Strategic Asset Allocation & Dynamic Portfolio Management

Course Overview The frequent occurrence of critical and shocking events of different nature (economic, financial, political, military, social and climate) requires that we evaluate and re-define the investment management criteria, models, and strategy that we have implemented to manage and control our investments and meet our investment objectives. The Workshop's aim and objective is to further develop the skills, competencies, and knowledge needed to achieve investment objectives by managing and controlling investment risk and enhancing the returns of investment portfolios. The programme will allow the delegates to: Comprehend the nature and sources or investment risk Manage strategically the risk-return equation and set achievable investment objectives Develop a new effective risk criteria to manage investment risk in a multi asset portfolio Analyse the practical applications of the Modern and Post Modern Portfolio Theory, the Capital Asset Pricing Model, and the Arbitration Pricing Theory Learn the importance of economic cycles and the need for strategic investment planning when investing in different economic scenarios Construct an efficient strategy to manage investments in Emerging Markets Acquire in-depth knowledge of equity value and company valuation methodologies to construct growth portfolios at reasonable value Evaluate different investment management styles aimed at achieving today’s challenging investment objectives Use behaviour finance concepts to understand and manage client’s expectations, believes, and present efficient solutions to their investment needs Enhance portfolio returns by the strategic use of alternative investments vehicles including Hedge Funds, Specialty Funds, Exchange Traded Funds, Private Equity, Structured Products, and non-financial assets Methodology Formal material presented by the Course Director may include any of the following: Power Point slides Use of flip-boards Short films on DVD or internet clips of selected topic related to the course Interactive exercises and case studies for group discussion Hand-outs containing articles, statistics, and theoretical support Delegates’ own ideas, experiences and questions The Course Director’s extensive experience in global investment management Comprehensive supporting literature and Statistical Research from different reliable sources Computer-based exercises All delegates should bring their own laptops loaded with Excel and Word to facilitate in-class studies and exercises. Who should attend Investment Heads and Managers Fund Managers & Asset Managers Private Bankers & Wealth Managers Investment Advisors & Family Office Representatives Bank Relationship Managers Securities Sales Representatives & Brokers Legal, Compliance, and Regulators Wealthy private investors Supporting Publication
Day 1 - Models, Criteria, and Tools for Strategic Investment Risk-Return Management Introduction: Programme Objectives Presentation of the Programme's aims and objectives Disclosure of Delegates' needs, interests and challenges Course Director's comments on the latest relevant developments and trends in the investment management sector A Strategic Approach to Managing Investment Risk Defining investment risk and its sources The nature of risk and its components The concepts of Uncertainty and Risk: The known and Unknown components Approaching uncertainty when measuring and quantifying risk Actions to manage risk actively Analysing probabilities of occurrence of risk factors Adjusting the normal distribution of data to an abnormal financial world Exercise: Delegates will discuss individually or in groups how efficient and successful their quantitative tools and criteria have been in managing volatile markets and critical scenarios receiving feed-back from the Course Director. Calculating Expected and Unexpected Investment Risk The evident need for new risk-management criteria when dealing with critical scenarios Evaluating existing quantitative criteria used to measure and manage investment risk Practical applications of H. Markowitz’ Modern Portfolio Theory in today’s world Measuring volatility and correlation in multi-asset portfolios The effect of asset correlation in a multi-asset portfolio Considering Macroeconomic scenarios when calculating Expected Returns Practical Applications of Value at Risk (VaR) Relevance of the model in anticipating possible investment risks The limitations of Value at Risk given unexpected events and critical situations Adjusting VaR in volatile and changing scenarios Quantifying and Measuring Unexpected Risk and Unexpected Losses Calculating Unexpected Losses and Probabilities of Default in financing projects Measuring uncertainty when making investment decisions: equity, bond and financing projects Practical Illustrations: Delegates will analyse in an Excel Spread-sheet provided by the Course Director the different mechanics, formulas