Learning Material Sample
Investment and risk11. Portfolio constructionIn this section we look at portfolio construction including objectives, fund selection, recommendations and reviews.
Earlier on, we discussed ways in which risk can be analysed and reduced in a portfolio. We also need to consider exactly how many portfolios are designed, initiated and monitored.
With large levels of funds available, speci... Shortened demo course. See details at foot of page. ...roviding recommendations to a client with smaller available sums to invest, similar principles to this staged process apply albeit with more use of packaged products as opposed to direct investment into certain types of asset. The client's objectives may be expressed in general terms eg capital growth, income or a balance of income and growth, or they might be more specific eg to produce an income of £10,000 per annum, starting immediately.
In order to achieve the objectives, certain factors about the client need to be taken into account: Liquidity needs Are there for instance needs to retain an emer... Shortened demo course. See details at foot of page. ...t in secure productsMedium risk – a fair proportion of asset based investments e.g. equities, property with some cash and bonds. Maybe a small amount in higher risk funds Medium – High risk- little or no cash. Investing mainly in UK and overseas equity funds High risk – little or no cash. Will be prepared to invest in direct holdings of listed and unlisted companies. Once the objectives of the client have been established, it is necessary to decide upon an overall strategy for managing the portfolio.
Strategies can be classified under two main headings: Active management, using analysis to select stocks and achieve the desired returns Passive management, a strategy that is self maintaining and does not attempt to outperform the market as a who... Shortened demo course. See details at foot of page. ... sectors within those asset classes and then finally decide on which is the most appropriate security.Bottom up management where securities are selected on their own merits and their class or sector is not relevant. These strategies tend to apply where the investment objectives of a fund make asset selection irrelevant e.g. unit trusts investing in American Smaller Companies.
Introduction
Using the principle of top down management, there are three stages in planning the investment portfolio: Asset Allocation Sector Selection Individual Stock Selection. Asset allocation This entails deciding upon what percentages of the overall portfolio are to be held in main asset classes eg shares, fixed interest securities, property, cash etc. A lot depends upon the client’s requirements in terms of the level of risk t... Shortened demo course. See details at foot of page. ...en a share has risen from a trough by 5%.So which is the best form of analysis to use? Many analysts carry out a fundamental analysis on stocks considering their performance. Many have been sceptical of the credibility of chart analysis and whether use of patterns and trends can actually determine stock selection. However, increasing numbers of people are accepting chart analysis more. It is often used with fundamental analysis as opposed to instead of it. Presenting a set of investment recommendations to a client in report format has a...
Shortened demo course. See details at foot of page. ...sy for the client to understand whilst still containing all relevant information. Reviewing performance of an investment portfolio and determining any changes in ...
Shortened demo course. See details at foot of page. ...anges in legislationMaximising use of tax advantaged products e.g. NISAs. |
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