Day 1

We begin the course with an introduction to the fundamentals of today’s portfolio management – Modern Portfolio Theory (MPT). We will explore concepts such as efficient frontier, risk/return trade-offs, the asset allocation process and conclude the day with a look at investor characteristics and new developments in behavioral finance.

Principles of modern portfolio management (1 session)

Introduction and objectives

Overview of course

What is Portfolio Management?

Statistical and theoretical approaches to investment management

Commonly used statistical measures

Diversification and the creation of efficient frontier using Markovitz mean variance model

Risk vs. return trade-off

Other applications of Modern Portfolio Theory (MPT)

Essential asset pricing models

Case study –Portfolio management decisions

Participants will be given a historical portfolio of common stock, debt securities and other assets and will be asked to calculate related portfolio statistics: expected returns, standard deviation of returns, covariance, correlation coefficients and beta of the assets. Participants will then use this information to construct an efficient portfolio.

The asset allocation strategies; Strategic asset allocation using investors risk tolerance, characteristics and qualities(2 sessions)

Steps in the portfolio management process

Analyzing risk and return objectives

Influence of political and economic factors in determining optimal asset mix

Types of asset allocation: Fixed, flexible, strategic and tactical asset allocation

Overcoming greed-fear cycle for rational investment decisions

Strategic vs. tactical AA

Investor psyche: overcoming greed-fear hurdle to optimize investors’ returns.

Measuring investors risk tolerance to decide asset allocation

The cases for and against international diversification

Case study: Strategic asset allocation

Participants will be given a background information for a variety of different investors and asked to design appropriate portfolio mixes.

Exploiting market anomalies and understanding behavioral finance for prudent portfolio management (1 Session)

The active vs. passive management debate

Growing importance of Behavioral Finance- Behavioral biases and their implication on portfolio returns.

Comparing momentum vs contrarian investment strategy using behavioral finance framework

Forecasting alpha using the Treynor-Black model for security selection

Exercise – The importance of behavioral finance topics

Participants will examine how a series of behavioral investment biases affect optimal investment decisions as defined by MPT. Biases to be evaluated include:

Frame dependence

Overconfidence

Representativeness

Loss aversion

Day 2

Equity portfolio management is often a critical component of overall investment success since equity securities often represent a significant portion of many investment portfolios. After a review of equity vital equity valuation techniques, we will discuss the role of equities in an investment portfolio, the major approaches employed to manage equities and conclude with a look at strategies used to manage international and emerging market equity portfolios.

Equity portfolio management


Asset pricing models revisited and equity valuation

General principles (1 session)

Using the Capital Asset Pricing Model (CAPM)

Weighted Average Cost of Capital (WACC)

Fundamental equity valuation

Multiples analysis

Exercise – Using asset pricing models

Participants will answer a series of questions related to applications of CAPM and equity valuation techniques

Equity portfolio management-Active strategies (2 sessions)

Underlying drivers for use of equity

Issuer/investor perspectives

Selecting optimum portfolio using Sharpe’s single index model

Equity style management

Security selection approaches: top-down or bottom up

Establishing relevant benchmarks

Long-short vs. long-only strategies

Equitising market-neutral portfolios

Alpha / Beta separation

Applications of portable alpha

Exercise – Evaluating equity funds

We will review several equity portfolios, discussing relative weightings, sector allocation and other important attributes affecting performance

Equity indexing-Passive strategy (1 session)

Weighting schemes of major indices

Equity index futures and their role

Index mutual funds

Exchange-traded funds

Strategies and benchmarking approaches

International equity portfolio management

Constructing international equity benchmarks

Classification issues: Developed, emerging of frontier?

To hedge or not to hedge FX risk

Effect of home bias and information advantage

Case study – Emerging markets portfolio construction Participants will first examine some of the major issues confronting emerging market portfolio construction, including high correlations during crisis, cost of capital computation difficulties, and non-normal return distributions.Then, groups will prepare a presentation to investors demonstrating the advantages of an emerging market portfolio.

Day 3
Measuring and evaluating Managed portfolio’s performance and exploiting alternative investment strategies for superior portfolio performance

Performance measurement, evaluation and attribution (2 sessions)

Computing sub-period returns and arithmetic average rates of return

Time- and dollar-weighted rates of return

Evaluating portfolio performance using risk adjusted measures.

•     1. Sharpe ratio
•     2. Treynor ratio
•     3. Jenson’ s alpha
•     4. Fama’s net selectivity
•     5. Timing and style based measures

Overview of GIPS – Global Investment Performance Standards

Benchmark portfolios and return attribution analysis

Case study: Portfolio performance evaluation and attribution

Case on raking various managed portfolios based on risk adjusted performance and attribution analysis of superior performance

Alternative investment management & strategies (2 sessions)

The alternative investments universe

Different investments and their investor characteristics

Common features of alternative investments

Special issues for investment managers and advisers

Principal classes of alternative investments including:

Hedge funds

Private equity

Commodities

Real estate

Distressed securities

Alternative Investment strategies to create portfolios with superior returns

Hedge funds strategies

Key drivers of hedge fund returns

130/30 Funds

Portable alpha strategies

The risk of hedge funds

Alpha and beta separation

Identifying suitable hedge funds

Core-Satellite programs

Use of derivative strategies

Exercise: alternative investment analysis
Participants will evaluate different alternative investments and select suitable investors to match various portfolios.

Participants attending the entire course shall be eligible to receive Participation Certificate from the BSE Institute Ltd.