PORTFOLIO MANAGEMENT: AN OVERVIEW

 On this chapter we’ve mentioned how a portfolio strategy to investing could possibly be preferable to easily investing in particular person securities.

 The issue with specializing in particular person securities is that this strategy could result in the investor “placing all her eggs in a single basket.”

 Portfolios present necessary diversification advantages, permitting threat to be lowered with out essentially affecting or compromising return.

 We now have outlined the differing funding wants of varied varieties of particular person and institutional traders. Institutional purchasers embrace outlined profit pension plans, endowments and foundations, banks, insurance coverage corporations, funding corporations, and sovereign wealth funds.

 Understanding the wants of your shopper and creating an funding coverage assertion characterize the primary steps of the portfolio administration course of. These steps are adopted by safety evaluation, portfolio development, monitoring, and efficiency measurement levels.

 We additionally mentioned the several types of funding merchandise that traders can use to create their portfolio. These vary from mutual funds, to exchange-traded funds, to hedge funds, to non-public fairness funds.

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28 Studying Outcomes, Abstract Overview, and Issues

PROBLEMS^[1]

1. Traders ought to use a portfolio strategy to:
   1. Scale back threat.
   1. Monitor threat.
   1. Get rid of threat.
2. Which of the next is the perfect cause for an investor to be involved with the composition of a portfolio?
   1. Danger discount.
   1. Draw back threat safety.
   1. Avoidance of funding disasters.
3. With respect to the formation of portfolios, which of the next statements is most correct?
   1. Portfolios have an effect on threat lower than returns.
   1. Portfolios have an effect on threat greater than returns.
   1. Portfolios have an effect on threat and returns equally.
4. Which of the next establishments will on common have the best want for liquidity?
   1. Banks.
   1. Funding corporations.
   1. Non-life insurance coverage corporations.
5. Which of the next institutional traders will almost certainly have the longest time horizon?
   1. Outlined profit plan.
   1. College endowment.
   1. Life insurance coverage firm.
6. An outlined profit plan with a lot of retirees is more likely to have a excessive want for:
   1. Earnings.
   1. Liquidity.
   1. Insurance coverage.
7. Which of the next institutional traders is almost certainly to handle investments in mutual funds?
   1. Insurance coverage corporations.
   1. Funding corporations.
   1. College endowments.
8. With respect to the portfolio administration course of, the asset allocation is set within the:
   1. Planning step.
   1. Suggestions step.
   1. Execution step.

Chapter 4 Portfolio Administration: An Overview 29

• The planning step of the portfolio administration course of is least more likely to embrace an evaluation of the shopper’s:
  • Securities.
  • Constraints.
  • Danger tolerance.
• With respect to the portfolio administration course of, the rebalancing of a portfolio’s composition is almost certainly to happen within the:
  • Planning step.
  • Suggestions step.
  • Execution step.
• An analyst gathers the next data for the asset allocations of three portfolios:

Which of the portfolios is almost certainly applicable for a shopper who has a excessive diploma of threat tolerance?

1. Portfolio 1. B. Portfolio 2. C. Portfolio 3.
2. Which of the next funding merchandise is almost certainly to commerce at their internet asset worth per share?
   1. Change-traded funds.
   1. Open-end mutual funds.
   1. Closed-end mutual funds.
3. Which of the next monetary merchandise is least more likely to have a capital acquire distribution?
   1. Change-traded funds.
   1. Open-end mutual funds.
   1. Closed-end mutual funds.
4. Which of the next types of pooled investments is topic to the least quantity of regulation?
   1. Hedge funds.
   1. Change-traded funds.
   1. Closed-end mutual funds.
5. Which of the next pooled investments is almost certainly characterised by a couple of giant investments?
   1. Hedge funds.
   1. Buyout funds.
   1. Enterprise capital funds.