17

presenterbelchManagement

Nov 18, 2013 (3 years and 10 months ago)

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1

CHAPTER

SEVENTEEN

INVESTMENT
MANAGEMENT

2

INVESTMENT MANAGEMENT


TRADITIONAL INVESTMENT MANAGEMNT
ORGANIZATIONS


Security Analysts play a key role and rely upon
information and reports from


economists


technicians


market experts


Investment Committee is advised by the analyst to
create


An Approved List of Securities



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INVESTMENT MANAGEMENT

INVESTMENT MANAGEMENT COMPANIES
ECONOMISTS
TECHNICIANS
MARKET EXPERTS
SECURITY ANALYST
INVESTMENT COMMITTEE
APPROVED LIST OF SECURITIES
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INVESTMENT MANAGEMENT
FUNCTIONS


FIVE STEP PROCEDURE:


SETTING INVESTMENT POLICY


PERFORMING SECURITY ANALYSIS


CONSTRUCTING A PORTFOLIO


REVISING THE PORTFOLIO


EVALUATING THE PORTFOLIO

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INVESTMENT MANAGEMENT
FUNCTIONS


SETTING INVESTMENT POLICY


DETERMINE THE INVESTMENT
OBJECTIVE


estimate the client’s level of risk tolerance

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INVESTMENT MANAGEMENT
FUNCTIONS


PERFORMING SECURITY ANALYSIS


Security Selection: A 2 Stage Procedure


STAGE I: forecast


expected returns


standard deviation


covariances


identify optimal portfolio


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INVESTMENT MANAGEMENT
FUNCTIONS


PERFORMING SECURITY ANALYSIS


Security Selection: A 2 Stage Procedure


STAGE II: Asset Allocation


strategic


refers to how a portfolio’s funds would be divided, given
the manager’s long
-
term forecasts from Stage I


tactical


given short
-
term forecasts, who will assets be allocated at
any one time


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REVISING THE PORTFOLIO


REVISING THE PORTFOLIO


Use Cost
-
Benefit Analysis


transaction costs should be examined since they
complicate the management decision


portfolio revisions must be weighed against the cost
of revision particularly with regard to transaction
costs

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REVISING THE PORTFOLIO


REVISING THE PORTFOLIO


SWAP METHODOLOGY


a cost saving method which involves exchanges of
assets rather than purchases or sales


TYPES OF SWAPS:


Equity


Interest Rate

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REVISING THE PORTFOLIO


REVISING THE PORTFOLIO


SWAP METHODOLOGY


The Equity Swap:


The Agreement

»
one party agrees to pay the other a variable
-
sized cash
payment

»
the other party agrees to a fixed
-
sized cash payment


Results in a restructured portfolio without incurring any
transaction costs

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REVISING THE PORTFOLIO


REVISING THE PORTFOLIO


SWAP METHODOLOGY



The Interest Rate Swap


The Agreement

»
one party pays the second a variable
-
sized stream of
cash based on the current level of an agreed
-
upon
interest rate (e.g. LIBOR)

»
second party pays the first a fixed
-
sized payment
stream based on the interest rate at the time of the
Agreement


Results in a restructured portfolio without incurring any
transaction costs


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THE MARKET FOR SWAPS


THE MARKET FOR SWAPS


The Market


Is unregulated for the most part


no government agency responsible for it


privacy


each party must pay close attention to the solvency of the
other party


Swap Banks are the heart of the market


they act as dealers


arrange for creation and dissolution of agreements