Portfolio managers rely on one of three frameworks for analyzing and managing their portfolios. The three approaches below have advantages and disadvantages, which the analysts and managers must know to make prudent investment decisions. Asset-only Approach This approach considers only…

Portfolio managers rely on one of three frameworks for analyzing and managing their portfolios. The three approaches below have advantages and disadvantages, which the analysts and managers must know to make prudent investment decisions. Asset-only Approach This approach considers only…

 The Economic Balance Sheet An economic balance sheet is a snapshot in time of an investor’s assets and liabilities. But rather than just capturing physical and/or financial assets, as does the traditional balance sheet, the economic balance sheet also…

Governance Structures Corporate governance focuses on clarifying the mission, creating a plan, and reviewing progress toward achieving long and short-term objectives. In contrast, management efforts are geared toward outcomes—the execution of the plan to achieve the agreed-on goals and objectives….

Going from capital market expectations to asset allocation requires analysis and interpretation. In order to improve performance and client-advisor relationships, it is essential to translate and identify the fundamental factors affecting portfolios and asset allocations. Macro-based Recommendations Macro recommendations involve…

Variance Covariance (VCV) Matrices The simplest and most commonly used method for estimating constant variances and covariances is to use variance or covariance–computed from historical return data. These elements are then assembled into a VCV matrix. The following table shows…

There are three principal ways in which trade goods and services can influence exchange rates: Trade flows. Purchasing power parity. Current account. Trade flows tend to make up a small portion of total GDP and exert little influence on exchange…

Forecasting Real Estate Returns This reading focuses on directly held, non-levered, income-producing real estate. REITs are covered in further detail in other sections. Directly held real estate is distinct from other asset classes because it is immobile, illiquid, indivisible, and…

Most of the risks bondholders face in emerging market debt pertain to equity investments in those same markets, including but not limited to: More fragile economies. Weaker legal protections. Less stable political and policy frameworks. It is important to remember…

Historical Statistical Approaches Historical statistical approaches involve the collection of data from past returns and using them to extrapolate future performance. Using a pure-historical returns approach to forecast equity market returns is complicated because equities have a high standard deviation…