Active Portfolio Management & Asset Allocation

Euromoney Learning Solutions

How long?

  • 4 days
  • in person

What are the topics?

Euromoney Learning Solutions


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Who should attend

This programme is designed for delegates with a knowledge of the fundamentals of modern portfolio theory, asset allocation theory, equity analysis and portfolio construction techniques.

About the course

Learn best practices on asset allocation, portfolio construction & style management strategies

The Active Portfolio Management & Asset Allocation course reviews in detail the latest developments and best practices within the banking and finance industry, with a key focus on asset allocation, portfolio construction, style management strategies, performance measurement and popular thematic trends.

After attending this course you will know how to:

  • Design robust asset allocation models for all market conditions
  • Build and maintain optimal portfolios based on investor needs
  • Analyse the key features, advantages and risks of a broad range of asset classes and their performance in different market conditions
  • Recognise different approaches to identifying and capturing alpha
  • Gain competitive advantage from understanding behavioural biases and how to manage them
  • Address the theoretical and practical issues in connection with multi asset class investing

Agenda offline

Day 1: Introductions and welcome

An overview of trends within the industry

  • Global trends in the asset management industry
  • Profit dynamics
  • Developments in product design and development (ETF’s, Smart Beta & outcome orientated funds)
  • The passive vs. active debate – 'redefining active management'
  • Separation of alpha and beta
  • The benefits of a structured wealth management approach
  • Open architecture and multi manager approaches
  • Changes in investor behaviour & preferences
  • A review of current “thematic” approaches

The 'theoretical' backdrop – tools and concepts

  • Modern portfolio theory and the efficient market hypothesis revisited
  • Portfolio diversification and performance
  • Flaws in the 'efficient frontier' framework
  • Asset and portfolio risk and returns
  • Exploring risk – the investment professionals perspective
  • Exploring risk – the investors perspective(s)
  • Utility and the minimum acceptable return (MAR)
  • The impact of economic cycles

Case study: The case for dynamic asset allocation

Understanding asset allocation

  • Overview of the process
  • Different approaches to asset allocation
  • The risks and rewards of asset allocation in different market cycles
  • Principal protection and principal growth assets
  • The effects of inflation on purchasing power
  • The Investment policy statement
  • Constructing an Analytical Framework
    • Market cycle – defining the capital market opportunity
    • Investor satisfaction
    • Phases and cycles
    • Strategy implementation
  • Estimating expected returns
  • Matching asset classes with wealth levels and income needs
  • Asset and portfolio risk
  • Understanding and explaining risk adjusted returns
  • A comparison of the different approaches to asset allocation
    • Strategic
    • Tactical
    • Dynamic
    • Integrated
  • Core / Satellite approaches
  • Tactical asset allocation using derivatives

Case study: the ‘road to optimality’ and the cost of getting there. Building and maintaining portfolio solutions for clients.

Rebalancing and reallocation

  • Principles and Scope
  • Approaches to rebalancing
  • Advantages and disadvantages
  • Managing ‘drift’ in the portfolio and ‘maverick’ risk
  • Relative performance
  • Critical success factors
  • Special considerations when dealing with concentrated positions

Day 2

Building the equity allocation

  • Characteristics of a successful investment process
  • Equity analysis
  • Valuation approaches
  • Market segmentation and weighting decisions
  • Manager and style selection
  • Style diversification - an impossible challenge?
  • Selecting the benchmark
  • Sources of alpha in equity portfolios
  • Technical analysis - tools and techniques

Asset allocation and other portfolio construction disciplines

  • Strategic principles
  • Style and sector selection
  • Region and country selection
  • Industry and Security selection
  • Manager selection
  • Information ratios for different investment styles
  • Currency selection and currency overlay
  • Market timing
  • Decision points in implementation strategy

Case study: Large Cap Growth Alpha thesis

The search for 'alpha' and the importance of information ratios

  • Defining alpha
  • Sources of alpha
  • Portable alpha
  • Alpha generation and manager skill
  • The information ratio and coefficient
  • The fundamental law of active management

The emergence of SMART Beta

Performance Measurement and Attribution

Individual investor behaviour

  • Introduction - What is behavioural finance?
  • Decision theory
  • Factors impacting individual asset allocation decisions
  • The significance of 'asset locations'
  • Goal based asset allocation
  • Comparison of expected utility, prospect theory and mean variance analysis
  • Individual investor behaviour characteristics
  • What can we learn from 'market history'?
  • The cycle of 'emotion'
  • Identifying patterns of irrationality
  • Risk profiling – dealing with behavioural bias
  • Reacting to client irrationality
  • Moderate or adapt the asset allocation?
  • Summary of implications for portfolio design

Case study: examining patterns of irrationality and the impact on portfolio construction

Asset class characteristics

  • Asset class descriptions and distinguishing qualities
  • Evaluating Asset Classes
  • Rates of return
  • Forecasting expected returns

Integrating alternative assets with 'traditional' asset classes

  • Overview of skill-based investing
  • The growth in alternative strategies
  • Creating a need for alternative investments among traditional investors
  • Performance characteristics of alternative investments
  • Performance benchmarks for alternative investments
  • Potential problems in moving to a multi asset class approach

Case study: The Yale model.

