Chapter 3: Active Equity Investing: Portfolio Construction

In this section

• Designing Actively Managed Equity Portfolios
  Explore effective techniques and real-world practices for constructing actively managed equity portfolios that aim to generate alpha, balance risks, and align with client objectives.
• Active Risk vs. Active Share
  In-depth exploration of active risk (tracking error) and active share, highlighting how each metric expresses a unique dimension of active equity portfolio management and their implications for strategy, risk, and performance.
• Risk Measures and Risk Budgeting in Equity Portfolios
  Explore how portfolio managers utilize key risk measures and implement risk budgeting in equity portfolios to align with client objectives, while balancing diversification, factor exposures, and potential alpha.
• Influence of AUM, Liquidity, Position Size, and Turnover on Portfolio Construction
  Explore how Assets Under Management, liquidity constraints, position sizing, and turnover can shape an active equity portfolio’s strategy, risk, and alpha potential.
• Evaluating Efficiency and Potential Alpha in Portfolio Structures
  Deep dive into how portfolio structure and investment philosophy influence alpha generation, with insights on structural efficiency, factor-based vs. idiosyncratic returns, performance decomposition, and operational best practices.
• Factor Tilt Management in Equity Portfolios
  Explore systematic ways to overweight or underweight style factors, manage factor exposures, and dynamically allocate across value, momentum, quality, size, and low-volatility strategies in active equity portfolios.
• Attribution Methodologies for Active Equity Performance
  Explore standard return-based and factor-based attribution methods, distinguish between holdings-based and transaction-based approaches, and understand how micro- and macro-attribution guide improvements in active equity portfolio construction.