At the end of the course, the student should be able to:
1. Identify the approaches involved in the security selection process,
2. Distinguish between different equity investment styles,
3. Construct and monitor portfolios using the portfolio analytics system on Bloomberg (PORT function),
4. Implement equity portfolio management strategies, using fundamental analysis
5. Evaluate portfolio performance against a benchmark, including return attribution.
6. Report detailed portfolio information and commentaries in the portfolio factsheet.
More generally, students should also be able to:
1. Propose creative solutions
2. Predict how business and economic cycles could affect strategy
3. Construct expert knowledge from cutting-edge information
4. Employ state-of-the-art management techniques
5. Convey powerful messages using contemporary presentation techniques
6. Synthesize multifaceted information from various sources across different functional fields
Equity markets were completely and permanently informationally efficient, risk-averse portfolio managers would be only interested in efficient risk diversification. They could just buy and hold a broad-based index that is consistent with their investment style.
By contrast, when the market vacillates between fear and greed, active portfolio managers seek to outperform the market by skillfully identifying and exploiting the information that is not (totally) reflected in stock prices. They endeavor to construct portfolios that could outperform the market on a risk-adjusted basis. The critical task in this process is to forecast alpha values ahead of time, using fundamental analysis. Ultimately, the optimal risky portfolio should balance alpha (i.e. extra return) with deviations from efficient diversification (e.g. extra firm-specific risk).
Course outline:
*Part I: Passive vs. active portfolio management
1. Index tracking, sampling, buy-and-hold approach
2. The Efficient Market Hypothesis (EMH)
3. Investment policy statement (IPS)
4. Investment styles in equity investing
5. Portfolio performance evaluation, performance attribution, risk exposure
*Part II: Fundamental analysis and selection of common stocks: Equity portfolio management strategies
1. Economic analysis and setting capital market expectations
2. Industry analysis and sensitivity to the business cycle
3. Company analysis and the relative valuation of stocks
*Part III: Active Portfolio Construction and Rebalancing
1. Asset allocation (active vs. passive portfolio; active securities)
2. Forecast precision, tracking error and restriction of benchmark risk
