Learning Sessions – Portfolio Management

Study Session 12

Reading 38 – Portfolio Management: An Overview

LOS 38a: describe the portfolio approach to investing
LOS 38b: describe types of investors and distinctive characteristics and needs of each
LOS 38c: describe defined contribution and defined benefit pension plans
LOS 38d: describe the steps in the portfolio management process
LOS 38e: describe mutual funds and compare them with other pooled investment products

Reading 39 – Risk Management: An Introduction

LOS 39a: define risk management
LOS 39b: describe features of a risk management framework
LOS 39c: define risk governance and describe elements of effective risk governance
LOS 39d: explain how risk tolerance affects risk management
LOS 39e: describe risk budgeting and its role in risk governance
LOS 39f: identify financial and non-financial sources of risk and describe how they may interact
LOS 39g: describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods

Reading 40 – Portfolio Risk and Return: Part I

LOS 40a: calculate and interpret major return measures and describe their appropriate uses
LOS 40b: describe characteristics of the major asset classes that investors consider in forming portfolios
LOS 40c: calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data
LOS 40d: explain risk aversion and its implications for portfolio selection
LOS 40e: calculate and interpret portfolio standard deviation
LOS 40f: describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated
LOS 40g: describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio
LOS 40h: explain the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line

Reading 41 – Portfolio Risk and Return: Part II

LOS 41a: describe the implications of combining a risk-free asset with a portfolio of risky assets
LOS 41b: explain the capital allocation line (CAL) and the capital market line (CML)
LOS 41c: explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk
LOS 41d: explain return generating models (including the market model) and their uses
LOS 41e: calculate and interpret beta
LOS 41f: explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
LOS 41g: calculate and interpret the expected return of an asset using the CAPM
LOS 41h: describe and demonstrate applications of the CAPM and the SML
LOS 41i: calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha

Reading 42 – Basics of Portfolio Planning and Construction

LOS 42a: describe the reasons for a written investment policy statement (IPS)
LOS 42b: describe the major components of an IPS
LOS 42c: describe risk and return objectives and how they may be developed for a client
LOS 42d: distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance
LOS 42e: 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 42f: explain the specification of asset classes in relation to asset allocation
LOS 42g: describe the principles of portfolio construction and the role of asset allocation in relation to the IPS

Reading 43 – Basics of Portfolio Planning and Construction

LOS 43a: describe “Fintech”
LOS 43b: describe Big Data, Artificial Intelligence and Machine Learning
LOS 43c: describe Fintech Applications to Investment Management
LOS 43d: describe Financial Applications to Distributed Ledger Technology


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