Chapter 4: Portfolio Planning and Construction

In this section

• The Investment Policy Statement (IPS) – Purpose and Components
  The Investment Policy Statement (IPS) – Purpose and Components (CFA Level 1): Why an IPS Matters, Key Purposes of an IPS, and Clear Guidelines and Expectations. Key definitions, formulas, and exam tips.
• Risk and Return Objectives (Ability and Willingness to Take Risk)
  Risk and Return Objectives (Ability and Willingness to Take Risk) (CFA Level 1): Defining Risk Tolerance and Return Requirements and Dimension 1: Ability to Take Risk (Financial Capacity). Key definitions, formulas, and exam tips.
• Liquidity, Time Horizon, Taxes, Legal, and Unique Constraints
  Liquidity, Time Horizon, Taxes, Legal, and Unique Constraints (CFA Level 1): Liquidity Constraints, Time Horizon, and Multiple Horizons. Key definitions, formulas, and exam tips.
• Asset Class Definitions and Strategic Asset Allocation
  Asset Class Definitions and Strategic Asset Allocation (CFA Level 1): Which of the following statements best describes the and primary purpose of rebalancing a portfolio to. Key definitions, formulas, and exam tips.
• Tactical Allocation and Rebalancing Approaches
  Tactical Allocation and Rebalancing Approaches (CFA Level 1): Tactical Asset Allocation vs. Strategic Asset Allocation, Potential Advantages of TAA, and Potential Disadvantages of TAA. Key definitions, formulas, and exam tips.
• Portfolio Segmentation Methods (Core-Satellite, Etc.)
  Portfolio Segmentation Methods (Core-Satellite, Etc.) (CFA Level 1): Rationale Behind Core-Satellite Investing, Constructing the Core, and Key Considerations for the Core. Key definitions, formulas, and exam tips.
• Liability-Driven Investing and Pension Portfolios
  Liability-Driven Investing and Pension Portfolios (CFA Level 1): Defining Liability-Driven Investing, Core Concepts, and Duration Matching. Key definitions, formulas, and exam tips.
• Risk Budgeting in Portfolio Construction
  Risk Budgeting in Portfolio Construction (CFA Level 1): Understanding the Essence of Risk Budgeting, Why We Care About Risk Budgeting, and Setting the Overall Risk Budget. Key definitions, formulas, and exam tips.
• The Role of Capital Market Expectations
  The Role of Capital Market Expectations (CFA Level 1): Purpose and Significance of Capital Market Expectations, Building Blocks: Historical Data, Macroeconomic Factors, and Valuation, and Historical Data. Key definitions, formulas, and exam tips.
• Tailoring IPS for Different Investor Types
  Tailoring IPS for Different Investor Types (CFA Level 1): Why Tailoring Matters, Individual Investors, and Foundations and Endowments. Key definitions, formulas, and exam tips.
• Cost and Tax Efficiency in Allocation Structure
  Cost and Tax Efficiency in Allocation Structure (CFA Level 1): Why Cost Efficiency Matters, Common Portfolio Costs, and Understanding the Tax Landscape. Key definitions, formulas, and exam tips.
• Manager Selection and Due Diligence
  Manager Selection and Due Diligence (CFA Level 1): Defining the Manager’s Role, Quantitative Screening, and Performance and Peer Comparisons. Key definitions, formulas, and exam tips.
• ESG Factors in Portfolio Construction
  ESG Factors in Portfolio Construction (CFA Level 1): Why ESG Matters, Core Approaches to ESG Integration, and ESG Ratings, Data, and Standardization. Key definitions, formulas, and exam tips.
• Implementing Style Tilts in Allocation
  Implementing Style Tilts in Allocation (CFA Level 1): Understanding Style Tilts, Key Terminology, and Rationale for Style Tilts. Key definitions, formulas, and exam tips.
• Overlay Strategies to Manage Portfolio Exposures
  Overlay Strategies to Manage Portfolio Exposures (CFA Level 1): Key Concepts in Overlay Strategies, Derivative Instruments for Overlays, and Benefits of Overlay Strategies. Key definitions, formulas, and exam tips.
• Monitoring Compliance with IPS Guidelines
  Monitoring Compliance with IPS Guidelines (CFA Level 1): Ongoing Monitoring and the IPS, Why Monitoring Compliance Is Critical, and Key Components of a Compliance Framework. Key definitions, formulas, and exam tips.