment 985</p> <p>5.5. Investment Objectives 986</p> <p>5.6. Asset Allocation by Sovereign Wealth Funds 988</p> <p>6. University Endowments and Private Foundations 989</p> <p>6.1. University Endowments—Stakeholders 991</p> <p>6.2. University Endowments—Liabilities and Investment Horizon 992</p> <p>6.3. University Endowments—Liquidity Needs 993</p> <p>6.4. Private Foundations—Stakeholders 993</p> <p>6.5. Private Foundations—Liabilities and Investment Horizon 994</p> <p>6.6. Private Foundations—Liquidity Needs 996</p> <p>6.7. External Constraints Affecting Investment 997</p> <p>6.8. Investment Objectives 998</p> <p>6.9. Asset Allocation 1004</p> <p>7. Banks and Insurers 1011</p> <p>7.1. Banks—Stakeholders 1012</p> <p>7.2. Banks—Liabilities and Investment Horizon 1013</p> <p>7.3. Banks—Liquidity Needs 1014</p> <p>7.4. Insurers—Stakeholders 1014</p> <p>7.5. Insurers—Liabilities and Investment Horizon 1016</p> <p>7.6. Insurers—Liquidity Needs 1017</p> <p>7.7. External Constraints Affecting Investment 1018</p> <p>7.8. Investment Objectives 1020</p> <p>7.9. Banks and Insurers—Balance Sheet Management and Investment Considerations 1024</p> <p>Summary 1042</p> <p>References 1044</p> <p>Practice Problems 1045</p> <p><b>Chapter 18 Trade Strategy and Execution 1053</b></p> <p>Learning Outcomes 1053</p> <p>1. Introduction 1053</p> <p>2. Motivations to Trade 1054</p> <p>2.1. Profit Seeking 1054</p> <p>2.2. Risk Management/Hedging Needs 1056</p> <p>2.3. Cash Flow Needs 1057</p> <p>2.4. Corporate Actions/Index Reconstitutions/Margin Calls 1058</p> <p>3. Trading Strategies and Strategy Selection 1060</p> <p>3.1. Trade Strategy Inputs 1060</p> <p>3.2. Reference Prices 1065</p> <p>3.3. Trade Strategies 1068</p> <p>4. Trade Execution (Strategy Implementation) 1074</p> <p>4.1. Trade Implementation Choices 1074</p> <p>4.2. Algorithmic Trading 1077</p> <p>4.3. Comparison of Markets 1083</p> <p>5. Trade Evaluation 1087</p> <p>5.1. Trade Cost Measurement 1087</p> <p>5.2. Evaluating Trade Execution 1095</p> <p>6. Trade Governance 1102</p> <p>6.1. Meaning of Best Order Execution within the Relevant Regulatory Framework 1103</p> <p>6.2. Factors Used to Determine the Optimal Order Execution Approach 1103</p> <p>6.3. List of Eligible Brokers and Execution Venues 1105</p> <p>6.4. Process Used to Monitor Execution Arrangements 1106</p> <p>7. Summary 1108</p> <p>Practice Problems 1110</p> <p><b>Chapter 19 Portfolio Performance Evaluation 1121</b></p> <p>Learning Outcomes 1121</p> <p>1. Introduction 1122</p> <p>2. The Components of Performance Evaluation 1122</p> <p>3. Performance Attribution 1124</p> <p>3.1. Approaches to Return Attribution 1127</p> <p>3.2. Risk Attribution 1144</p> <p>3.3. Return Attribution Analysis at Multiple Levels 1146</p> <p>4. Benchmarking Investments and Managers 1153</p> <p>4.1. Asset-Based Benchmarks 1155</p> <p>4.2. Properties of a Valid Benchmark 1157</p> <p>4.3. Evaluating Benchmark Quality: Analysis Based on a Decomposition of Portfolio Holdings and Returns 1160</p> <p>4.4. Benchmarking Alternative Investments 1162</p> <p>4.5. Importance of Choosing the Correct Benchmark 1166</p> <p>5. Performance Appraisal 1167</p> <p>5.1. Distinguishing Investment Skill from Luck 1167</p> <p>5.2. Appraisal Measures 1168</p> <p>5.3. Evaluation of Investment Manager Skill 1183</p> <p>Summary 1187</p> <p>References 1188</p> <p>Practice Problems 1189</p> <p><b>Chapter 20 Investment Manager Selection 1193</b></p> <p>Learning Outcomes 1193</p> <p>1. Introduction 1193</p> <p>2. A Framework for Investment Manager Search and Selection 1194</p> <p>2.1. Defining the Manager Universe 1196</p> <p>2.2. Type I and Type II Errors in Manager Selection 1197</p> <p>3. Quantitative Elements of Manager Search and Selection 1200</p> <p>3.1. Style Analysis 1200</p> <p>3.2. Capture Ratios and Drawdowns in Manager Evaluation 1203</p> <p>4. Qualitative Elements of Manager Due Diligence 1207</p> <p>4.1. Investment Philosophy 1207</p> <p>4.2. Investment Personnel 1211</p> <p>4.3. Investment Decision-Making Process 1211</p> <p>4.4. Operational Due Diligence 1213</p> <p>5. Summary 1226</p> <p>References 1228</p> <p>Practice Problems 1220</p> <p>Glossary 1243</p> <p>About the Authors 1257</p> <p>About the CFA Program 1259</p> <p>Index 1261</p>
