Description
on Investment Management and it contains topics like investment management function, security analysis, approaches for portfolio management, types of equity instruments, market capitalization based classification, risk in investment in bonds,
Investment Management
We shall cover:
¶ Equity portfolio management ¶ Debt portfolio management
Investment Management Functions
•Set Investment policy •Perform security Analysis •Construct a portfolio •Revise the portfolio •Evaluate the performance of the portfolio
Security Analysis
Technical Analysis •Fundamental Analysis
Portfolio Construction
•selectivity (micro forecasting) •timing (macro forecasting) •diversification
Portfolio Revision
(Repetition of the previous three steps) •Motivations •size of the transaction costs & the perceived improvement
Portfolio Performance Evaluation
•risk & returns •benchmarks
Approaches to Portfolio Management
•Passive management (indexation)holding securities for relatively long periods with small and infrequent changes
•Active managementinvolves a systematic effort to exceed the performance of a selected target
Types of Equity Instruments
• Common Stock- legal representation of the ownership position • Preference Shares- hybrid form of security with the features of both common stock and bonds • Cumulative convertible preference shares • Warrants • Convertible debentures
Market capitalization based classification
•
Small cap companies
– Profit potential of small cap companies • Large cap companies – Liquidity and tradable • Differences in Indices and benchmarks
Earning based classification
• Price/Earnings ratios – Higher the P/E greater the growth potential • Dividend yield • Cyclical stocks; Growth stock; Value stock
Growth vs Value
• Growth Stocks – High P/E ratio; low dividend yields • Value Stocks – Good track record • Growth versus Value controversy • Investor preferences
Use of Equity Derivatives for Portfolio Risk Management
Portfolio Management Organization Structure
• Fund Manager-assets allocation • Security Analysts-supports the fund managers • security Dealers-executes actual buying or selling
Part II : Debt Portfolios
Types of Debt Securities •Secured Vs. Unsecured •by the issuer Category •by the maturity profile •Interest bearing Vs. discounted securities •Fixed and floating rate
Instruments in Indian debt Market
•Certificate of Deposit (CD)-unsecured Negotiable Promissory Note •Commercial Papers(CP)- unsecured instruments issued by corporate bodies •Corporate debentures-credit rated •Floating Rate Bonds •Government Securities
Debt instruments contd...
•Treasury Bills-91, 364 days; •Bank & FI Bonds
PSU bonds
Basic features of bonds •Par value •Coupon •Maturity •Call options
Measuring bond yield
• Current yield=
annual coupon interest/current market price; when bond is selling at discount CRCY.
• Yield to maturity
– Yield and price are inversely related
• Yield curve (TSIR)- tracks the yields across
various maturities; upward sloping
Risk in Investing in bonds
• Interest rate risk refers to the possibility that income and/or capital loss will result because of an increase in the level of interest rates • Re-investment risk • Call risk • Default risk • Liquidity risk
Yield spread and credit risk
•Spread is the premium over G-sec rate paid by borrowers according to their credit risk quality •Credit risk is priced using the ratings of credit rating agencies. •Higher the rating, lower the spread. •Debt portfolios have credit quality objectives.
Duration
• Duration measures the sensitivity of the bond portfolio to changes in interest rates. • Duration is the weighted average term to maturity of a bond. • Duration of a coupon paying bond is always lower than its term to maturity. • Duration of a zero coupon bond is equal to its Maturity
Debt Investment Strategies
• Passive & Active • Buy and hold – interest rate risk – credit risk • Duration management – active management based on interest rate expectations
Organization of debt fund management
• Interest rate forecasting unit • Fund managers • Security dealers • Risk managers
doc_390497070.ppt
on Investment Management and it contains topics like investment management function, security analysis, approaches for portfolio management, types of equity instruments, market capitalization based classification, risk in investment in bonds,
Investment Management
We shall cover:
¶ Equity portfolio management ¶ Debt portfolio management
Investment Management Functions
•Set Investment policy •Perform security Analysis •Construct a portfolio •Revise the portfolio •Evaluate the performance of the portfolio
Security Analysis
Technical Analysis •Fundamental Analysis
Portfolio Construction
•selectivity (micro forecasting) •timing (macro forecasting) •diversification
Portfolio Revision
(Repetition of the previous three steps) •Motivations •size of the transaction costs & the perceived improvement
Portfolio Performance Evaluation
•risk & returns •benchmarks
Approaches to Portfolio Management
•Passive management (indexation)holding securities for relatively long periods with small and infrequent changes
•Active managementinvolves a systematic effort to exceed the performance of a selected target
Types of Equity Instruments
• Common Stock- legal representation of the ownership position • Preference Shares- hybrid form of security with the features of both common stock and bonds • Cumulative convertible preference shares • Warrants • Convertible debentures
Market capitalization based classification
•
Small cap companies
– Profit potential of small cap companies • Large cap companies – Liquidity and tradable • Differences in Indices and benchmarks
Earning based classification
• Price/Earnings ratios – Higher the P/E greater the growth potential • Dividend yield • Cyclical stocks; Growth stock; Value stock
Growth vs Value
• Growth Stocks – High P/E ratio; low dividend yields • Value Stocks – Good track record • Growth versus Value controversy • Investor preferences
Use of Equity Derivatives for Portfolio Risk Management
Portfolio Management Organization Structure
• Fund Manager-assets allocation • Security Analysts-supports the fund managers • security Dealers-executes actual buying or selling
Part II : Debt Portfolios
Types of Debt Securities •Secured Vs. Unsecured •by the issuer Category •by the maturity profile •Interest bearing Vs. discounted securities •Fixed and floating rate
Instruments in Indian debt Market
•Certificate of Deposit (CD)-unsecured Negotiable Promissory Note •Commercial Papers(CP)- unsecured instruments issued by corporate bodies •Corporate debentures-credit rated •Floating Rate Bonds •Government Securities
Debt instruments contd...
•Treasury Bills-91, 364 days; •Bank & FI Bonds
PSU bonds
Basic features of bonds •Par value •Coupon •Maturity •Call options
Measuring bond yield
• Current yield=
annual coupon interest/current market price; when bond is selling at discount CRCY.
• Yield to maturity
– Yield and price are inversely related
• Yield curve (TSIR)- tracks the yields across
various maturities; upward sloping
Risk in Investing in bonds
• Interest rate risk refers to the possibility that income and/or capital loss will result because of an increase in the level of interest rates • Re-investment risk • Call risk • Default risk • Liquidity risk
Yield spread and credit risk
•Spread is the premium over G-sec rate paid by borrowers according to their credit risk quality •Credit risk is priced using the ratings of credit rating agencies. •Higher the rating, lower the spread. •Debt portfolios have credit quality objectives.
Duration
• Duration measures the sensitivity of the bond portfolio to changes in interest rates. • Duration is the weighted average term to maturity of a bond. • Duration of a coupon paying bond is always lower than its term to maturity. • Duration of a zero coupon bond is equal to its Maturity
Debt Investment Strategies
• Passive & Active • Buy and hold – interest rate risk – credit risk • Duration management – active management based on interest rate expectations
Organization of debt fund management
• Interest rate forecasting unit • Fund managers • Security dealers • Risk managers
doc_390497070.ppt