Asset Management

1. Strategic Asset Allocation

- setting target (Ziel) allocations to asset classes

-periodically rebalancing the portfolio back to those targets as investment returns skew the original asset allocation percentages

2. Tactical Asset Allocation

- allows for a range of percentages in each asset class (such as stocks = 40-50%) and thereby allows to adopt the portfolio to (temporary) changes of market conditions

3. Security selection

- is about the final decisions in which securities (bonds, stocks, funds, options etc.) to invest.

1. Exchange traded or market priced

2. OTC

- shares/equity

- bonds

- money market instruments

- futures

- options

- mutual funds

- hedge funds

- ETF and index funds

- certificates

- geschlossene Fonds

- penny stocks

- forwards/swaps

- options

- open end investment funds

- closed end investmjent funds

- unit investement funds

- commonly known as mutual funds

- stands ready to redeem (zurückkaufen) or issue shares at NAV

- investeors can sell/buy the shares of the fund directly

- may have front-load (Eintrittsgebühr) oder rear-end sales charges (not permitted in GER)

- number of shares constantly changes

- number of shares is fixed - does not redeem or issue shares

- to invest, investors can buy shares on a primary or secondary market

- shares may sell at a discount or premium to NAV

- this might be due to illiquidity, high expense, poor performance, unrealized capital gains 

- typically an unmanaged, fixed income security portfolio

- most hold tax-exempt (steuer befreit) securities

- trust ceases (enden) to exist when security mature

- passive investment, major objective is capital prerservation (konservierung)

- enable investors to gain diversification with min operating costs

- wie Infastrukturkredite

- Kapital für bspw. bestimmtes Projekt wird gesammelt, Investoren können im Lauf des Projekts nicht aussteigen oder Anteile an Emittenten zurück geben

- langfristige, große Investments, wenig liquide

- bsp. real estate, Movies, Ships, aircrafts, infastructure

- organized as limited partnerships ... investors become entrepreneurs

RISK

- loss of money

- little diversification because of investment in only one asset

- (no) fungability (Übertragbarkeit)

- a pool of money of resources of investors

- managed by a professional investor

- manager works for an investment firm 

- each fund has a specific objective

- hauptsächlich von Banken, Versicherungen, Pensionsfonds etc. 

A money market fund is an investment whose objective is to earn interest for shareholders while maintaining a net asset value (NAV) of $1 per share. A money market fund’s portfolio is comprised of short-term, or less than one year, securities representing high-quality, liquid debt and monetary instruments. Investors can purchase shares of money market funds through mutual funds, brokerage firms and banks.
 

Vermögensverwalter

Depotbank

- total value of the mutual fund's stocks , bonds, cash and other assets minus any liabilities such as accrued fees, divided by the number of shares outstanding

- mutual funds are usually traded at their daily NAV

Ein Exchange-traded fund (ETF) (englisch börsengehandelter Fonds) ist ein Investmentfonds, der an einer Börse gehandelt wird. Er wird im Normalfall nicht über die emittierende Investmentgesellschaft, sondern über die Börse am Sekundärmarkt erworben und veräußert. Die meisten ETFs sind passiv verwaltete Indexfonds.

- diversified funds that trade like stocks

- stocks (tradeable during the day) + mutual fund (diversified)

- occupy a unique position in the investment landscape, the intersyection between an index fund and a listed security

- are listed and traded like a stock onj major stock exchanges globally 

- simplicity

- transparency

- risk control

- cost control

- consistency of returns

- diversification

- mutual fund

- open end fund

- trading flexibility on exchange

- intraday pricing

- listed options

- ability to borrow / short

- any transaction size

- variety of trading strategies

A synthetic ETF is designed to replicate the return of a selected index (e.g. S&P 500 or FTSE 100) just like any other ETF. But instead of holding the underlying securities or assets, they use financial engineering to achieve the desired results. Synthetic ETFs use derivatives such as swaps to track the underlying index. The ETF provider enters into a deal with a counterparty (usually a bank) and the counterparty promises that the swap will return the value of the respective benchmark the ETF is tracking. Synthetic ETFs can be bought or sold like shares similar to traditional ETFs.

- full transparency

- good quality

- diversified counterparty exposure

- are still not physical-based ETF's

 

1. internal factors

- total expense ratio (TER

- rebalancing costs

- securities lending revenue

2. external factors

- trading spreads

- creation/redemption

- brokerage fees

- tax

1. internal factors

- TER

- swap spreadd

- securities lending revenue

2. external factors

- trading spreads

- creation/redemption

- brokerage fees

- tax

1. seek to outperform other investments

- performance vs. active funds

- express a view??

2. manage risk

- diversification

- tradability and flexibility

- transparency

3. costs

- cost effectiveness

- tax efficiency

- to track the market as close as possible

- managers of mutual funds an ETF do so sometimes 

1. an ETF holds shares in its portfolio

2. it lends some to hedge funds and other investors for a  fee

3. hedge funds sell the borrowed shares hoping to replace them later with cheaper ones so it can pocket the difference = shorting

4. some of the fees goes to the fund, benefitting the investors, the rest to the fund manager

1/N portfolio diversification/ portfolio rebalancing (benchmark strategy)

- specific or idiosyncratic risk

- eg. project/firm, competitorss, industry, country

market or systematic risk

- means macroeconomic factors, eg interest rate

= exploit diversification systematically

- will decrease portfolio variance for a given exp. return p

- will increase exp. return p for a given variance ie. risk

- optimazation of the portfolio structure (weights)

= determines the gains from diversification

- a portfolio with the highest return for a given risk level is effient

- all effient portfolios constitute the "efficient frontier"

- expressed as the percentage of an investment initial value 

- equals the change in value/price of the investment (sometimes inclusive the investments generated  financial income)

- measured over a specific time period

1. discrete (arithmetric) return without any income

2. discrete (arithmetric) return with income

3.  cumulative return over 2 periods

4. cumulative return over N periods - multiplicative time aggregation

5. cumulative return expressed as an annualized return - geometric average return

1. highly-concentrated portfolios 

- extreme portfolios

2. input sensitivity

- unsable inputs

- estimation error maximazation

3. unintuitive

- no way to incorporate investors view

- no way to incorporate confidence level

- no intuitive starting point for expected returns

- complete set of expected return is required

- based on the idea that it measures the excess return per unit of risk in the portfolio

SR=(exp. return of investment k - risk free rate)/stand. dev. of k

features:

- frequently used

based on CML

- looks at total risk

- no differentiation for systematic and unsystematic risks

- as ex-post performance evaluation metric, problematic if excess returns are negative (weil sich dann die Verhältnisse umdrehen)