Activist Strategies
The goal of activist investing is typically to purchase a stake in a company (often 10% or less) and then influence certain aspects of the company's operations in order to increase shareholder value (could also be ESG motivations but commonly…
Factor-Based Active Strategies
Similar to the concept of smart beta, factors are specific characteristics or variables that can influence how investments perform in a portfolio. When using a factor-based strategy, the goal is to identify what might cause a stock's price to go…
Top-down Strategies
Instead of picking individual stocks, top-down managers use broad market ETFs and contracts linked to financial instruments to adjust their portfolios. They put more money in markets they expect to do well and less in those expected to perform poorly….
Bottom-up strategies
In equity investments, whether a manager follows a fundamental or quantitative approach, they can further be classified as bottom-up or top-down investors. Bottom-up strategists focus on individual company data, while top-down approaches start with macroeconomic factors that could impact multiple…
Approaches to Active Management
Active Equity Investing Active equity investing aims to outperform a passive benchmark. At a high level, active approaches can be categorized into two main types: Fundamental Approach. Quantitative Approach. Fundamental Approach The fundamental approach aims to generate alpha by picking…
Market-Based Valuation
Analysts frequently attempt to calculate the value of private companies by referencing market-based multiples derived from comparable public companies' stock shares. This approach is favored over the income-based valuation method discussed earlier. While, in some instances, these multiples are modified…
Income Approach Methods of Private Company Valuation
In earlier sections, we discussed adjusting valuation parameters for private companies, including income normalization and required rate of return changes. After determining the firm's value, control, and marketability, premiums or discounts may be applied based on the evaluator's perspective and…
Origins of Gains and Exposure to Risk in Passive Equity Portfolios
Attribution Analysis Attribution analysis is covered in further detail in other sections of the curriculum. Since it pertains to explaining sources of risk and return, attribution analysis is a method of decomposing the investments in a portfolio. Besides, it maps…
Managing Tracking Error
This section builds upon the previous concept of the ‘u-shape’change in tracking error – the initial improvement and subsequent reversal of tracking error as more index securities are added to a portfolio. Several factors contribute to tracking error: Management fees:…
Passive Portfolio Construction
Full Replication Full replication entails purchasing all the individual securities within an index with weightings that closely mirror the index itself. Some indices are better suited for full replication than others, depending on certain factors. Several factors contribute to making…
