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Portfolio Construction And

Analysis
Presented by
Pranav Bhagat(03)
Darshit Desai(08)
Ratul Ghosh(12)
Sagar Ghutkude(13)
Aanchal Narula(30)
Madhur Sawant(43)
Khushboo Shah(46)

Flow of Presentation
Introduction to Portfolio Construction
Portfolio Risk and Returns
Portfolio Optimization
Portfolio Management Strategies
Portfolio Performance Measurement
Introduction
Traditional Investments
- Security Analysis
- Portfolio Management
Security Analysis involves estimating the merits of individual investments
Portfolio Management deals with the construction and maintenance of
collection of investments
Aims at reducing risks rather than increasing returns
Portfolio construction is a part of portfolio management
Portfolio Construction is a disciplined personalized process
In constructing a portfolio, the individual risk & return characteristic of
underlying investment must be considered along with clients unique
needs, goals and risk considered

Brief History
1952

-Publication of
Harry
Markowitz
thesis, Portfolio
Selectiion



1964

- William
Sharpe came
out with
CAPM model
-Introduced
Alpha and Beta


1980

- AG Becker
introduced
concept of
Investment
Style



1986

- Gary
Brinson
introduced
Determinants
of Portfolio
Performance


Importance of Portfolio Construction
Planning investment with financial planner helps in reaching the
investment objectives
Individual investor focus more on right fund manager and securities
Portfolio constructions helps in attaining investment objectives with
minimum risk
2 types of investors- Private investors and Professional investors
They build their portfolio in 2 different ways
- Bottom Up Approach
- Top down Approach
Investment Consulting Process
It formalizes investing just like an architect
Developing a blue print based on your needs and goals, investment
parameters
The Investment Consulting Process is as follows

Establishing of Goals and Objectives
Asset Allocation
Manager Search and Selection
Performance Monitoring
Cash Flow needs
Risk Tolerance
Performance Objectives
Time Horizon
Investments Restriction
Determine Investment Parameters
Formulating Policy Statements
Optimize Risk and Reward tradeoff
Determining Asset Allocation
Define Investment Strategies
Portfolio Construction
Evaluation of Investment Structure
Manager Selection
Implement Investment Strategy
Determine Performance benchmark
Evaluate Relative and Absolute Returns
Measure Performance
Ongoing review of Objectives and Strategies
Changing Clients circumstances
Changing Financial market conditions
Provide Ongoing Review and Adjustment
Major Blunders in Portfolio Construction
One sided approach
Lumpy Risks
Liquidity Problem
Home bias problem
Failure to monitor portfolio regularly
Portfolio drift
Awkward issue of no loss control
Important Terms
Value
Investing
Deep Value
Relative
Value
Growth
Interest
GARP
Important Terms
Cumulative
Returns
Rolling
Period Return
Standard
Deviation
Beta
Alpha