Equity Investment Across The Passive–Active Spectrum
The choice between managing a portfolio of equities passively or actively involves various minor decisions. The result is not strictly a binary yes-or-no answer. Instead, it can be viewed as a decision that falls along a spectrum. This decision-making…
Shareholder Engagement
Engagement vs. Activism Shareholder engagement involves portfolio managern use a proxy vote to strengthen their influence collectively, allowing absentee shareholders to delegate their votes. The services of external proxy advisory firms' or other shareholders' active participation in a company's affairs….
Earnings Linked to Ownership and Management of an Equity Portfolio
Potential Forms of Income Dividend Income Dividend income arises from companies that generate surplus cash flows beyond their operational needs. Dividends reflect financial responsibility, significantly when firms increase these payments. Dividend income is commonly associated with value stocks and appeals…
Segmentation of Equity Investment Universe
Equity Investment Style Box $$ \begin{array}{c|c|ccc} & & & \textbf{Style} & \\ \hline & & \textbf{Value} & \textbf{Blend} & \textbf{Growth} \\ & \textbf{Large} & \text{Large-cap value} & \text{Large-cap blend} & \text{Large-cap growth} \\ \textbf{Size} & \textbf{Mid} & \text{Mid-cap value} &…
Introduction and the Significance of Equities in a Portfolio
Capital Appreciation One of the primary sources of equity return is capital appreciation. This happens when an investor buys a stock and sells it for a higher price, making a profit. Capital appreciation often receives favorable tax treatment in many…
Behavioral Biases
Behavioral Biases Loss aversion refers to the irrational dislike of losses in a portfolio. It manifests when an investor, despite recognizing a stock’s positive metrics and including it in their portfolio, impulsively sells it when it faces a downturn. Goals-based…
Uses of Short-term Shifts in Asset Allocation
Strategic asset allocation (SAA) is the predetermined distribution of assets in a portfolio based on long-term goals and is established in an investment policy statement (IPS). On the other hand, tactical asset allocation (TAA) involves making short-term adjustments to the…
Revising Asset Allocation
Real-world asset allocations seldom remain static throughout the entire lifecycle of a portfolio. Analysts are advised to reassess asset allocation regularly. Analysts can run these reassessments at least annually and after significant events like market volatility or significant changes in…
Tax Considerations in Asset Allocation and Rebalancing
Commonalities Among Global Tax Codes As a global institution, CFA Institute® does not obligate candidates to study the tax codes of specific jurisdictions. However, certain commonalities in tax treatment are widely applicable and essential for the exam and the candidate’s…
Constraints on Asset Allocation
Real World Issues Real-world events often cause deviations from the optimal asset allocation the mathematical calculations of modern portfolio theory suggest. This section delves into the reasons behind these deviations and explores the timing and circumstances in which they occur….
