1. Portfolio Management Unit – 1 Session No.2 Topic: Portfolio Management Process Unit – 1 Session No.2 Topic: Portfolio Management Process

2. Session Plan Recap the Previous Session What is Portfolio Management Process? What is Planning Step? – Four Stages in Planning Step – Investor’s Objectives and Constraints – Investment policy Statement – Capital Market Expectations – Strategic Asset Allocation

3. What is a Portfolio? List out the Securities. What is an Investment? List out the characteristics of Investment What is Investment Management? What are the different types of Investors? What are the distinguish characteristics of Investors? Recap

4. What is a Portfolio Management Process? Involves decisions an active or passive investment approach Relationships between various investment alternatives Investor is to hold an optimal portfolio Three elements: – Planning Step – Execution Step – Feed back Step Give elements of Portfolio management process.

5. What is a Portfolio Management Process? Planning Step Understanding client needs Preparing an investment policy statement (IPS) Execution Step Asset allocation Security analysis Portfolio construction Feedback Step Portfolio monitoring and rebalancing Portfolio measurement and reporting

6. What is a Portfolio Management Process?

7. What is a Planning Step? Investor related input factors – Investor Objectives – Constraints and, – Preferences Economic, Social, political consideration To attainment of Investor’s Objectives What is general objective of an investor? What kind constraints generally faced by an investor?    

8. What is a Planning Step? Planning Step – Stages: A.Identification and specifying the Investor’s Objectives and Constraints B.Creating the Investment Policy Statement C.Forming Capital Market Expectation D.Creating the Strategic Asset Allocation

9. What is a Planning Step? A.Identification and specifying the Investor’s Objectives and Constraints Investment Objectives – Desired investment Outcomes Constraints – Limitations (Internal & External) Internal – Client’s Specific Liquidity needs, time and unique External – Tax issues and legal & regulatory requirements

10. What is a Planning Step? B.Creating the Investment Policy Statement Governing document for all investment decision making Includes – Brief client description Purpose of establishing policies and guidelines Duties and responsibilities of parties Statement of investment goals, objectives and constraints Schedule of review Performance measures Guidelines for rebalancing the portfolio on feedback

11. What is a Planning Step? B.Creating the Investment Policy Statement Elaboration of Investment Strategy – Clarifies the basis for investment Decisions. Three Approaches: a.Passive Investment Approach – Does not react to changes in Capital market expectations b.Active Investment Approach – Portfolio manager will respond to changing CME c.Semi active, risk-controlled active or enhanced index approach

12. What is a Planning Step? C.Forming Capital Market Expectation Long run forecast Risk and return characteristics Asset classes Maximize expected return and minimize risk

13. What is a Planning Step? D.Creating the Strategic Asset Allocation Determine target asset class weights Combine IPS and Capital market expectations Specification of risk control mechanism (Single-period and Multi-period perspectives) Single period – Advantage of Simplicity Multi-period – Liquidity and Tax considerations

14. Summarizing What is the need for investment objectives? Give an example for Internal and External Constraints. What is IPS? How the investment strategies broadly categorized? What is the need for the forming capital expectations? What is Asset Allocation?