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Euromoney Learning Solutions

Introduction to Portfolio Management

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Description

The principal aim of this course is as a basic introduction to portfolio management. It starts with the principles of portfolio management and key concepts of risk and return for a portfolio. The course then takes a detailed look at the major asset classes commonly found in portfolios, namely equity and debt instruments and how these instruments are valued and combined in an investment portfolio.

The training also looks at non-traditional asset classes such as real estate, commodities, hedge funds and private equity and the benefits and challenges associated with incorporating such investments into a portfolio. Finally the course concludes with the fundamentals of performance measurement to enable participants to assess the success or failure of a portfolio in the context of the risk taken. The course uses case studies throughout the overriding objective of the course is to provide an understanding of the investment management process from beginning to end and the key challenges faced throughout this process. As such the course is tailored to be as practical as possible.

How will this course assist you?

On completion of 3-day training course you will:

  • Gain an understanding of the key elements of the investment process including modern portfolio theory.
  • Understand the basic valuation and investment approaches for bonds and equities
  • Understand how alternative assets such as real estate, commodities, hedge funds and private equity may enhance a portfolio and gain an insight in alternative investment strategies and the key differences between alternative asset classes from an investment management perspective.
  • Learn about performance measurement, evaluation and attribution.

AGENDA

Day 1 Principles of portfolio management

Introduction and objectives Introduction to portfolio management:

  • The fund management process
    • - The client
    • - The portfolio manager’s role
    • - Portfolio analysis
  • The decision making process – strategic and tactical asset allocation
  • Active vs passive fund management
  • Asset allocation vs stock selection
  • Case study – Asset allocation

Portfolio analysis – returns and risk

  • The client – the risk/return trade off
  • Fundamentals of calculating returns
  • Money weighted returns
  • Time weighted returns
  • Unit pricing
  • Dealing with currencies and fees
  • Case study – Calculating expected returns
  • Measuring risk
  • Standard deviation and variance as risk measures
  • Normal distribution – beware the black swan
  • Risk vs. return trade­off
  • Case study – Risk return trade-off
  • Managing risk in a portfolio
  • Diversification in a portfolio – covariance and correlation
  • Reducing risk in a portfolio
  • Case study – Optimising a portfolio via diversification

Day 2 Equity portfolio management The principles of equity investment

Valuing equity securities

  • The two key approaches to equity valuation, absolute and relative valuation techniques
  • Fundamental equity valuation – Discounted cash Flow (“DCF”) Valuation
  • What discount rate? - Weighted Average Cost of Capital (“WACC”)
  • Using the Capital Asset Pricing Model (“CAPM”)
  • Current issues in valuation – the risk free rate and beta
  • Relative valuation techniques – Multiple Based Valuation
  • Managing fixed income portfolios

Fundamentals of fixed income

  • The key attributes of fixed income securities
    • - Sovereign debt
    • - Corporate debt
    • - Asset backed securities
    • - Commercial paper
    • - Collateralised debt obligations
    • - The key risks in investing in bonds
    • - Market value risk
    • - Interest rate risk
    • - Income risk
    • - Credit risk
    • - Liability risk
    • - Call and prepayment risk
  • Exercise: Calculating bond sensitivity to risk

Understanding yield spreads

  • Yield curve shapes
  • Term structures of interest rates
  • LIBOR (and its successor?)
  • Valuing fixed income instruments: duration and convexity

  • Valuation under conditions of certainty

  • Bond values and interest rates

  • Macaulay and modified duration measures.

  • Calculating effective convexity.

  • Convertibles – hybrid instruments and their valuation

  • Exercise: Calculating the price of a bond

Day 3 Alternative Investments The different alternative asset classes and their risk and return and risk profiles

  • Hedge funds
  • investment styles
  • risk profiles
  • examples of hedge funds success and failure

Case study: Participants discuss a hedge fund example

  • Private equity – capturing the illiquidity premium
  • fundamentals of private equity
  • how leverage works in a transaction
  • calculation of returns – IRR and multiple of money

Case study: Calculating returns from a private equity investment

  • Commodities – mind the yield gap
  • commodity market fundamentals
  • energy, materials and softs
  • different forms of commodity investment – ETFs and asset backed fund approaches

Case study: Participants analyse a commodity fund

  • Real estate – an investment you can improve
  • Different approaches to real estate investment
  • REITs and their impact on real estate markets

Case study: Participants analyse a REIT

Portfolio analysis - Performance measurement, risk and attribution

  • Calculating risk – analyzing portfolios for different types of risk
  • Defining risk
  • The various risk measures
  • Absolute risk measures
  • Relative risk measures
  • Downside risk measures
  • Using benchmarks – relative and absolute benchmarks
  • Indices and composite indices
  • Portfolio attribution
  • Fama decomposition
  • Portfolio attribution – sector/stock level analysis
  • Presenting performance – Global Investment Performance Standards (GIPs)
  • Case study: Putting it all together
  • Course Summary & close

Who should attend

  • Portfolio managers
  • Equity and fixed income analysts
  • Wealth managers and private bankers
  • Independent financial advisors
  • Back and middle office professionals
  • Pension fund trustees

Experts

The Course Instructor is a qualified chartered accountant, who began his career as an auditor for Grant Thornton International. He moved to Ernst & Young as a senior manager in the corporate advisory team in 1986, working on major acquisitions, disposals, IPOs and insolvency/restructuring tra...
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