Portfolio Management: Learning Outcomes

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Portfolio Management

LEARNING OUTCOMES

Portfolio Management: An Overview


The candidate should be able to:
□ describe the portfolio approach to investing
□ describe the steps in the portfolio management process
□ describe types of investors and distinctive characteristics and needs of each
□ describe defined contribution and defined benefit pension plans
□ describe aspects of the asset management industry
□ describe mutual funds and compare them with other pooled investment
products

Portfolio Risk and Return: Part I


The candidate should be able to:
□ calculate and interpret major return measures and describe their appropriate
uses
□ compare the money-weighted and time-weighted rates of return and evaluate
the performance of portfolios based on these measures
□ describe characteristics of the major asset classes that investors consider in
forming portfolios
□ explain risk aversion and its implications for portfolio selection
□ explain the selection of an optimal portfolio, given an investor’s utility (or risk
aversion) and the capital allocation line
□ calculate and interpret the mean, variance, and covariance (or correlation) of
asset returns based on historical data
□ calculate and interpret portfolio standard deviation
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□ describe the effect on a portfolio’s risk of investing in assets that are less than
perfectly correlated
□ describe and interpret the minimum-variance and efficient frontiers of risky
assets and the global minimum-variance portfolio

Portfolio Risk and Return: Part II


The candidate should be able to:
□ describe the implications of combining a risk-free asset with a portfolio of risky
assets
□ explain the capital allocation line (CAL) and the capital market line (CML)
□ explain systematic and nonsystematic risk, including why an investor should not
expect to receive additional return for bearing nonsystematic risk
□ explain return generating models (including the market model) and their uses
□ calculate and interpret beta
□ explain the capital asset pricing model (CAPM), including its assumptions, and
the security market line (SML)
□ calculate and interpret the expected return of an asset using the CAPM
□ describe and demonstrate applications of the CAPM and the SML
□ calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha

Basics of Portfolio Planning and Construction


The candidate should be able to:
□ describe the reasons for a written investment policy statement (IPS)
□ describe the major components of an IPS
□ describe risk and return objectives and how they may be developed for a client
□ explain the difference between the willingness and the ability (capacity) to take
risk in analyzing an investor’s financial risk tolerance
□ describe the investment constraints of liquidity, time horizon, tax concerns, legal
and regulatory factors, and unique circumstances and their implications for the
choice of portfolio assets
□ explain the specification of asset classes in relation to asset allocation
□ describe the principles of portfolio construction and the role of asset allocation
in relation to the IPS
□ describe how environmental, social, and governance (ESG) considerations may
be integrated into portfolio planning and construction

The Behavioral Biases of Individuals


The candidate should be able to:
□ compare and contrast cognitive errors and emotional biases
□ discuss commonly recognized behavioral biases and their implications for
financial decision making
□ describe how behavioral biases of investors can lead to market characteristics
that may not be explained by traditional finance

Introduction to Risk Management


The candidate should be able to:
□ define risk management
□ describe features of a risk management framework
□ define risk governance and describe elements of effective risk governance
□ explain how risk tolerance affects risk management
□ describe risk budgeting and its role in risk governance
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□ identify financial and non-financial sources of risk and describe how they may
interact
□ describe methods for measuring and modifying risk exposures and factors to
consider in choosing among the methods

Technical Analysis
The candidate should be able to:
□ explain principles and assumptions of technical analysis
□ describe potential links between technical analysis and behavioral finance
□ compare principles of technical analysis and fundamental analysis
□ describe and interpret different types of technical analysis charts
□ explain uses of trend, support, and resistance lines
□ explain common chart patterns
□ explain common technical indicators
□ describe principles of intermarket analysis
□ explain technical analysis applications to portfolio management

Fintech in Investment Management


The candidate should be able to:
□ describe “fintech”
□ describe Big Data, artificial intelligence, and machine learning
□ describe fintech applications to investment management
□ describe financial applications of distributed ledger technology

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