All the securities in the index are purchased in proportion to their weights in the index.
(costly, closely tracked)
A representative sample of stocks that comprise the benchmark index.
(not as costly)
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)
The extent to which return fluctuations in the managed portfolio are not correlated with return fluctuations in the benchmark.
Index Portfolio Investing
Index mutual fund
Exchange traded fund
Passive Management Strategies
Efficient Market Hypothesis
- Buy and hold
Active Management Strategies
- Top down
- Bottom up
Anomalies and Attributes
- Calendar effects
- Information effects
- Security Characteristics
- Investment style
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.
Integrated Asset Allocation
Capital market conditions
Investor's objectives and constraints
Strategic Asset Allocation
Determines the long-term policy asset weights in a portfolio.
Tactical Asset Allocation
Frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions.
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.