portfolio investment strategy
Under the investment portfolio is understood purposefully formed in accordance with the investment strategy of the totality of investments in investment objects. Proceeding from this the main purpose of formation of the investment portfolio can be formulated as ensuring the implementation of the developed investment policy by selecting the most effective and reliable investment. Depending on the orientation of the chosen investment policy and peculiarities of implementation of the investment activities is determined by the system of specific objectives, which may be:
maximize capital growth;
maximization of income growth;
minimization of investment risks;
ensuring the required liquidity of the investment portfolio.
Classification of investment portfolio by types of investment objects is connected first of all with the nature and volume of the investment activity. For enterprises involved in production activities, the main type of the formed portfolio is a portfolio of real investment projects for institutional investors - financial instruments portfolio.
This does not exclude the possibility of the formation of the mixed investment portfolio, combining different types of relatively independent portfolios (sub-portfolios), characterized by various types of investment objects and the methods of their management. The specialized investment portfolios can be formed as by the objects of investments as well as more private criteria: sectoral or regional origin, in terms of investment, type of risk, etc.
Thus, the investment portfolio of the company (the company) in conditions of market economy includes, as a rule, not only the portfolio of real investments and securities portfolio, and can be complemented by a portfolio of other financial investments (Bank deposits, certificates of Deposit, etc.).
Example portfolio investment of the Bank may include a combination of the following portfolios: a portfolio of investment projects; portfolio investment loans, securities portfolio; portfolio of shares and units; real estate portfolio; portfolio of investments in precious metals, collection, and other objects of investment.
Depending on the priorities of the investment can be singled out:
portfolio growth,
portfolio income,
conservative portfolio
the portfolio of highly liquid investment objects.
Portfolio growth and a portfolio of income are focused primarily on investments, which provide, respectively, the increment of the capital or obtain high current income, which is associated with high levels of risk. Conservative portfolio, on the contrary, is formed at the expense of investment objects with a lower level of risk, which are characterized by a much lower rate of growth of the market value or current income. The portfolio of highly liquid investment objects assumes the possibility of fast transformation of the portfolio in cash without significant loss of value.
These types of portfolios, in turn, include a number of intermediate varieties. For example, in the framework of portfolio growth can be distinguished: a portfolio of conservative growth, the portfolio of medium height, a portfolio of aggressive growth.
By the degree of compliance with the goals of investment should provide a balanced and unbalanced portfolios. A well-balanced portfolio is characterized by a balance of income and risks, the relevant qualities specified in its formation. Its members may be included various investment objects: with the rapidly increasing market value, high-yielding and other objects, the ratio of which is determined by the market situation. The combination of various investment allows you to achieve capital appreciation and getting high income while reducing risk. Unbalanced portfolio can be viewed as a portfolio of which is not appropriate to put in its development objectives.
Since the selection of objects in the composition of the investment portfolio is carried out in accordance with the preferences of investors, there is a link between the type of the investor and the type of portfolio. So, the conservative investor corresponds to a highly reliable, but low-income portfolio, moderate - diversified portfolio, aggressive - profitable, but risky portfolio.
The analysis of various theories of portfolio investment testifies to the fact, that in a basis of formation of an investment portfolio should be based on certain principles. The main of them include:
ensuring the implementation of the investment policy, which stems from the need to achieve the conformity of the purposes of formation of the investment portfolio of the purposes of the developed and approved investment policy;
ensuring the compliance of the volume and structure of investment portfolio volume and structure of forming his sources with the purpose of maintaining liquidity and stability of the enterprise;
achieving optimum ratio of return, risk and liquidity (on the basis of the specific objectives of the investment portfolio) to ensure the safety of funds and financial stability of an enterprise;
diversification of the investment portfolio, the inclusion in the composition of the various investment objects, including alternative investments to increase the reliability and profitability and reducing the risk of investment;
ensuring the controllability of the investment portfolio, which implies a limitation of the number and complexity of the investment in accordance with the possibilities of the investor tracking the main characteristics of investment (profitability, risk, liquidity, etc.).
