This repository has been archived by the owner on Nov 14, 2023. It is now read-only.
-
Notifications
You must be signed in to change notification settings - Fork 7
/
Copy path27-equity-portfolio-management.html
267 lines (228 loc) · 11.4 KB
/
27-equity-portfolio-management.html
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
<!doctype html>
<html lang="en">
<head>
<meta charset="utf-8">
<title>Study Session 11 | Reading 27 | Equity Portfolio Management</title>
<meta name="description" content="Chartered Financial Analyst Level 3 Study Materials">
<meta name="author" content="MacLane Wilkison">
<meta name="apple-mobile-web-app-capable" content="yes" />
<meta name="apple-mobile-web-app-status-bar-style" content="black-translucent" />
<meta name="viewport" content="width=device-width, initial-scale=1.0, maximum-scale=1.0, user-scalable=no">
<link rel="stylesheet" href="css/reveal.min.css">
<link rel="stylesheet" href="css/theme/default.css" id="theme">
<!-- For syntax highlighting -->
<link rel="stylesheet" href="lib/css/zenburn.css">
<!-- If the query includes 'print-pdf', use the PDF print sheet -->
<script>
document.write( '<link rel="stylesheet" href="css/print/' + ( window.location.search.match( /print-pdf/gi ) ? 'pdf' : 'paper' ) + '.css" type="text/css" media="print">' );
</script>
<!--[if lt IE 9]>
<script src="lib/js/html5shiv.js"></script>
<![endif]-->
</head>
<body>
<div class="reveal">
<!-- Any section element inside of this container is displayed as a slide -->
<div class="slides">
<section>
<h1>Reading 27</h1>
<h3>Equity Portfolio Management</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">AlchemistsAcademy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Role of the Equity Portfolio</h2>
<ul>
<li>Inflation hedge - nominal returns tend to be highly correlated with inflation rate</li>
<li>Growth - high historical long-term real rates of return</li>
</ul>
</section>
<section>
<h2>Approaches to Equity Investment</h2>
<ul>
<li>Passive management</li>
<ul>
<li>Indexing</li>
</ul>
<li>Active management</li>
<li>Semiactive management</li>
<ul>
<li>Active return</li>
<li>Active/tracking risk</li>
<li>Information ratio</li>
</ul>
</ul>
<aside class="notes">
In passive management, the investor does not attempt to reflect her investment expectations through changes in security holdings. Indexing is a passive approach that involves investing in a portfolio that mimics the performance of a benchmark. Active management seeks to outperform a given benchmark by indentifying stock that are expected to under-/outperform. Semiactive management/enhanced indexing/risk-controlled active management is a variant of active management in which an investor attempts to outperform a given benchmark but with limited volatility and tracking risk. Active risk is the excess return over the benchmark and tracking risk is the annualized standard deviation of active returns. The information ratio is the mean active return divided by tracking risk and is a measure of efficiency.
</aside>
</section>
<section>
<section>
<h1>Passive Equity Investing</h1>
</section>
<section>
<h2>Equity Indices</h2>
<ul>
<li>Weighting types:</li>
<ul>
<li>Price weighted - each stock in the index is weighted according to its absolute share price</li>
<ul>
<li>Represents the performance of a portfolio that simply bought and held one share of each index component</li>
</ul>
<li>Value weighted - each stock in the index is weighted according to its market cap</li>
<ul>
<li>Represents the performance of a portfolio that owns all the outstanding shares of each index component</li>
</ul>
<li>Equal weighted - each stock in the index in weighted equally</li>
<ul>
<li>Represents the performance of a portfolio in which the same amount of money is invested in the shares of each index component</li>
</ul>
</ul>
</ul>
<aside class="notes">
Value weighted indices are biased towards large market cap issues. Equal weighted indices can have high transactions costs due to the need for frequent rebalancing.
</aside>
</section>
<section>
<h2>Passive Investment Vehicles</h2>
<ul>
<li>Indexed portfolios</li>
<ul>
<li>Conventional index mutual funds</li>
<li>Exchange-traded funds (ETFs)</li>
<li>Separate/pooled accounts</li>
</ul>
<li>Long cash + long equity index future</li>
<li>Long cash + long equity total return swaps</li>
</ul>
</section>
<section>
<h2>Mutual Funds vs. ETFs</h2>
<ul>
<li>Shareholder accounting at the fund level can be a significant expense for conventional mutual funds; ETFs do not have fund level shareholder accounting</li>
<li>ETFs generally pay much higher index license fees than conventional funds</li>
<li>ETFs are often much more tax-efficient than conventional funds</li>
<li>Users of ETFs pay transaction costs including commissions to trade them; However, for ongoing shareholders, ETFs provide inherently better protection from the cost of providing liquidity to shareholders who are selling fund shares</li>
</ul>
</section>
<section>
<h2>Indexed Portfolios</h2>
<ul>
<li>Full replication - every issue in the index is represented in the portfolio and will have approximately the same weight in the fund as in the index</li>
<li>Stratified sampling - investor divides index along several dimensions, creating multidimensional cells, in which each index stock is categorized; A random sample of stocks is selected from each cell to compose the portfolio</li>
</ul>
</section>
</section>
<section>
<section>
<h1>Active Equity Investing</h1>
</section>
<section>
<h2>Investment Styles</h2>
<ul>
<li>Value - attempts to identify stocks that are relatively cheap in terms of the purchase price of earnings or assets</li>
<ul>
<li>Low P/E</li>
<li>Contrarian</li>
<li>High yield</li>
</ul>
<li>Growth - attempts to identify stocks that have superior growth prospects</li>
<ul>
<li>Consistent growth</li>
<li>Earnings momentum</li>
</ul>
</ul>
<aside class="notes">
A low P/E investor looks for out-of-favor stocks that sell at low multiples to current or normal earnings. A contrarian investor looks for stocks that have experienced recent problems and are selling at low book multiples. A high yield investor looks for stocks that offer high dividend yields with the prospects of maining or increasing the dividend. A consistent growth investor looks for stocks with a long history of sales growth, profitability, and predictable earnings. A momentum investor looks for stocks trading at a premium that she believes will continue to deliver good performance.
