asset allocation strategies and security selection

8/6/2019 Asset Allocation Strategies and Security Selection

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Fortune Securities Limited | Equity Research

Fortune Kaamil

Fortune Kaamil

Asset Allocation Strategies and Security Selection

July 6, 2011

The complete Solution for Islamic Investments


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Fortune Kaamil

Fortune Kaamil

Asset Allocation

Risk Free Assets

Risky Assets

Portfolio Construction

Co-relation among asset classes

Diversification

Return Enhancement


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Fortune Kaamil

Fortune Kaamil

Asset Allocation Strategies

Buy and Hold

Constant Mix with Periodic Rebalancing

Constant Mix with Threshold Rebalancing

Constant Proportion Portfolio Insurance


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Fortune Kaamil

Fortune Kaamil

Buy and Hold

Low Cost due to passive holding

Best Solution for passive strategy in up trending market

Long term savings approach

Constant build up for regular investors

Market neutral strategy


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Fortune Kaamil

Fortune Kaamil

Constant Mix Periodic

Fixed Allocation towards Asset Class

Periodic Rebalancing (monthly, weekly, semi-annually, etc)

Transactions Cost in Rebalancing

Preferred solution in a passive strategy down trending market

Period Selection should be based on risk tolerance level


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Fortune Kaamil

Fortune Kaamil

Constant Mix Threshold

Better for Targeted Risk tolerance levels

Transactions cost for rebalancing


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Fortune Securities Limited | Equity ResearchFortune KaamilFortune Kaamil

Constant Proportion Portfolio Insurance (CPPI)

Downside Protection of Portfolio

For a fixed time period

Minimum Threshold calculation

Constant Rebalancing (higher cost of transactions)

Risky Asset: Multiplier X cushion

Cushion = Portfolio threshold

Multiplier based on risk tolerance level


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Market Scenarios

Up trending Market

Down Trending Market

Oscillating (up, down, up, down)

Oscillating (Down, up, down, up)

Random Market


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Security Selection

Pure Indexing

Low Transactions Costs

Passive Management

Lower return as compared to benchmark

Impact cost on rebalancing

Rebalancing based on benchmark re-composition

Enhanced Indexing

Matching sectors and risk factors

Lower transactions costs

Low turnover

Lower cost of monitoring

Less liquidity crunches

Full Blown Active Management

High transactions cost

Offset market inefficiencies

Must outperform benchmark to justify high cost of trading


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Investment Styles

Growth Stocks

Potential for income growth

Long term Capital Gains

Value Stocks

Consistent Income and Dividend Stream

Stable companies

Large Cap

Medium Cap

Small Cap

Micro Cap


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Planner and Manager Fee

Fixed Fee

Variable Fee

Performance Fee Fixed plus outperformance

Outperformance

Profit Sharing

High Watermarks

Risk transfer and risk bearing for portfolio managers


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Questions


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Thank You

asset allocation strategies and security selection

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