In contrast to the portfolios of other objects of the investment portfolio of real investment projects is, as a rule, the most capital-intensive and the least liquid, high risk, and also the most difficult to control, that defines the high level of requirements to its formation, selection included in it investment projects.
Securities portfolio by comparison with the above types of investment portfolios is characterized by some peculiarities. On the positive can be attributed a higher degree of liquidity, and manageability to the negative - absence in some cases of opportunities of influence on the yield of the portfolio, increased inflation risks.
Securities portfolios, based on the principle of diversification, suppose a combination of quite a large number of securities with the multidirectional dynamics of movement of the exchange rate cost (income). An example of such a diversification may be sectoral or regional in nature, and also carried on various issuers. Diversification to reduce the investment risks while maximizing yields, based on differences in variations in income and the market value of the securities.
According to modern portfolio theory, the results of a simple diversification and diversification by industries, enterprises, regions, etc. are essentially identical. Analytical data have shown that the presence in the portfolio of 10-15 different securities significantly reduces the risk of investments; a further increase in the number of assets and an increase in the degree of diversification does not play a significant role in case of other equal conditions for reduction of investment risk and is not appropriate, since it leads to the effect of excessive diversification.
The strategy of management of investment portfolio
In the management of the portfolio can be divided into two main strategies: passive and active.
Passive strategy pursued by the managers, who believe that the market is efficient. In this case, there is no need to frequently review the portfolio, as an efficient market is always "right" assesses assets, and the same expectations of investors concerning the return and risk are talking about the fact that they all focus on the same line market the asset and the line of the capital market. Passive portfolio is reviewed only in the case, if the installation of the investor or the market formed a new common view on the risk and return of the market portfolio. Passive Manager does not put before itself the purpose to obtain higher yield than the average market offers for a given level of risk.
Passive management of the portfolio consists of the acquisition of assets in order to keep them longer period of time. If the portfolio included assets, issued for a certain period of time, such as bonds, after they Mature they are replaced by the similar securities, and the like until the end of the investment horizon of the client. The strategy of current changes in the market value of assets are not taken into account, since in the long run the pros and cons from changes in their prices will extinguish each other.
An active strategy spend managers, believing that the market is not always, at least in respect of some securities, is effective, and investors have different expectations for their return and risk. As a result, the price of these assets is overestimated or underestimated. Therefore, active strategy boils down to frequent review of the portfolio in search of the financial instruments, which incorrectly evaluated by the market, and trade them in order to get a higher yield.
While forming the portfolio, the Manager should determine the proportions include assets of different categories, such as shares, bonds, etc. Such a solution is called the decision on the allocation of the funds. It depends on the estimates of the Manager of return and risk in these groups of assets and the ratio of the admissibility of tolerance of risk of the client. Yield in the framework of each of the groups usually have a high degree of correlation, therefore it is more important to determine the category of asset, which will bring the highest return in the future environment of the best assets within each category. Further the Manager must select the specific assets within each category. Such a solution is called the decision on the choice of the assets. The Manager should also define the trend of the market. If he believes that the market is expected to rise, it is necessary to focus on the assets with higher R, if the recession, the assets with a low R.
An active strategy Manager can build on the basis of the acquisition of the market portfolio in conjunction with the lending or borrowing.
Due to changes in market conditions Manager will periodically reevaluate the portfolio. Purchase and sale of assets will entail additional fee and Commission expense. Therefore, determining the desirability of reviewing the portfolio, it should take into account the costs of these costs, as they will reduce the yield of the portfolio.
Monitoring of the investment portfolio.
The efficiency of management of securities portfolio involves the monitoring of the portfolio of securities with a view to the implementation of the necessary adjustment of the adopted decisions. An important principle of the monitoring is the comparability of the results, to ensure that it is necessary to apply a uniform technique and use it at equal intervals of time.
The effectiveness of monitoring depends largely on the quality of construction of system of portfolio performance, the extent of its representativeness, as well as the sensitivity to adverse changes related to the investment object.
