Basics of Portfolio Planning & Construction Flashcards
What is “Portfolio Planning”?
The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.
What is “Tracking Risk”?
The standard deviation of the difference between the portfolio’s returns and its benchmark’s returns.
Also called tracking error.
What is “Tracking Error”?
The standard deviation of the difference between the portfolio’s returns and its benchmark’s returns.
What is “liability-driven” investing?
An investment industry term that generally encompasses asset allocation that is focused on funding an investors liabilities in institutional contexts.
What are “self-investment limits”?
With respect to investment limitations applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.
What is an “Asset Class”?
A group of assets that have similar characteristics, attributes, and risk-return relationships.
What is “Strategic Asset Allocation” ?
An investment strategy premised on long-term asset allocation. This strategy only rebalances its portfolio when the asset mix represents a significant deviation from the original or target allocation mix.
What are “Capital Market Expectations”?
Expectations about the risk and return prospects of asset classes.
What is “Best-In-Class” Screening?
An ESG implementation approach that seeks to identify the most favorable companies and sectors based on ESG considerations.
Also called “Positive Screening”.
What is “Risk Budgeting”?
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
What is “Tactical Asset Allocation”?
Asset allocation that involves making short-term adjustments to asset class weights based on short-term predictions of relative performance among asset classes.
What is “Security Selection”?
The process of selecting individual securities.
What is the purpose of individually selecting securities?
Generating superior risk-adjusted returns relative to the benchmark.
What is a “Rebalancing Policy”?
The set of rules that guide the process of restoring a portfolio’s asset class weights to those specified in the strategic asset allocation.
What is “Shareholder Engagement”?
Reflects active ownership by investors in which the investor seeks to influence a corporation’s decisions on ESG matters, either through dialog or votes.