Day 3

Building the Fixed Income Allocation

  • Overview
  • Type of bond
  • Type of issuer
  • Risks associated with fixed income
  • Emerging Market Fixed income
  • Hedge ratio
  • Asset SWAP’s
  • Yield components
  • Duration hedging
  • Convexity
  • Fixed income attribution

Case Study: Protecting investors in a rising rate environment. The end of a 30 year “bull” run?

Hedge funds

  • The key attributes of hedge funds
  • The case for investing in hedge funds
  • An overview of the trading techniques and tactics - understanding short selling, leverage and derivatives
  • Hedge fund styles and strategies
    • Event driven – opportunistic situations
    • Relative value / arbitrage – exploit small pricing anomalies and market inefficiencies
    • Directional / trading / global macro – trends and directional bets
    • Long / short strategies
    • Hybrid funds – a blend of strategies, styles and technique
  • Evaluating Hedge Funds – risk and performance
  • The future of Hedge Funds

Case study: long / short and market neutral strategies.

Day 4

Risk management

  • Measuring risk
  • Types of risk
  • The key ratios and measures
  • Skewness and Kurtosis


Case Study: The role of ETF’s in Portfolio Construction and Asset Allocation

Private equity

  • Definition of Private Equity
  • The main sources of Private Equity
  • The case for Private Equity
  • Constructing the Private Equity portfolio
  • Monitoring the portfolio and measuring performance
  • Measuring correlation with public markets
  • Current trends in the market place

Case study: the practical difficulties in building a private equity allocation.


  • Gaining exposure to the asset class
  • Performance measurement and benchmarks
  • Correlation


  • Including commodities in the portfolio

Structured products

  • What are structured products?
  • Foreign exchange products
  • Certificates
    • Index
    • Basket
    • Comparison with mutual funds
    • Covered warrants
  • Capital guarantee and protection products
    • Vanilla products
    • Portfolio insurance
  • Maximum return products
    • Discount certificates
    • Reverse convertibles
  • Derivatives
  • Exchange Traded Funds – tools for tactical asset allocation
  • Ad hoc solutions or part of portfolio construction?

Case study: designing specific 'structured' solutions for clients.

Course summary and close


The workshop is designed to be interactive drawing on the knowledge and experiences of the trainer and participants. The trainer will explore best practices across the industry using current industry research, reports, analysis and case studies. Participants will be encouraged to apply the best practices to their own markets and businesses.

Agenda Online

Day 1: Introductions and welcome

Morning : 2 x 1.5 Hour Sessions

Session 1 : Inputs to the Asset Allocation Decision

  • Key inputs to the asset allocation decision
  • Return and volatility assumptions
  • Correlations and the covariance matrix
  • Efficient frontiers and optimal portfolios
  • Utility functions, indifference curves and risk aversion factors
  • Static approaches to asset allocation – strategic asset allocation
  • Dynamic approaches to asset allocation – integrated, tactical and insured

Case Study : Asset Allocation Theory

Session 2 : Moving beyond Mean-Variance Optimisation

  • General problems with mean-variance optimization and models
  • Alternative mean-variance based models
  • Models with alternative risk definitions – mean semi-variance and conditional VaR models
  • The Black-Litterman model
  • Lee’s optimal risk budgeting model

Case Study : Improving the Asset Allocation Decision via Alternative Frameworks

Afternoon : 2 x 1.5 Hour Sessions

Session 3 : Asset Allocation and Risk/Return Methodologies

  • Selecting an appropriate benchmark
  • Defining and quantifying the client’s return expectation
  • The move towards more dynamic portfolio management
  • Relative, absolute and unconstrained approaches
  • Asymmetric investment returns and how to achieve them
  • Active risk budgets, VaR and volatility management
  • Portable alpha and alpha transportation
  • Asset mix rebalancing approaches

Case Study : Portfolio Structuring and Design

Session 4 : Asset Allocation in the presence of Liabilities

  • How the asset allocation challenge changes when you introduce liabilities
  • Factors to consider when forecasting liabilities
  • Volatility and correlation considerations
  • Theory of surplus optimization
  • The liability matching asset portfolio (LMAP) and the risky asset portfolio (RAP)
  • Asset allocation and Liability Driven Investing (LDI)

