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READING 26: INTRODUCTION TO EQUIT PORTFOLIO MANAGEMENT (MODULE 26.1 EQUITY…

- - - - Advantages
        
        better address client investment considerations
        
        greater diversification benefits by investing across
        different sectors or industries
        
        construct relevant benchmarks for funds that invest in a
        specific si]e/style category.
        
        construct relevant benchmarks for funds that invest in a
        specific si]e/style category.
- - - - Explicit : broker commissions, stock exchange fees, and taxes
        
        Implicit : include bid-ask spreads, price impact from the transaction, and delay costs (i.e., slippage costs) from not completing
- - - - Focus on short term objectives.
        
        Lead to acquisition of material. non-public info, increasing the risk of insider trading
        
        Create potential conflicts of interest ( because the management also invests in the manager's fund)
    - - Propose shareholder resolutions and launch media campaigns to influence the vote.
        
        Seek representation on the company's BOD
        
        Launch proxy fights to achieve their goals.
- - - - Confidence the manager has the expert knowledge and skill to add value.
        
        Client preferences
        
        What need to do ?
        
        Manage investors' expectation
        
        Popular Strategies can also be a problem (too much capital flowing in)
        
        select an appropriate benchmark that investors will be interested in.
        
        What risks need considering?
        
        Reputation risk: results from violations to rules, regulations, client agreements
        
        Key person risk: individuals who are essential to the success
        of the fund leaving the investment firm.
        
        Higher portfolio turnovers -> higher tax