and applications of the Risk Measures discussed. The importance of Post-Modern Portfolio Theory in asset allocation and portfolio construction Differentiating Down-Side risk from an asset’s total volatility Quantifying and Exploiting the positive side of risk Investment volatility tied to investment objectives and Minimum Accepted Rates of Return Case study: Delegates will analyse a practical case that illustrates the differences between the total volatility and the down-side volatility of two assets – determining which asset offers more risk considering the client’s minimum accepted return. A Strategic Approach to Pricing Risky Assets: The Required Rate of Return Practical Relevance and Limitations of the William Sharp’s Capital Market Theory Examining the reality of the Capital Asset Pricing Model (CAPM) variables Using the Securities Market Line (SML) concept to determine over-valued and under-valued assets Practical calculations of the Required Rate of Return The problems and limitations of Beta a risk measure Exercise: Delegates will calculate the expected and the required rates of return of different assets, in order to determining which assets are undervalued, fairly valued, and overvalued, using the CAPM Steven Ross's Arbitration Pricing Theory Approach to calculating Required Rates of Return Incorporating macro and microeconomic variables into our model Practical difficulties of implementing the Arbitrage Pricing Theory (APT) What can investors learn from the APT and CAPM when calculating Risk Premiums and Required Rates of Return Exercise: Delegates will calculate the required rate of return of different assets using the Arbitration Pricing Theory, and compare these returns with those obtained using the CAPM Risk Adjusted Return Measures: Portfolio Efficiency and Best Portfolio Criteria Is there a Best Portfolio? What is an Efficient Portfolio? Evaluating Risk-Return performance in multi-asset class portfolios Does our investment return compensate the risk taken? Analysing different Risk-Adjusted Performance ratios: The Sharpe Ratio The Treynor Ratio The Sortino Ratio Other tailored-made risk-adjusted return ratios The concept of Alpha according to Michael Jensen The strategic significance of Alpha and its implications Exercise: Determining who is a better Manager. Delegates will compare the return and risk indicators of different portfolios to determine which portfolios were more efficient considering different risk profiles. Day 2 - Planning Investment Growth Strategy through Economic and Business Cycles Strategic Asset Allocation Exercise: Group Practical Application Criteria for Portfolio Optimisation The Efficient Frontier Concept and the Investor’s Expectations Maximizing Sharpe Ratio and Alpha The limitations of optimisation models in portfolio management The client's investment needs vs. mathematical models Exercise: In small groups delegates will conduct an asset allocation exercise in a given Excel Spread-Sheet, with the objective of achieving a desired return within specific risk parameters and limitations. The Spread-sheet will incorporate all of the concepts and quantitative measures learned during the day. The course Director will provide feed-back to each group and will analyse the asset allocation’s performance in an adversely critical financial scenario. Investing through the different Economic Cycles What are economic cycles and what causes them? o What triggers economic recoveries, expansions, slow-downs, and recessions o Asset classes and sectors that outperform the rest in different economic cycles • A practical approach to using Economic Indicators strategically o Country risk assessment and impact in sectors and companies o What Macroeconomic data is relevant to your investment project?  Experiences and realties behind the economic indicators • Reading signs of recovery o The implications of Political Economy and Government actions o Determining the degree of recovery after a credit crisis and a recession Exercise: Delegates will analyse different up-dated global economic indicators and their significance in asset allocation and portfolio management. Managing Investments in Emerging Markets: Strategic Planning and Control Criteria for defining Emerging Markets Strategic importance of emerging markets Statistics, trends, and facts Defining the investable market and its life cycle Setting achievable objectives Steps to follow along the cycle of emerging markets The stages of development of an Emerging Market The Emerging Market cycle Factors that begin and end the cycle Emerging Markets opportunities and risks Sings of warning and red flags Constructing a new investment management criteria to manage investments in Emerging Markets successfully Case study: Delegates will analyse different experiences of investors in Emerging markets in the last decades, including different crises in Asia, Latin America and Europe, to determine the common factors and