Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

CFA Level 1 Study Notes – Portfolio Management

CFA Level 1 Study Notes – Portfolio Management

Study Session 18

Reading 51 (48 in 2022) – Portfolio Management: An Overview

LOS 51a: describe the portfolio approach to investing
LOS 51b: describe types of investors and distinctive characteristics and needs of each
LOS 51c: describe defined contribution and defined benefit pension plans
LOS 51d: describe the steps in the portfolio management process
LOS 51e: describe aspects of the asset management industry
LOS 51f: describe mutual funds and compare them with other pooled investment products

Reading 52 (49 in 2022) – Portfolio Risk and Return: Part I

LOS 52a: calculate and interpret major return measures and describe their appropriate uses
LOS 52b: compare the money-weighted and time-weighted rates of return and evaluate the performance of portfolios based on these measures
LOS 52c: describe characteristics of the major asset classes that investors consider in forming portfolios
LOS 52d: calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data
LOS 52e: explain risk aversion and its implications for portfolio selection
LOS 52f: calculate and interpret portfolio standard deviation
LOS 52g: describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated
LOS 52h: describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio
LOS 52i: explain the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line


Reading 53 (50 in 2022) – Portfolio Risk and Return: Part II

LOS 53a: describe the implications of combining a risk-free asset with a portfolio of risky assets
LOS 53b: explain the capital allocation line (CAL) and the capital market line (CML)
LOS 53c: explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk
LOS 53d: explain return generating models (including the market model) and their uses
LOS 53e: calculate and interpret beta
LOS 53f: explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
LOS 53g: calculate and interpret the expected return of an asset using the CAPM
LOS 53h: describe and demonstrate applications of the CAPM and the SML
LOS 53i: calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha

Reading 54 (51 in 2022) – Basics of Portfolio Planning and Construction

LOS 54a: describe the reasons for a written investment policy statement (IPS)
LOS 54b: describe the major components of an IPS
LOS 54c: describe risk and return objectives and how they may be developed for a client
LOS 54d: distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance
LOS 54e: describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets
LOS 54f: explain the specification of asset classes in relation to asset allocation
LOS 54g: describe the principles of portfolio construction and the role of asset allocation in relation to the IPS
LOS 54h: describe how environmental, social, and governance (ESG) considerations may be integrated into portfolio planning and construction.

Reading 55(53 in 2022) – Introduction to Risk Management

LOS 55a: define risk management
LOS 55b: describe features of a risk management framework
LOS 55c: define risk governance and describe elements of effective risk governance
LOS 55d: explain how risk tolerance affects risk management
LOS 55e: describe risk budgeting and its role in risk governance
LOS 55f: identify financial and non-financial sources of risk and describe how they may interact
LOS 55g: describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods

Reading 56 (54 in 2022) – Technical Analysis

– LOS 56a: explain principles of technical analysis, its applications, and its underlying assumptions
– LOS 56b: describe the construction of different types of technical analysis charts and interpret them
– LOS 56c: explain uses of trend, support, resistance lines, and change in polarity
– LOS 56d: describe common chart patterns
– LOS 56e: describe common technical analysis indicators (price-based, momentum oscillators, sentiment, and flow of funds)
– LOS 56f: explain how technical analysts use cycles
– LOS 56g: describe the key tenets of Elliott Wave Theory and the importance of Fibonacci numbers
– LOS 56h: describe intermarket analysis as it relates to technical analysis and asset allocation

Reading 57 (55 in 2022) – Fintech in Investment Management

LOS 56a: describe “Fintech”
LOS 56b: describe Big Data, Artificial Intelligence and Machine Learning
LOS 56c: describe Fintech Applications to Investment Management
LOS 56d: describe Financial Applications to Distributed Ledger Technology

New Reading 2022 Curriculum

Reading 52- The Behavioral Biases of Individuals

LOS a: compare and contrast cognitive errors and emotional biases;

LOS b :discuss commonly recognized behavioral biases and their implications for financial decision making;

LOS c: describe how behavioral biases of investors can lead to market characteristics that may not be explained by traditional finance;



Featured Study with Us
CFA® Exam and FRM® Exam Prep Platform offered by AnalystPrep

Study Platform

Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Online Tutoring
    Our videos feature professional educators presenting in-depth explanations of all topics introduced in the curriculum.

    Video Lessons

    Sergio Torrico
    Sergio Torrico
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.