PORTFOLIO MANAGEMENT
AND EVALUATING
INVESTMENTS
MARKET PARTICIPANTS
Portfolio Manager
(“PM”) makes decisions about which securities
to buy and sell in his/her portfolio
BUY-SIDE
SELL-SIDE
Buy-side analyst:
reports to PM, delivers
trade ideas from
research/analysis
Sell-side analyst:
makes recommendations on
stocks in his/her “space”
Salesperson:
markets sell-side analyst’s
research, recommendations to
the buy side
Sell-side trader:
executes trades for buy side
Buy-side trader:
carries out PM’s
instructions
EVALUATING PERFORMANCE:
TOTAL RETURN
• Total Return: the percentage change in the
value of a security over a specific time horizon
• Has two components:
• Price appreciation (capital gain)
• Dividends (distributions)
• Individual Security total return analysis
• TRA<GO>, COMP<GO>
• Risk-Free Return
• Excess Return
PORTFOLIO RETURN CALCULATIONS
• Market Value of individual security
price * number of shares
• Market value of portfolio
sum of all individual security’s market values
• Weight of individual security
MV of security / MV of portfolio
• Total return
(current value – initial value) / initial value
• Total return of portfolio
weighted average (i.e. sum of each security’s weight * TR)
• P&L = MV of day 2 – MV of day 1
RELATIVE RETURNS
• A PM uses a benchmark to determine if the return
on their portfolio over a specific time period was
relatively good or bad
• Active strategy: Attempt to beat the benchmark in
risk-adjusted return
Alpha/Active Return
• Passive strategy: Attempt to replicate the
risk/return of the benchmark
 Tracking Error
RISK MEASURES
• Beta: correlation of the returns of a stock with
the returns of the overall market; BETA<GO>,
HRA<GO>
• The percent change in price of a stock given a
1% change in the price of the overall market
• Beta < 1
• Beta = 1
• Beta > 1
• Portfolio Beta: weighted average
REVIEW OF PORTFOLIO THEORY
• What is a portfolio?
• Who are the market players?
• Why is diversification important?
• What are the two approaches of asset
allocation?
• What are the two components of an individual
security’s total return?
• If I am a passive portfolio manager what is my
goal? Would I track alpha or tracking error?
CREATING A PORTFOLIO
• PRTU: You can manually enter in your
positions and costs on PRTU.
• Excel
• Drag & Drop into PRTU
• BBU<GO> upload
IMPORTANT PRTU SETTINGS
Field
Description
Position type
Defines if the portfolio uses fixed weights, drifting weights, or
shares. This cannot be changed once selected.
Asset Class
Defines the asset class of the portfolio. Choices are: Equity,
Fixed income, Balanced, or Fund of Funds
Base Currency
Defines what currency the portfolio is denominated in
Enable history
Allows history to be stored for the portfolio
Enable data
acquisition
Allows historical analytics to be run on the portfolio (HFA,
attribution, performance)
Futures margin
type
Sets what type of margin will be associated with futures
Short margin type Sets what type of margin will be associated with short positions
PRTU COLUMNS
• Mkt Px: exchange price in local currency
• Market Val: value of total position in portfolio
currency
Position*Mkt Px*FX Rate
• Cost Price: price the security was bought
 Can we write in the same security for
different cost prices?
 Holdings based vs. Transaction based
analysis
FIXED VS. DRIFTING VS. SHARES
• Fixed weight – Securities have fixed weights which
remain the same over time. This implies that the
portfolio is rebalanced each day
• Drifting weight – Securities have weights which will
change daily to reflect the price changes from the
previous day; act like Shares portfolios
• Shares - securities have actual number of shares or
par amount of bonds you hold
IMPORTING TO PRTU
Date you are importing
from (copy from this
date)
Date you are
Importing to
(Pasting on this
date)
PRTU: CHECK POINTS
• CHECK POINT: ANY date we made ANY
changes on the portfolio, ANY date we
inputted / removed ANYTHING from our
portfolio
01/01/10
03/01/11
TODAY
UPLOADING USING BBU<GO>
• BBU<GO> is a way for clients to automatically
upload their portfolio holdings without having to
manually go into PRTU and change them.
• Types of uploads:
• FTP Upload – Portfolio holdings come directly from 3 rd party (accounting
service, holding company, etc.)
• Basic – Portfolio holdings are stored on clients computer and are
uploaded by the client.