<p><b>CFA Institute</b> is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow. CFA Institute has more than 155,000 members in 165 countries and territories, including 150,000 CFA® charterholders, and 148 member societies. For more information, visit www.cfainstitute.org.</p>
<p><b>CFA INSTITUTE INVESTMENT SERIES</b> <p>As part of the CFA Institute Investment Series, <i>Portfolio Management in Practice</i> has been designed as a three-volume series that meets the needs of a wide range of individuals, from graduate-level students focused on finance to practicing investment professionals. The <i>Portfolio Management in Practice</i> series is valuable for self-study as well as for general reference and provides complete coverage of the essential issues surrounding modern portfolio management. The new volumes in this series provide up to date information associated with this important discipline by examining everything from asset allocation strategies to risk management frameworks. <p>Blending theory with practice, the contributors skillfully outline the flow of the portfolio management process—from formulating an investment policy statement to portfolio construction, trade execution, and monitoring and rebalancing a portfolio. Throughout the volumes, special attention is paid to ensuring the evenness of subject matter, consistency of mathematical notation, and continuity of topic coverage that is critical to the learning process. <p><i>Investment Management</i>, the first volume in the <i>Portfolio Management in Practice</i> series, provides a comprehensive, integrated treatment of the portfolio management process. The <i>Investment Management</i> volume takes the reader through the full portfolio management process; forming capital market expectations, principles of asset allocation process using these inputs, determining comprehensive investment strategies within each asset class, integrating considerations specific to high net worth individuals or institutions into the choice of strategies, and providing a summary of how to execute and evaluate chosen strategies and investment managers. This volume provides complete coverage of the modern portfolio management process. <p>With each contributor bringing his own unique experiences and perspectives to the portfolio management process, <i>Portfolio Management in Practice</i> distills the knowledge, skills, and abilities you need to succeed in today's fast-paced financial world.
<p>The CFA Institute introduces <i>Portfolio Management in Practice</i> as a three-volume series built for a wide array of finance professionals. Whether the reader is in the first stages of practicing asset allocation or building on their previous experience dealing in risk management, this series provides a modern perspective on all aspects of portfolio management. Industry experts have come together to formulate an all-encompassing three-volume series that explores private wealth portfolio management for individuals and managing institutional investor portfolios. <p>Elements that are discussed in detail include: <ul> <li>Capital market expectations</li> <li>Asset allocation</li> <li>Fixed income and equity portfolio management</li> <li>Evaluating portfolio performance</li> <li>Portfolio management of currencies and alternative investments</li> <li>Global investment performance standards</li> </ul> <p><i>Investment Management</i> compiles all aspects of the portfolio management process into the first volume in the <i>Portfolio Management in Practice</i> series. This volume delves into contemporary CFA Institute knowledge on fixed income portfolio management, passive and active equity investing, hedge fund strategies and provides a detailed summary of evaluating chosen strategies. <p>To further develop an understanding of the tools and techniques explored here, don't forget to pick up the <i>Portfolio Management In Practice, Volume 1: Investment Management Workbook</i>—which provides a comprehensive companion study guide containing Learning Outcomes and Summary Overview sections along with challenging practice questions and solutions for the material.