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PURPOSE :
- Recognize the three basic methods of portfolio construction;
- Determine how many ETFs are optimal to hold.
RECOGNIZING THE THREE BASIC METHODS OF PORTFOLIO CONSTRUCTION: |
| FUNDAMENTAL |
Fundamental describes two traditional approaches: i) top down starts with your view of the global economy then overweights regions and industry sectors you expect to outperform; ii) bottom up involves the selection of sectors, capitalization size, or a style you expect to outperform. |
TECHNICAL ANALYSIS
(also known as market timing), and |
Technical analysis is based solely on the supply and demand for a security as indicated by the market. Typically short term in nature, these market timers hope to gain by exploiting trends and recurring price patterns. They tend to trade frequently. Brokers love them! |
ASSET-LIABILITY MATCHING (return floor)
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Asset –liability matching is an institutional approach balancing the risk of assets with that of their liabilities. Applied to individuals, the approach builds a return floor in the short and long term addressing the liabilities of retirement and other needs.
ETFs are well-suited to this advanced approach to portfolio construction because their risks are persistent and there is broad and growing choice of different asset classes. |
OPTIMAL NUMBER OF ETFS TO HOLD
Each additional ETF adds opportunity for gain but there is a trade-off between the benefits of diversification and the cost of buying and maintaining the portfolio.
PŮR estimates the costs of holding and rebalancing ETFs based on: the size ($) of your portfolio, the nature of the mandate, the risk number, and suggests a number that balances benefits with costs.
Answer the three questions and find out your risk number then go to the portfolio construction page to find out how many ETFs are most suitable to your requirements. |
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| COURSE MATERIAL |
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POWERPOINT
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VIEW
- description of three basic methods of portfolio construction using ETFS
- discussion of an institutional approach available to individuals: asset-liability matching
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SCREEN CAST
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LISTEN
- demonstration of screening by fundamental factors
- demonstration of asset liability matching using ETFs
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NOTES |
DOWNLOAD
- basic construction methods: advantages and disadvantages
- reading list for each method
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Your comments are greatly appreciated and can be sent to PUR CONSTRUCTOR !
We would like to thank Barclays, Claymore and Horizon Betapro
for their ongoing professional support! |