</aside>
</section>
<section>
<h2>Identifying Investment Styles</h2>
<ul>
<li>Returns-based style analysis (RBSA) - focuses on overall portfolio characteristics by regressing portfolio returns on return series of a set of securities indices that are:</li>
<ul>
<li>Mutually exlusive</li>
<li>Exhaustive with respect to the relevant investment universe</li>
<li>Distince sources of risk</li>
</ul>
<li>Holdings-based style analysis (HBSA) - categorizes individual securities by characteristics and aggregates the results to determine overall portfolio style</li>
</ul>
</section>
<section>
<h2>Identifying Investment Styles (cont'd)</h2>
<img src="images/27/style-analysis-comparison.png" alt="style analysis comparison" />
</section>
<section>
<h2>Illustrative Style Box</h2>
<p><em>Definition: Visual way of quickly and easily categorizing investment styles</em></p>
<img src="images/27/style-box.png" alt="style box framework" />
</section>
<section>
<h2>Style Drift</h2>
<p><em>Definition: The phenomenon wherein an investment manager strays from his stated style to the style current in favor</em></p>
</section>
<section>
<h2>Socially Responsible Investing (SRI)</h2>
<p><em>Definition: Integrates ethical values and societal concerns with investment decisions</em></p>
<ul>
<li>May constraints based on:</li>
<ul>
<li>Industry classification, reflecting concern for sources of revenue judged to be ethically questionable</li>
<li>Corporate priactices</li>
</ul>
</ul>
</section>
</section>
<section>
<h2>Semiactive Investing</h2>
<ul>
<li>Fundamental Law of Active Management - states that lower-breadth strategies necessarily require more accurate insight about a given investment to produce the same information ratio as a higher-breadth strategy</li>
<ul>
<li>Information ratio (IR) ≈ Information coefficient (IC) × √(Breadth)</li>
</ul>
</ul>
</section>
<section>
<h2>Managing a Portfolio of Managers</h2>
<ul>
<li>Goal is to maximize: U<sub>A</sub> = r<sub>A</sub> - λ<sub>A</sub>σ<sup>2</sup><sub>A</sub></li>
<li>Core-sattelite portfolio - a portfolio in which indexed and semiactive managers constitute a core holding, while active managers represent a ring of sattelites</li>
<li>Completeness fund - a fund that, when added to active managers' positions, establishes an overall portfolio with approximately the same risk exposures as the overall equity benchmark</li>
</ul>
<aside class="notes">
U<sub>A</sub> = expected utility of the active return of the manager mix; r<sub>A</sub> = expected active return of the manager mix; λ<sub>A</sub> = investor's risk aversion in terms of active risk; σ<sup>2</sup><sub>A</sub> = variance of active return
</aside>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
</section>
</div>
</div>
<script src="lib/js/head.min.js"></script>
<script src="js/reveal.min.js"></script>
<script>
// Full list of configuration options available here:
// https://github.com/hakimel/reveal.js#configuration
Reveal.initialize({
controls: true,
progress: true,
history: true,
center: true,
theme: Reveal.getQueryHash().theme, // available themes are in /css/theme
transition: Reveal.getQueryHash().transition || 'default', // default/cube/page/concave/zoom/linear/fade/none
// Optional libraries used to extend on reveal.js
dependencies: [
{ src: 'lib/js/classList.js', condition: function() { return !document.body.classList; } },
{ src: 'plugin/markdown/showdown.js', condition: function() { return !!document.querySelector( '[data-markdown]' ); } },
{ src: 'plugin/markdown/markdown.js', condition: function() { return !!document.querySelector( '[data-markdown]' ); } },
{ src: 'plugin/highlight/highlight.js', async: true, callback: function() { hljs.initHighlightingOnLoad(); } },
{ src: 'plugin/zoom-js/zoom.js', async: true, condition: function() { return !!document.body.classList; } },
{ src: 'plugin/notes/notes.js', async: true, condition: function() { return !!document.body.classList; } }
// { src: 'plugin/remotes/remotes.js', async: true, condition: function() { return !!document.body.classList; } }
]
});
</script>
</body>
</html>