Portfolio Management
　　This study session provides the critical framework and context for subsequent Level I study sessions covering equities, fixed income, derivatives, and alternative investments. Furthermore, this study session also provides a basis for the coverage of portfolio management at Levels II and III.
　　The first reading introduces the concept of a portfolio approach to investments. After discussing the investment needs of various types of individual and institutional investors, the reading compares the types of pooled investment management products that are available to investors. The following two readings cover portfolio risk and return measures and introduce modern portfolio theory-a quantitative framework for portfolio selection and asset pricing. The last reading focuses on the portfolio planning and construction process, including the development of an investment policy statement.
　　READING ASSIGNMENTS
　　Reading 42 Portfolio Management: An Overview by Robert M. Conroy, CFA, and Alistair Byrne, CFA
　　Reading 43 Portfolio Risk and Return: Part I by Vijay Singal, CFA
　　Reading 44 Portfolio Risk and Return: Part II by Vijay Singal, CFA
　　Reading 45 Basics of Portfolio Planning and Construction by Alistair Byrne, CFA, and Frank E. Smudde, CFA
　　LEARNING OUTCOMES
　　READING 42. PORTFOLIO MANAGEMENT: AN OVERVIEW
　　The candidate should be able to:
　　a describe the portfolio approach to investing;
　　b describe types of investors and distinctive characteristics and needs of each;
　　c describe defined contribution and defined benefit pension plans;
　　d describe the steps in the portfolio management process;
　　e describe mutual funds and compare them with other pooled investment products.
　　READING 43. PORTFOLIO RISK AND RETURN: PART I
　　The candidate should be able to:
　　a calculate and interpret major return measures and describe their appropriate uses;
　　b describe characteristics of the major asset classes that investors consider in forming portfolios;
　　c calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;
　　d explain risk aversion and its implications for portfolio selection;
　　e calculate and interpret portfolio standard deviation;
　　f describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated;
　　g describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio;
　　h discuss the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line.
　　READING 44. PORTFOLIO RISK AND RETURN: PART II
　　The candidate should be able to:
　　a describe the implications of combining a risk-free asset with a portfolio of risky assets;
　　b explain the capital allocation line (CAL) and the capital market line (CML);
　　c explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk;
　　d explain return generating models (including the market model) and their uses;
　　e calculate and interpret beta;
　　f explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML);
　　g calculate and interpret the expected return of an asset using the CAPM;
　　h describe and demonstrate applications of the CAPM and the SML.
　　READING 45. BASICS OF PORTFOLIO PLANNING AND CONSTRUCTION
　　The candidate should be able to:
　　a describe the reasons for a written investment policy statement (IPS);
　　b describe the major components of an IPS;
　　c describe risk and return objectives and how they may be developed for a client;
　　d distinguish between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance;
　　e describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets;
　　f explain the specification of asset classes in relation to asset allocation;
　　g discuss the principles of portfolio construction and the role of asset allocation in relation to the IPS.
　　　
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