warning signs of Emerging Markets before a crisis. Delegates will construct an investment strategy aimed at earning rewarding returns with an efficient investment risk management control. Equity Investing: Achieving Strategic Growth at Reasonable Values Unique characteristics of equity investments Benefits and differences with other asset classes Accounting and legal considerations of equity investments Rights and responsibilities Analysing company cycle, management, fundamentals, and financial position The relevance of assets’ value and their cash-flow generation Measure, ratios, and multiples Strategic approach to investing in Equity What are buying when acquiring stocks? Determining the utility and how to benefit from the investment Strategic and tactical approaches: How long should we hold a stock? Where is the value in equity investments? Spotting the difference between cheap prices and great value Earnings' valuation: historical trends and realistic forecasting Sources, quality, and sustainability Earnings cycle and earnings growth measures Financial measures, ratios, and multiples Relevant equity ratios for different types of equity investments Ratios of efficiency, size, value, growth, and distress Analysing beyond ratios and multiples: what ratios and multiples do not show us The Problem of Dividend Discount Models in today’s financial scenario Criteria for stock selection and their strategic value Approaches to Stock Valuation Comparing Discounted Cash-Flow Models to Relative Valuation Models Exercise: Delegates will analyse in an Excel Spread-sheet the market and financial ratios of different companies from a chosen sector, in order to determine which ones offer more value and more growth potential, in addition to assessing which ones are better managed. Day 3 - Alternative Investment Vehicles and Strategies: Differentiating our Portfolio Practical Criteria for Company Valuations: IPOs, M&As, & Additional Offerings Using Discounted Cash-Flows Models to calculate company and equity value Rational, characteristics, and value drivers of Discounted Cash-Flow models Value beyond reasonable financial projections: Calculating the Residual Value How much should we pay for uncertainty? Behavioural Finance anomalies in IPO valuations The Pandora box of the after market Analysis of Price and Value in recent IPOs and Acquisitions Up-dated case study: Delegates will analyse a known or recent IPO such as Facebook and/or Twitter and a strategic acquisition such as Heinz by the Warren Buffet group, to compare the economic and strategic value found vs. the price paid by the investors. Comparing Discounted Cash-Flow Valuations with Market Multiples Valuation models and Net Asset Appraisal value models Limitations of the Valuations Methods and models in Real Life situations Variables affecting price negotiation in capital market and corporate finance transactions Case study: Delegates will go through an equity valuation using the DCF (Discounted Free Cash Flows Method) to then compare the valuation with market multiples such as PER, PEG, and multiples of EBITDA, Book Value, Sales, Assets, Cash-Flow, etc. The aim is to detect possible equity undervaluation or overvaluation, when pricing a company and its equity under different valuation methods and approaches. A Strategic Approach to incorporating Private Equity in the Portfolio The benefits investing in non-public companies Assessing the value of Private Equity Avoiding auctions and behavioural finance anomalies and biases Different types of private equity transactions Start-up projects, Venture Capital, Buy-outs, Capitalising stable companies, Replacing debt for equity, and Distress turnarounds projects The Cycle of Private Equity investments and its different stages Planning our exit strategy: how and when do we make a profit? Different types of investment vehicles and instruments Direct Investing (equity, options, warrants, etc.) Private Equity Funds Private Equity and the Portfolio Efficient Frontier Analysing risk and return in private equity Credit Risk Considerations for Investors Are bonds less risky than bonds? Redefining credit risk and bond price risk The Benefits and Limitations of Credit Ratings Rating Agencies, Banks, Researchers, Independent Sector Specialists Criteria for rating: the ex-ante and the ex-post effects Rating for Equity and Bond issuance Relevance of credit risk assessment in the investor’s decision making process The universe of Alternative Funds and Special Vehicles The search for product differentiation and performance enhancements Analysing the investment style, strategy, and investment vehicle Mutual Funds and Special Funds vehicles Benefits and risks of different investment structures and vehicles The problem of product differentiation and sustainable performance in long term horizons Reasons for using Exchange Traded Products and Indexing in asset allocation Benefits, Limitations, and Product Risk awareness Hidden