The investment objectives and investment constraints are arguably the key components of the IPS. The two elements outline the risk and return objectives. Return objectives and expectations must be consistent with the risk objectives and constraints that apply to a…

Financial risk tolerance is made up of two components: the ability to take on risk and the willingness to take on risk. The two may not always be in alignment. While an investor may have the ability to take on…

In addition to return and risk objectives, the IPS has to be cognizant of other investment constraints, such as liquidity requirements, the investment time horizon, tax concerns, legal and regulatory factors, and unique circumstances. Liquidity The IPS should detail the…

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…

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,…

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…

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 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…

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…

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…