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C8. Common stocks management strategies

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Duong Ha Thuy
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4 views28 pages

C8. Common stocks management strategies

Uploaded by

Duong Ha Thuy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PORTFOLIO MANAGEMENT

Lecturer: Pham Ha Phuong, MSc


Department: Faculty of Banking and Finance
Email: [email protected]
Course materials: bit.ly/3O3IwkF
CHAPTER 8:
Common stocks
management strategies
1. Portfolio Management: An Overview

• Steps in the Portfolio Management Process

• Mutual Funds and Pooled Investment Products

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Steps in the Portfolio Management Process

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Mutual Funds and Pooled Investment Products

• Money market funds


• Bond mutual funds
• Stock mutual funds
o Actively managed funds
o Index funds
• Hybrid/balanced funds

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Mutual Funds and Pooled Investment Products

• Open-end fund
o Load funds
o Non-load funds
• Close-end fund

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Mutual Funds and Pooled Investment Products

Other forms of Pooled Investment Products


• Exchange Traded Funds (ETF)
• Separately Managed Accounts
• Private Equity Funds
• Hedge Funds
• Venture capital funds

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2. Passive versus Active management

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2. Passive portfolio

Passive equity portfolio management attempts to design a set of stock


holdings that replicates the performance of a specific benchmark

Reasons:
• stock markets throughout the world are often fairly efficient
• the annual costs of trying to beat the market are difficult to overcome

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2. Passive portfolio

2.1. Index Portfolio Construction Techniques

• full replication
• sampling
• quadratic optimization

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2. Passive portfolio

2.2. Tracking Error and Index Portfolio Construction

If the goal of forming a passive portfolio is to replicate a particular


equity index, the success of such a fund lies not in the absolute returns it
produces but in how closely its returns match those of the benchmark.
That is, the goal of the passive manager should be to minimize the
portfolio’s return volatility relative to the index.

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2.2. Tracking Error and Index Portfolio Construction

• The Period t return to managed portfolio is:

• The Period t return differential between the managed portfolio and the benchmark is:

• The standard deviation of the return differential is:

• So that annualized tracking error (TE) can be calculated as:

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Example

➢ Tracking Error and Index Portfolio Construction

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2. Passive portfolio

2.3. Methods of Index Portfolio Investing

• Index Funds
• Exchange-Traded Funds

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3. Active portfolio

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3. Active portfolio

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3.1. Fundamental Strategies

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3.2. Technical Strategies

• Contrarian investment strategy: based on the belief that the


best time to buy (sell) a stock is when the majority of other
investors are the most bearish (bullish) about it
• A price momentum strategy: assumes that stocks that have
been hot will stay hot, while cold stocks will also remain so

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3.2. Technical Strategies

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3.3. Anomalies and Attributes

• Earnings momentum strategy: purchases and holds stocks that


have accelerating earnings and sells (or short sells) stocks with
disappointing earnings
• Two types of expected earnings are used most frequently:
(1) those generated by a statistical model
(2) the consensus forecast of professional stock analysts

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3.3. Anomalies and Attributes

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3.3. Anomalies and Attributes

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4. Value versus growth investing: a closer look

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4. Value versus growth investing: a closer look

A growth-oriented investor will:

• Focus on the EPS component (i.e., the denominator) of the P/E


ratio and its economic determinants
• Look for companies that he/she expects to exhibit rapid EPS
growth in the future;
• Often implicitly assume that the P/E ratio will remain constant
over the near term, meaning that the stock price will rise as
forecasted earnings growth is realized.

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4. Value versus growth investing: a closer look

A value-oriented investor will:

• Focus on the price component (i.e., the numerator) of the P/E


ratio; he or she must be convinced that the price of the stock is
“cheap” by some means of comparison
• Not care a great deal about current earnings or the fundamental
drivers of earnings growth
• Often implicitly assume that the P/E ratio is below its natural level
and that the market will soon “correct” this situation by increasing
the stock price with little or no change in earnings.

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4. Value versus growth investing: a closer look

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Top Stock Holdings
- Growth vs Value
Mutual Funds

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5. Asset Allocation Strategies

• Integrated Asset Allocation

• Strategic Asset Allocation

• Tactical Asset Allocation

• Insured asset allocation

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