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Portfolio management (2) (15 factors influencing investment strategy…
Portfolio management (2)
conflicting objectives
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achieving high long-term investment returns, to reduce costs/ increase profits
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Strategic risk
risk that strategic benchmark under-performs relative to value of liabilities. Often quantified with reference to matching portfolio - portfolio deemed to most closely match liabilities
active risk
risk that each individual specialist manager under-performs relative to their benchmark. Total active risk is risk that managers in aggregate under-perform relative to aggregate of individual benchmarks.
Structural risk
risk that aggregate of individual managers' portfolio benchmarks under-performs relative to strategic benchmark
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Technical analysis
attempts to predict future prices and yields based on past prices, yields and/or trading volumes
Three main forms
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mechanical trading rules
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although choice of trading rule is subjective, its subsequent implementation is not
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disadvantages
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instead of short-term profits, you could end up making hefty losses.
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risk budgeting
process of establishing overall investment risk to be taken and where it is most efficient to take risk in order to maximise return
2 stages
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allocating total fund active risk across component portfolios i.e. deciding how much risk each individual specialist fund manager can take.
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active money
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Larger active money positions indicate greater divergence from the benchmark and hence more risk relative to benchmark
some stocks more likely to perform very differently to benchmark than others (e.g. those with high betas)
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