Chapter 4: Portfolio Planning and Construction

In this section

• The Investment Policy Statement (IPS) – Purpose and Components
  Explore how an IPS serves as the foundational blueprint for managing portfolios by defining objectives, constraints, benchmarks, and responsibilities.
• Risk and Return Objectives (Ability and Willingness to Take Risk)
  Explore how to balance an investor’s capacity for financial risk with their emotional comfort level, and set suitable return objectives for effective portfolio management.
• Liquidity, Time Horizon, Taxes, Legal, and Unique Constraints
  Explore how liquidity, time horizon, taxes, legal provisions, and unique preferences shape portfolio construction and planning.
• Asset Class Definitions and Strategic Asset Allocation
  Explore the fundamentals of asset class characteristics and learn how to set a strategic asset allocation that caters to long-term investment objectives.
• Tactical Allocation and Rebalancing Approaches
  A comprehensive exploration of tactical asset allocation and rebalancing, covering forecasting methods, practical strategies, cost–benefit trade-offs, and real-world examples for effective portfolio management.
• Portfolio Segmentation Methods (Core-Satellite, Etc.)
  Learn how to structure portfolios using the core-satellite approach, manage risk, pursue alpha through specialized allocations, and adapt segmentation to diverse investor needs.
• Liability-Driven Investing and Pension Portfolios
  Explore strategies to match asset profiles with future liabilities, focusing on pensions, duration matching, surplus management, and practical examples to optimize funding ratios.
• Risk Budgeting in Portfolio Construction
  Discover how to allocate and monitor risk across various asset classes, strategies, and managers, optimizing portfolio returns within a defined risk budget.
• The Role of Capital Market Expectations
  Comprehensive coverage on how forecasts of returns, risks, and correlations underpin portfolio construction and strategic asset allocation, exploring both quantitative methods and qualitative insights.
• Tailoring IPS for Different Investor Types
  Explore how to adapt an Investment Policy Statement (IPS) to align with the unique objectives, constraints, and regulatory requirements of various investor types, including individuals, pension funds, insurance companies, foundations, endowments, and banks.
• Cost and Tax Efficiency in Allocation Structure
  Explore how minimizing expenses and managing taxes can significantly enhance long-term portfolio returns, including practical asset location strategies, tax-loss harvesting, and low-turnover approaches.
• Manager Selection and Due Diligence
  Explore the strategic and operational intricacies of identifying, selecting, and monitoring portfolio managers to align with investment mandates and ensure consistent performance.
• ESG Factors in Portfolio Construction
  Explores ESG integration in portfolio construction, from negative screening to best-in-class selection, highlighting data challenges and alignment with client values.
• Implementing Style Tilts in Allocation
  Explore how purposeful over- or under-weighting of specific equity styles—such as value, growth, momentum, or quality—can enhance a portfolio’s return profile while managing potential risks.
• Overlay Strategies to Manage Portfolio Exposures
  Discover how derivatives-based overlay strategies can fine-tune portfolio exposures and manage key risks without altering the underlying portfolio composition.
• Monitoring Compliance with IPS Guidelines
  Learn how to effectively monitor a portfolio’s adherence to Investment Policy Statement (IPS) objectives, manage risks, and maintain transparency through regular checks, performance measures, and robust reporting protocols.