"Innovation of the way institutional investors" study notes 4 (Chapter 6): Asset Allocation

• Asset Allocation

  The fundamental objective of the portfolio management is to fully implement the long-term asset allocation goals; to ensure that portfolio risk and return characteristics in line with expectations.

  The reason the actual return of the portfolio of off-target earnings include:

  1. Invest in tools illiquid;
  2. Pursue active management strategy;
  3. Direct or indirect use of leverage;

• Rebalancing

  We are concerned about the risk of core investment management process.

  The fundamental motivation of the rebalancing strategy in order to maintain long-term policy target asset allocation, profit is extra cake.

  If the agency does not explicitly execute rebalancing strategy, the equivalent of taking a special timing strategy, since these institutions allowed to drift in a combination of asset allocation in market volatility, the risk and return characteristics of the portfolio transformation and unpredictable, leading to uncertainty noise.

• Rebalancing the basis of psychology

  Reverse investmentIt is the core of many successful strategies. Unfortunately for investors, human nature eager to get recognized by others for their own investment behavior. Reverse investors to be successful, must coercion of public opinion turned a blind eye, a deaf ear.

  Holding on with mainstream contrary point of view, but thisHalf of the fight. Reverse investors struggle species if they lose courage, waiting for their only defeat.

  Implementation rebalancing strategy requires a high degree of rationality, popular varieties sell, buy less popular varieties. More need great courage and perseverance.

• Rebalancing frequency

  Continued rebalancingPortfolio strategy requires investors to conduct daily assessments. When the value of an asset class deviates from the target value of 0.1%-0.2%the investment manager sold the price is relatively strong assets, purchase price is relatively weaker asset, then trading volume is relatively small, low cost.

• Active investment management

  In an asset class, investment in passive management tools (such as index funds) can effectively eliminate the investment performance levels deviate from market phenomenon. The active management strategy fantasy inspired investors to obtain excess returns.

  Well thought outA combination of bias( Portfolio BIAS ) may give the portfolio's excess return after bringing risk-adjusted. The main deviation from the size, sector, style.

  Complete Fund（completeness funds）和Normal combination( Normal Portfolio ) are two investment management tool, used to evaluate and control the portfolio deviation .

  完整基金Refers to an asset class and 正常组合complementary Portfolio, 正常组合and 完整基金features combine belongs asset classes match. Eliminates 无意识偏差producedResidual risk( Residual Risks, a ), so that 有意识偏差became the driving force of portfolio return.

• lever

  There are levers 直接and 间接points.

  When the risk is greater than the risk of positions held by asset class to which they belong, theIndirect leverIt will be produced.

  When the combination of cash, it will lead to the risk of the portfolio is lower than the market level, it will be a combination of income 去杠杆化and reduce the expected return of the portfolio.

  For example, in the margin requirements for the positions held value 10%of derivatives trades per 1 US dollar futures positions corresponding supplement 9 dollar cash position, we created a futures contract underlying securityRisk neutral( Risk-Neutral ) copies.