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2024 curriculum CFA -programLevel III Portfolio management and capital planning
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Investors often regularly seek income from their investments, as well as a predetermined date on which their capital will be returned.
Fixed income instruments include a wide range of listed effects (such as commercial paper, notes and bonds that are traded through fairs and OTC) and non-public acting instruments (such as loans and private locations).In a pool of assets that support instruments such as assets -supported effects and covered bonds.Puts the two most important types of fixed income on mandate liability-based mandates and total return mandates and the liquidity of the bond market.For how the total expected return of a bond position can be demolished.
Learning outcomes
The member must be able to:
- Discuss the roles for fixed effects in portfolios and how permanent income mandates can be classified;
- Describe the fixed -income portfolio measurements for risk and return, as well as correlation properties;
- Describe the liquidity of the bond market, including the differences between the undercuts of the market, and discuss the effect of liquidity on the management of fixed income;
- Describe and interpret a model of fixed income return;
- Discuss the use of leverage, alternative methods for leverage and risks that leverage creates in regular income portfolios;
- Discuss differences in the management of fixed -income portfolios for taxable and tax -free investors.
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- Investments with a fixed income offer diversification benefits in a portfolio text.These benefits arise as a result of the generally low correlations of investments with fixed -income income with other important asset classes, such as shares.
- Floating speed and inflation-related bindings can be used to discover the risk of inflation.
- Investments of fixed -income income have regular cash flows, which is advantageous for financing future obligations.
- For liability-based mandates with fixed-income income, portfolio construction two main methods-cash flow matching and expensive matching-to match assets with fixed-income income with future obligations follows.
- The total return mandates are generally structured to follow or surpass a benchmark.
- The total return mandates can be classified in different approaches according to their goals active returns and active risk levels.
- The duration of the bond portfolio is the sensitivity of a portfolio of bonds for small changes in interest.Take the portfolio.
- Changed duration of a bond portfolio indicates the percentage change in market value, given a change in dividends in the term.
- The convexity of a bond portfolio is a different effect of the order;It works behind the significance duration and can largely be ignored for small yield changes.
- Effective duration and convexity of a portfolio are the relevant summary statistics when future cash flows of bonds in a portfolio depend on interest rate change.
- The spread of the duration is a useful measure to determine the sensitivity of a portfolio of changes in credit span.
- Distribution times spread is a change in the scattered endurance definition to include the empirical observation that has conceived changes over the credit spectrum tends to a proportional percentage instead of being based on absolute basic points changes.
- Portfolio distribution catches the variance of times for receiving cash flows around the duration.
- Duration management is the primary tool used by fixed -income portfolio managers.
- Convexity is a supplement to the duration of a bond price sensitivity for important movements in interest.
- For two portfolios of the same duration, the portfolio of a higher convexity has a higher sensitivity to great decrease in yield to maturity and lower sensitivity to a large increase in yield to adulthood.
- Interest dividends can be used effectively to increase or reduce the duration and convexity of a bond portfolio.
- Liquidity is an important consideration in the management of fixed inlet folio.
- Liquidity influences prices in markets with fixed incomes because many bonds do not act or rarely act.
- Liquidity influences the construction of the portfolio because there is a change between liquidity and yield to adulthood.Higher yields to adulthood for multiple liquid bindings.
- Investors can be given exposure to the bond market with the help of investment funds and ETFs that follow a bond index.
- ETF shares have the advantage of trade on a trade show.
- A total return, a freely available derivative, enables an institutional investor to transform an active or responsibility from an asset category to another, for example, from cash flows with variable interest rates that refer to the market reference to the total return on Uniform Bond index.
- A total return can have a number of benefits compared to a direct investment in a Bondiegu advantage or ETF.As a derivative, it requires less initial cash expenditure than direct investments in the bond portfolio for comparable results, but bears a counterparty risk.
- If a tailor -made without a prescription, a TRS can offer exposure to assets that make it difficult to access, such as some powerful and commercial loan investments.
- When evaluating fixed investment strategies with fixed coming in, it is important to consider the expected return and to understand the various components of expected returns.
- Relegation of the expected fixed -income return enables investors to understand the various sources of returns that have received the expected changes in the market conditions of the bond.
- A model for the expected return with fixed-income income can be broken down to the following components: coupon income, Rolleddown return, expected change in price based on the views of investors about dividends before the expiration day and expected currency profit or losses.
- Liverage is the use of borrowed capital to increase the size of the portfolio positions.By using leverage, managers with fixed inlet folio may have increased the efficiency of the portfolio compared to what they can achieve in unused portfolios.risk.
- Methods for the use of fixed -income portfolios include the use of future contracts, SWAP agreements, return agreements, structured financial instruments and security loans.
- Taxes can complicate investment decisions in the fixed income of portfolio management.
- The two primary sources of investment income that influence taxes for fixed income are coupon payments (interest income) and capital gain or Taxat.
- Capital profits are often taxed at a lower effective tax rate than interest income.If the capital loss exceeds the won of power in the year, they can often be "implemented" and are used for profit in the coming years.
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Categories
Investment of fixed interest
Tyres
Valuation
Investment funds
Economic circ*mstances
Financial markets
Asset-supported effects
Strategies for investment management