Darragh Kelly
Ton up Member
Hi,
I have a couple of questions on chapter 16 of CP1 notes.
Section 2 - Tactical Asset Allocation (page 5)
In relation to factors to be considered before making a tactical asset switch, there are a couple that confuse me:
- the problems of switching a large porfolio of assets (such as shifting market prices). Does this mean if the switch takes too long market prices change and by the time you make the switch the profit/return you were going to make has gone?
- Selling asset at bad time
- the switch taking a long time
What exactly do these points mean?
A partial solution to this problem is to use derivatives to gain the required exposure immediately and then to conduct a gradual sale of the porfolio. Institutions do this technique in practice. Does this mean you hedge the price of the assets with derivatives that your are switching from so you can take your time switching assets and not lose out on the gains?
Section 4 - Porfolio construction and benchmarking (page 8)
Strategic risk reflects both the risk of the matched benchmark relative to the liabilities and the risk taken by the strategic benchmark relative to the matched benchmark. Just struggling to get my head around this and relate it the the original statement: The strategic risk (or policy) risk of a fund is the risk of poor performance of the strategic benchmark relative to the value of the liabilities.
Thanks in advance,
Darragh
I have a couple of questions on chapter 16 of CP1 notes.
Section 2 - Tactical Asset Allocation (page 5)
In relation to factors to be considered before making a tactical asset switch, there are a couple that confuse me:
- the problems of switching a large porfolio of assets (such as shifting market prices). Does this mean if the switch takes too long market prices change and by the time you make the switch the profit/return you were going to make has gone?
- Selling asset at bad time
- the switch taking a long time
What exactly do these points mean?
A partial solution to this problem is to use derivatives to gain the required exposure immediately and then to conduct a gradual sale of the porfolio. Institutions do this technique in practice. Does this mean you hedge the price of the assets with derivatives that your are switching from so you can take your time switching assets and not lose out on the gains?
Section 4 - Porfolio construction and benchmarking (page 8)
Strategic risk reflects both the risk of the matched benchmark relative to the liabilities and the risk taken by the strategic benchmark relative to the matched benchmark. Just struggling to get my head around this and relate it the the original statement: The strategic risk (or policy) risk of a fund is the risk of poor performance of the strategic benchmark relative to the value of the liabilities.
Thanks in advance,
Darragh