Asset Allocation
Once the IPS has been specified, the advisor can construct the portfolio. The asset classes need to be defined, and a strategic asset allocation (SAA) formulated. The SAA is the first step and is the set of exposures to permissible…
Principles of Portfolio Construction
Once the IPS containing the investment objectives and investment constraints has been determined along with the risk budget and the classification of asset classes, a portfolio needs to be constructed with the aim of meeting those objectives. The expected returns,…
Describe “Fintech”
Introduction Since computers whirred into life in the early 1960s, the world has witnessed unprecedented innovation and transformation in almost every sphere of life. Tasks that humans could only perform just over 20 years ago have now been taken over…
Describe Big Data, Artificial Intelligence, and Machine Learning
Introduction Big data is a term used to refer to complex, extremely large data that may be analyzed computationally to reveal patterns, trends, and associations, especially those motivated by human behavior. It encompasses both traditional data sources such as company…
Fintech Applications to Investment Management
Fintech has had a huge impact on investment management. The ability to create computer programs that can learn on their own and improve over time creates new opportunities for investment professionals across the board. Applications of Fintech in the Investment…
Financial Applications of Distributed Ledger Technology
A distributed ledger is a database held and updated independently by each participant (or node) in a large network. Rather than have a central authority, records are independently constructed and held by every node (computer). Each node has the ability…
Sharpe Ratio, Treynor Ratio, M2, and Jensen’s Alpha
The following are the four ratios commonly used in performance evaluation. Sharpe Ratio The Sharpe Ratio is the portfolio risk premium divided by the portfolio risk. $$ \text{Sharpe ratio} = \frac{ R_p – R_f } { \sigma_p } $$ The…
Interest Rate Risk Explained With Relevant Examples
Interest is basically a reward paid by a borrower for the use of an asset, usually capital, belonging to a lender. It’s the compensation paid for the loss of use of the asset. We could also describe it as the…
Time Value of Money Explained With Relevant Examples
Time value of money is a concept that refers to the greater benefit of receiving a given amount of money at present rather than in the future due to its earning potential. For example, money could be invested in a…
Alternative Formats of Balance Sheet Presentation
Some entities prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), while others prepare their financial statements in accordance with the United States Generally Accepted Accounting Principles (US GAAP). The choice of standards or principles is usually…
