PORTFOLIO

MANAGEMENT
An Overview
WHAT IS PORTFOLIO MANAGEMENT?
Portfolio management involves making
decisions about what assets (like stocks,
bonds, or real estate) to invest in, how much
to invest in each, and when to buy and sell
them, aiming to maximize returns while
managing risks. It’s like creating a collection
of investments to help grow money overtime.
Example:
An investor choosing a mix of stocks, bonds,
and real estate investment trusts to create a
diversified portfolio.
PORTFOLIO APPROACH /
PERSPECTIVE
Portfolio approach means evaluating
individual securities in relation to their
contribution to the investment
characteristics of the whole portfolio, rather
than in isolation.
Example:
Instead of putting all your money in just one
stock, you invest in a mix of stocks, bonds,
and maybe real estate. It’s like having a
collection of different things to reduce risk
and improve chances of growing your money.
 Portfolios can generally offer the
equivalent return of individual securities
with lower overall volatility of returns.

WHAT IS DIVERSIFICATION RATIO?

Diversification ratio measures how
spread out or varied your investments are. It
shows how much risk you’ve reduced by
having different types of investments in your
portfolio. If the ratio is higher, it means your
investments are more diversified, lowering
the overall risk.
MODERN PORTFOLIO THEORY
Modern portfolio theory is a way of
building an investment mix that aims to
maximize returns for a given level of risks by
combining different assets together in a
smart way. It suggests that by diversifying
investments, you can potentially reduce risk
while still aiming for good returns.
Example:
An investor creates a portfolio by combining
different assets like stocks, bonds, and real
estate by specific proportions based on their
expected returns and levels of risk.
REPRESENTATIVE INVESTMENT
MOTIVES FOR INDIVIDUAL INVESTORS
SHORT-TERM GOALS:
 Children’s education
 Saving for a major purchase
 Starting a business

SHORT-TERM GOALS:
 Retirement (defined contribution plan)
EXAMPLES OF INSTITUTIONAL
INVESTORS:

Defined Benefit Pension Plans

University Endowments

Charitable Foundations

Banks

Insurance Companies

Investment Companies

Sovereign Wealth Funds (SWFs)

DEFINED BENEFIT PENSION PLANS

Earnings Tenure of Defined

Age
History Service plans

Investment Returns
vestment Companies Insurance CompaniesBanks
Protect
Manage and invest •money onindividuals/entities
behalf of • Deal withfordeposits and lending
clients. specific risks • Offer investment products but
Grow client’s wealth• Collect premiums
by buying and andmore
pay or
outtraditional
claims. banking.
selling various securities.
COMPARE AND CONTRAST:
 STEPS IN THE PORTFOLIO
MANAGEMENT PROCESS:

Planning step: Feedback step:

Execution step:
-understanding client -portfolio monitoring
needs -asset allocation and rebalancing
-preparing an -security analysis -portfolio
investment policy -portfolio construction measurement and
statement reporting.
SELL-SIDE FIRM VS. BUY-SIDE FIRM:
• Broker or dealer who sells
securities
Sell-Side • Provides independent
investment research and
Firm recommendations

• Investment management
company
Buy-Side • Clients of sell-side firms
• May perform in-house
Firm research
POOLED INVESTMENTS:

Mutual Funds

Private Equity Exchange-

Funds Traded Funds
Pooled
Investments

Separately
Hedge Funds Managed
Accounts
 MUTUAL FUNDS
OPEN-END FUNDS VS. CLOSED-END FUNDS
Open-End Closed-
Funds End Funds
Do not accept
Accept new
new money or
money and issue
issue additional
additional shares
shares

Funds can be Can sell for a

withdrawn from premium or
NAV discount

Portfolio
manager must Limited ability
manage cash to grow
flows
 MUTUAL FUNDS:
NO-LOAD FUNDS VS. LOAD FUNDS

No-Load Load
Funds Funds
Mutual funds Charge a sales
that don’s commission or
charge a sales fee either when
commission or buying, selling
fee when you or periodically
buy or sell during the
shares. holding period.
 MONEY MARKET FUNDS
• Investment options that allow
people to earn interest on their
Tax-Free saving without paying federal
Money Market income taxes on the earnings.

Funds

• Investment options where people

can earn interest on their savings,
Taxable but the earnings are subject to
Money Market federal income taxes.

Funds
 STOCK MUTUAL FUNDS:
ACTIVE VS. PASSIVE MANAGEMENT
• Manager seeks outstanding
performance for higher fee,
Actively frequent trading, and more
likely to realize capital gain
Managed distributions.

• Manager seeks to match the

Passively performance of an index.

Managed
EXCHANGE – TRADED FUNDS (ETFS):

Are typically index

funds

Trade like closed-end

funds

Have prices that track

NAV

Pay dividends out to

investors
SEPARATELY MANAGED ACCOUNT (SMA)
• Large minimum investment
• Considers tax needs
• Assets owned by the individual

HEDGE FUNDS
• Large minimum investment
• Restricted liquidity
• High management fees
 HEDGE FUNDS STRATEGIES
Convertible Arbitrage

Dedicated Short Bias

Emerging Markets

Equity Market Neutral

Event Driven

Fixed-Income Arbitrage

Global Macro

Long/Short
BUYOUT AND VENTURE CAPITAL FUNDS

Invest in private rather than

public equity

Short-term investors

Minimum investment
requirement
Fees for funds under
management and performance
THANK YOU!
Dhaine Liezl E. Robles
BSBA – FM 3