Case Study : Pension Fund Asset-Liability Study

Day 2: Risk Management and Performance Attribution and Measurement

Morning : 2 x 1.5 Hour Sessions

Session 1 : Measuring Portfolio Risk

  • Market risk (Systematic) Vs Specific risk (Residual)
  • Beta risk and it’s measurement and meaning
  • Portfolio market risk and portfolio specific risk
  • Portfolio total risk
  • Tracking error – calculation and interpretation

Case Study : Measuring the Risk of a Concentrated Equity Portfolio

Session 2 : Risk Budgeting in Theory and Practice

  • What is a risk budget ?
  • VaR and risk budgeting
  • Asset allocation and risk budgeting
  • Risk budgeting approaches based on
  • Total risk per alpha source
  • Marginal contribution to total portfolio risk
  • Risk budgeting and active risk
  • Allocating and spending the risk budget
  • Implied returns
  • Views, implied confidence levels and investment policy

Case Study : Risk Budgeting for a Pension Fund

Afternoon : 2 x 1.5 Hour Sessions

Session 3 : Information Ratios and Active Risk Budgeting

  • Ex-post risk and ex-ante risk
  • The information ratio and information coefficient
  • The residual frontier
  • Value-added and the optimal tracking error for a fund manager to take
  • Skill, breadth and risk-taking
  • Target IRs and target risk budgets

Case Study : Skill, Breadth and Optimal Tracking Errors ** Session 4 : Risk-Adjusted Performance Measurement and Attribution Analysis**

  • Overview of performance attribution analysis
  • The Brinson framework for return attribution
  • Separating the asset allocation decision from the stock selection decision
  • The interaction term
  • The allocated portfolio return Vs the benchmark portfolio return
  • Skill Vs luck
  • Measuring the statistical significance of the outperformance

Case Study : Performance Attribution Calculations

Day 3: Special Themes in Investment Management – Smart Beta, Factor Investing and ESG

Morning : 2 x 1.5 Hour Sessions

Session 1 : Defining Smart Beta

  • What is smart beta ?
  • An overview of smart beta’s history
  • The objectives of smart beta investing
  • How smart beta works
  • Rationale for today’s strong interest in smart beta
  • Why investors should explore smart beta
  • The risk and return characteristics of smart beta
  • Why factor exposure matters
  • Active fund management through a factor-based lens
  • Differences between smart beta and factor investing
  • Factor exposures, factor premiums and factor returns
  • Factor behavior in changing economic environments
  • Behavioural, risk and structural factor categories
  • Macro risk factors, style risk factors and alpha

Case Study : Factor Investing through the Economic Cycle

Session 2 : Portfolio Applications of Smart Beta Strategies

  • How smart beta can fit in a portfolio
  • Tactical and strategic applications
  • Risk management applications
  • Implementing investment views
  • Replicating active exposures with smart beta ETFs
  • Extracting more out of beta
  • Replacing and/or complimenting active strategies
  • Managing factor exposures
  • Outcome oriented approaches using smart beta
  • Mapping factor exposures to the economic cycle

Case Study : Minimum-Variance Strategy for a Pension Fund

Afternoon : 2 x 1.5 Hour Sessions

Session 3 – History and Background to ESG and Responsible Investing

  • An historical overview of socially responsible investing
  • Social purpose, sustainability and purposeful capitalism
  • Differentiating between socially focused investing, governance focused investing and environment focused investing
  • The size and growth of the ESG and SRI marketplace
  • Global ESG assets by type of exposure
  • Stimulants and catalysts behind the growth of ESG and SRI investing
  • Why the ESG market is poised for further growth

Case Study : The Growth of ESG and Socially Responsible Investing

Session 4 – Integration-Based ESG Investing

  • What is integration-based ESG investing
  • What added-value do integration-based approaches offer
  • Incorporating alpha insights into an integration-based approach
  • Common ESG factors that are targeted
  • Fundamental ESG integration – evaluating ESG factors
  • Systematic ESG integration – quantitative criteria Vs qualitative insights
  • ESG as part of a multi-factor analysis
  • ESG ratings improvement momentum

Case Study : Integration-Based ESG Investing


Bernard Duffy

Bernard Duffy began his investment management career with Abbey Life in Dublin before moving to London in 1985 to work for Irish Life Assurance Plc. At Irish Life, he was responsible for investment product marketing and new fund launches and was responsible for the company’s successful entry into...

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Active Portfolio Management & Asset Allocation at Euromoney Learning Solutions

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