risks behind the different ETPs structures Comparing ETFs and ETNs Impact of ETPs in the investor’s portfolio Bull and Bear Indexing strategies: Tactical and Strategic Approaches Case study: Delegates will analyse different structures and types of ETF’s determining the risks and the benefits for both the investor and the portfolio manager. Evaluating the benefits and risks of Hedge Funds What are Hedge Funds really about? The legal concept and definition Different legal vehicles available The Hedge Fund Universe Available styles, strategies, tools of trade, types of assets, sectors, and securities Rational of Hedge Funds in the investor’s portfolio When, How, Why, and Why Not should we incorporate Hedge Funds in the investment portfolio Analysing Hedge Fund Structures and Fees Comparing Absolute returns vs. relative returns Strategies Analysis different Hedge Funds strategies Macrocentric or Global Macro Managed futures Emerging Markets Long-Short Equity Market Neutral Distressed Securities Merger Arbitrage Multi-strategy Fund of Hedge Funds Values-based investments Misconceptions of Hedge Funds What are the alternatives to not including Hedge Funds in the investors’ portfolio? Using Specialty Funds and developing in-house hedging strategies Case study: Delegates will analyse different proposed Alternative Investment Funds characteristics, fee structures, styles and strategies, and vehicles, in order to choose the more suitable ones to match different clients' profiles and requirements. Day 4 - Managing Investors' Portfolios and Risk-Return Expectations using Behaviour Finance Concepts Strategic asset allocation A Strategic view to investing and its management process The benefits of strategic investment vs. trading and following the flow The impact of market perception and market reality in our portfolio The importance of the cycle of earnings expectations Setting objectives that can be defined, quantified, and achieved successfully Types of Asset Allocation Strategic, Tactical, Integrated, Dynamic, and other unique types Asset allocation styles and their strategic use Macro economic Top-Down Allocation Microeconomic Bottom-Up Allocation Fundamental vs. Technical Analysis A Strategic view to Active and Passive Asset Management Comparing different investment strategies: Buy and hold, Market Timing, Growth, Value, GARP, Quality, Income, Cost Averaging, Contrarian, and other tailored strategies commonly used Market Efficiency vs. Investor’s Behaviour Finance Anomalies The implications of Eugene Fama’s Market Efficient Theory in investment management Analysing the case of rational markets with irrational investors The case for Behaviour Finance Investors’ believes and expectations What do our clients believe regarding market efficiency and the risk-reward equation? Fundamentals of the Behavioural Finance Psychology applied to finance: Framing and Cognitive biases Description of the main anomalies analysed by behaviour finance Analysis of different behaviour anomalies and biases including: loss aversion, regret, herd behaviour, confirmation bias, hindsight bias, mental accounting, over-reaction and over-confidence, winner’s course, and other chosen ones based on delegates’ experiences Behaviour Finance ratios and market indicators Constructing portfolios using behaviour finance concepts Products that match clients’ believes, preferences, and risk aversion attitude The cycle of emotions and the cycle of bubbles The Value of an Asset and the pricing of emotions Integrating traditional, quantitative, and behaviour finance managers styles Exercise: Delegates will analyse how to spot behaviour anomalies, preferences, and requirements among their clients by using behaviour profiling and questioning techniques. Technical analysis: Reading Markets’ Biases and Anomalies Incorporating a tactical view in our long term strategic approach The benefits of determining market trends in our strategy The importance of market timing The value of technical analysis A practical use of technical analysis Misconceptions of technical analysis What technical analysis shows and does not show Determining market trends and trend changes Charting, volume, moving averages and technical analysis main indicators Integrating technical analysis to fundamental analysis Exercise: The delegates will analyse different market movements in order to determine if there is a bullish, bearish, or side-ways trend. In addition, the delegates will determine if the market movements present an opportunity to buy or to sell. Portfolio rebalancing Rebalancing in practice Why and when should we conduct portfolio rebalancing? Conducting an efficient rebalancing What should we look for when rebalancing? The benefits and costs of rebalancing and the costs of not rebalancing Meeting our investment goals through a controlled rebalancing strategy Closing Brief questions and answers session Course Director’s recommendations and summary to Delegates