Unit 21: Portfolio Management Styles, Strategies, and Techniques Flashcards
Stocks (asset class)
based on market capitalization, value or growth, foreign equity
Bonds (asset class)
based on maturities and issuers
Cash (asset class)
typically the standard “risk-free rate” 13 week t-bill
Proper asset allocation considers clients need for a combination of
preservation of capital, income, and growth
Alternative investments (asset class)
real estate, hard assets, precious metals, commodities, collectibles, ETNs, private equity, etc. exist to reduce correlation and inflation risk
market risk is not…
able to be diversified
tactical asset allocation
active management, relies on timing the market, sector rotation.
strategic asset allocation
passive, lower fees, mirroring a benchmark, will rebalance.
rebalancing
bringing portfolio back to target allocation after positions have drifted due to market performance.
types- constant ratio plan, constant dollar plan.
Fundamental analysis
the study of a business’s prospects within the context of its industry and the overall economy.
dividend models
determining a stock’s present value by anticipated dividends
-applies to companies who regularly pay dividends
a model that computes a higher current stock price is one that factors
growth into its calculation
Technical Analysis
used to predict prices over next 4-6 weeks, analyzes trends on charts.
support and resistance
support is where a stock will bottom, resistance is where a stock will plateau.
breakout
is when a stocks price penetrates the resistance level.
-if you can detect breakout early, it is a good buying opportunity
moving average
used to show trends in price, usually 50, 200 days.
short interest
the number of shares currently sold short
-the more short interest, the more bullish the indicator, because those shares need to be bought back at some point
odd-lot theory
transactions fewer than 100 shares.
-investors buying smaller amounts are typically less informed, so they are trading at the wrong times.
growth management
looking for earnings momentum.
usually buying stocks with high PE, but it is justified because of the belief it will go even higher.
-however, will usually add negative correlation to hedge
value management
picks stocks that have a relatively low price compared to earnings/book value. trying to buy a bargain.
capital appreciation
includes growth, but also, options, speculation, futures, and event driven investing
income
through either dividends or debt interest. can involve foreign securities or junk bonds.
market capitalization portfolio management
number of outstanding shares * market price.
-can measure how established a company is. might not have as much upside, but can be more resilient.
monte carlo simulation
uses stochastic modeling to give probabilities for various outcomes.
-can provide insight on what to do, but is only as good as its assumptions
-will consider sequencing of returns
