The portfolio design & construction phase follows research in the investment management process. The research phase has produced buy and sell lists of stocks. The equity portfolio should be structured with regards to client and fiduciary mandates of: risk, style, quality, safety, tax, social responsibility, industry / sector concentration, turnover, etc. We need to decide the proper mix and weightings to use in the construction of the optimal portfolio.
The portfolio construction phase continues to take on more characteristics of portfolio manufacturing. The manufacturing process follows model portfolios, refines security selections and weights using optimization tools and techniques. The portfolio manufacturing process derives the individual portfolio objectives and constraints from client databases containing tax, holding, accounting, compliance, and other rules.
Crowther Investment can help you identify and implement the important systematic steps and technology in the portfolio construction phase, including:
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Strategic asset allocation
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Portfolio transition management, asset structuring
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Portfolio optimization
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Multi-factor equity risk models
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Model error (alpha, risk estimation) techniques: Bayesian, robust portfolio optimization, Black-Litterman, etc
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Future return and risk estimates
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Alpha, beta, Sharpe ratio, tracking error analysis
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Information ratio, information coefficient & transfer coefficient evaluation
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Risk management, control, budgeting
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Benchmark, style constraints (value, growth equity etc)
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Behavioral finance quantification and automation
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Tilt / overlay / enhancement features
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Long / short strategies, 130/30, market neutral; enhanced, active equity, etc
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Super efficient beta management; creative alpha generation
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Multi-moment portfolio construction & optimization
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Portable alpha, absolute return strategies
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Trading / turnover constraints
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ETF and hedge fund constructs
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Competitive, peer, category, legal, fiduciary, prospectus constraints
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Compliance constraints
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Performance attribution and measurement
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Portfolio rebalancing & tactical asset allocation
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Liability Driven Investing (LDI)
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Tax aware optimization, tax efficient structured equity
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Capital loss harvesting; tax lot optimization
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Portfolio manufacturing, replication, cloning & customization
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Hedge fund, separately managed accounts (SMA), unified managed accounts (UMA)
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Customized investment solutions
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Systematic sell discipline
The portfolio must be constructed with the next phase in mind, trading. In order to minimize slippage and retain alpha, smooth and efficient transition between phases in the technology-based investment process is critical.
- Boston Security Analysts Society - CFA Continuing Education
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