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PORTFOLIO:Revision Performance Evaluation and Management

Presented By: Sumit Shukla

Collection of Assets. Portfolio means a collection of financial assets (or securities) such as shares, debentures and government securities.

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Portfolio Revision

Changing the existing mix of securities

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Maximizing the Return

Minimizing the Risk

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Portfolio Revision Strategy Active Strategy Passive Strategy

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Active Strategy Active strategy of portfolio revision involves a process to similar to portfolio analysis and selection, which is based on an analysis of fundamental factors covering economy, industries and companies as well as technical factors.

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Passive Strategy Under passive strategy some kinds of formula plans are followed for revision.

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Constraints in Portfolio Revision Transaction Cost Taxes Statutory Stipulation No single Formula

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Dollar Cost Averaging It is a technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. Also referred as Constant Dollar Plan

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Constant-Ratio Plan This is an investment strategy in which the portfolio s composition by asset class is maintained at a certain level through periodic adjustments.

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Performance Evaluation of Portfolio

It enables the investor to appraise how well the portfolio manager has achieved the targeted return. It enables the investor to examine how well the manager has achieved the targets in comparison to other mutual funds. It enables the fund authorities to evaluate the performance of their investment decisions not only earning a specified rate of return, in relative terms i.e. per unit of risk.13

Portfolio Performance And Risk Adjusted Methods Sharpe s Ratio Treynor s Measure Jensen s Differential Returns

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Sharpe s Ratio A ratio developed by Nobel laureate William F. Sharpe to measure risk adjusted performance. It is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio return.

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E[R]= Expected portfolio return Rf = Risk free rate = Portfolio Standard daviation

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Treynor Portfolio Performance Developed by Jack Treynor in 1965. A performance measure that would apply to all investors regardless of their risk preferences.

RM= Market return RF= Risk Free return = Standard daviation17

Differential Return (Jensen Measure) The standard is based on the manager s predictive ability. Successful prediction of security price would enable the manager to earn higher returns than the ordinary investor expects to earn in a given level of risk.

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The basic model of Jensen is R= + (Rm-Rf) R= average return of portfolio = the intercept = a measure of systematic risk

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Phases of Portfolio Management Specification of investment objectives and constraints. Choice of asset mix. Formulation of portfolio strategy. Selection of securities. Portfolio execution. Portfolio revision. Portfolio evaluation.21

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Determining your Risk Preference Time Horizon Bankroll

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Investment Risk Pyramid

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Asset mix

Asset allocation is an investment portfolio technique that aims to balance the risk and create diversification by dividing asset among major categories such as bonds, stocks, real estate, and cash.26

Building an Investment Portfolio Asset allocation Asset classes Diversification

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RISK REDUCTION IN THE STOCK PORTION OF A PORTFOLIO

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Law of Large Numbers

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A Strategy for Everyone

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Value investing

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Growth Investing

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Performance Index Sharpe s Portfolio Performance Measure Treynor Portfolio Performance Measure Jensen Portfolio Performance Measure

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