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  1. Passive Index Portfolios
    Full replication


    Quadratic Optimisation
  2. Full Replication
    All the securities in the index are purchased in proportion to their weights in the index.

    (costly, closely tracked)
  3. Sampling
    A representative sample of stocks that comprise the benchmark index.

    (not as costly)
  4. Quadratic Optimisation
    • Historical information on price changes and correlations between securities are input to a
    • computer program that determines the composition of a portfolio that will minimise return deviations from the benchmark.

    (relies on historical data and correlations)
  5. Tracking Error
    The extent to which return fluctuations in the managed portfolio are not correlated with return fluctuations in the benchmark.
  6. Index Portfolio Investing
    Index mutual fund

    Exchange traded fund
  7. Passive Management Strategies
    • Efficient Market Hypothesis 
    • - Buy and hold
    • - Indexing
  8. Active Management Strategies
    • Fundamental Analysis
    • - Top down
    • - Bottom up

    • Technical Analysis
    • - Contrarian
    • - Continuation

    • Anomalies and Attributes
    • - Calendar effects
    • - Information effects
    • - Security Characteristics
    • - Investment style
  9. Style Analysis
    • Explains the variability in the observed returns
    • to a security portfolio in terms of the movements in the returns to a series of benchmark portfolios capturing the essence of a particular security characteristic.
  10. Integrated Asset Allocation
    Capital market conditions

    Investor's objectives and constraints
  11. Strategic Asset Allocation
    Determines the long-term policy asset weights in a portfolio.
  12. Tactical Asset Allocation
    Frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions.
  13. Insured Asset Allocation
    Continual adjustments in the portfolio allocation, assuming that expected market returns and risks are constant over time, while the investor’s objectives and constraints change as his or her wealth position changes.
Card Set
370 - 7
370 - 7