JESMOND
MIZZI
Building the right portfolio to meet
your investment objectives
Table of Contents
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Definition of Portfolio Management
Investment Mandate
Investment Goals and Objectives
Investment Constraints
Risk Tolerance
Risk Profile
Asset Classes
Risk Return Trade-off
Asset Allocation
Optimal Portfolio
Diversification Benefits
Investing in Funds
Portfolio Rebalancing
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Portfolio management is the art and
science of making decisions about
investment mix and policy,
matching investments to objectives,
asset allocation for individuals and
institutions,
and
balancing risk against performance
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INVESTMENT MANDATE
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Investment Goals and Objectives
Investment Constraints
Risk Tolerance
Risk Profile
Optimal Portfolio
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Investment Goals and Objectives
• Return on Capital
• Income
• Growth
• Balanced
• Level of Risk
• Willingness
• Ability
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Investment Constraints
• Financial Ability
• Liquidity Concerns
• Investment Horizon
• Personal Preferences
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Research highlights that…
Age
Income
Gender
…what determines
Education
investor
Number of
RISK TOLERANCE
Dependents
goes beyond the
personality factors Culture
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RISK PROFILE
RISK
AVERSE
RISK
NEUTRAL
RISK
SEEKER
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Asset Classes
FIXED INCOME
CASH &
CASH EQUIVALENTS
Interest Payment (Coupon)
Highly liquid
Low Risk, Low Return
The Building
Blocks to Portfolio
Construction
EQUITIES
Ownership to a private or
public company
Dividend payment
Debt investment
ALTERNATIVE
INVESTMENTS
Real Estate, Commodities
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Risk Return Trade-off
the balance between the lowest possible risk and the highest possible return
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Asset Allocation
• Strategic Asset Allocation aligns the identified
objectives and constraints with the long run
market expectations to define the asset class
weightings
• Tactical Asset Allocation
Active portfolio management to gain from
unexpected investment opportunities
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The Optimal Portfolio
Conservative
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A risk-averse investor would be allocated a
higher weighting to cash and money market
instruments and investment grade bonds
(IGB), with a lesser percentage in equity stocks
Moderate
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An investor who falls between the two
extremes would be allocated a balanced
investment between equity and fixed income
securities
Risk Tolerance
Market
Expectations
Investment
Objectives
Aggressive
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A risk seeker with low liquidity requirements
and a long term horizon is allocated a portfolio
that is dominated by equity stocks
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Diversification Benefits
PORTFOLIO RISK
SPECIFIC RISK
MARKET RISK
Diversifying BETWEEN and ACROSS different Asset Classes
and
choosing assets with NON PERFECT CORRELATION
lowers the SPECIFIC Risk
Leaving the investor primarily exposed to
MARKET Risk
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Investing in Funds
A Fund represents a pool of funds collected from different investors
to be reinvested across different securities
to yield a return
Advantages:
 Diversification
 Lower transaction
costs
 Liquidity
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Portfolio Rebalancing
Portfolio management implies continuous asset
allocation rebalancing in line with changes
in investors’ circumstances and
market conditions to ultimately
achieve the investment
objectives
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Thank you
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