• ***Note: basic uploads can be scheduled to run “automatically once
per day”
BASIC VS. FTP
Basic
FTP
Client must be logged in to terminal
for upload to take place
File will automatically be uploaded
even if the client is not logged in
No additional software or
configuration needed
Small additional cost for software
needed for setup
Must be run from the same
location/machine as Bloomberg
terminal
Can be run on any machine
• Both are limited to 2 years of history when uploading
• Both can update up to 50 portfolios a day
BBU<GO> STEPS TO UPLOAD
Prepare Upload File
• The required columns will be different depending on
the type of portfolio you want to upload. For all
uploads Security ID and Quantity are needed.
• Valid Security ID’s : ISIN, CUSIP, SEDOL, Equity Ticker,
Any ID with Yellow market sector key
• Quantity values: Shares or weights (short positions
are not available for weights)
• Margin and Cash:
• Ticker for short margin = CASH SHORTS
• Ticker for futures margin = CASH FUTURES
• Cash ticker is just spot ticker. USD CURNCY
STEPS TO UPLOAD
Format
• The file should be a list of end of day holdings for the
dates you made changes to the portfolio, even for
positions that did not change on that day.
• For example if you have 100 shares of IBM and 100 shares of GOOG
on 1/1/2011 and then you sell 25 shares of IBM on 3/1/2011 the file
should look like:
Port name
Security ID
Quantity
Date
Sample
IBM
100
01/01/2011
Sample
GOOG
100
01/01/2011
Sample
IBM
75
03/01/2011
Sample
GOOG
100
03/01/2011
STEPS TO UPLOAD
• Upload the file
• Save the sheet to your computer. Run BBU<GO>  choose the file
using the file paths on the top half of the screen then 4) Upload
• Map the file
• Once the file is uploaded choose “CLICK TO MAP”
• The idea is to tell which columns in the sheet represent the columns in
PRTU.
• Map unknown identifiers
• Any errors that appear from the upload (unknown identifiers, wrong
tickers) can be fixed
• Set file and portfolio defaults
REVIEW OF CREATING PORTFOLIOS
• What are the two tools we can use to create a
portfolio? How do they differ?
• If I want to upload two portfolios with history,
how many columns do I need in my excel
sheet?
• If I create a portfolio today and want to see
my total return for the last year, how do I go
about doing this?
CLASSIFICATIONS
• Classification: a way to place a security in a
particular group according to their
characteristics
• Examples: GICS sectors, market cap, analyst
• PCLS<GO>
• You can also upload custom classification using
BBU<GO> uploads
MARGIN TYPES
 Cash Margin – a dollar amount . They type is
mainly used when clients get their daily
holdings from their back office and they simply
upload this to our system.
 Percentage – Allows users to assume that they
are posting x% of the total market value of the
short positions without having to calc the
dollar amount.
INDIVIDUAL FUNCTIONS VS.
PORT<GO>
Individual Functions
PORT<GO> Tabs
PRT<GO>
Intraday
PSD<GO>
Characteristics
HPA<GO>, BBAT<GO>  Holdings
Holdings
HFA<GO>
Performance
BBAT<GO>
Attribution
VAR<GO>
VaR
RSKF<GO>
Tracking Error
WRST<GO>
Scenarios
ANALYZING RETURNS- ATTRIBUTION
Attribution: BBAT<GO> or Attribution tab
• Definition: Analysis of the impact of a portfolio
manager’s decisions
• Looks at both Allocation and Selection effects
of active return
• Helps to determine whether investing with a
specific fund has been money well spent
ANALYZING RISK - VAR
Value at Risk
• Technique used to analyze potential portfolio losses.
• Portfolio is subjected to a series of scenarios in order
to simulate returns over a given period.
• Two primary methodologies in calculating VaR:
• Monte Carlo
• Historical
PRTU REVIEW
• Shares/Par amount, Fixed or Drifting weight
• Review of the columns on PRTU
• Being able to back date to generate history
• Importing option on PRTU and “checkpoints”
PORTFOLIO MAINTENANCE
• PRTU<GO> does NOT automatically adjust for
corporate actions
• Two ways to fix this
• Go to PRTU<GO> and manually adjust for your
corporate actions
• Use PMNT<GO> to adjust for your corporate actions
• Sharing portfolios: PDIS<GO>
FIXED INCOME PORTFOLIOS
 Fixed Income View on PORT<GO>
 Released to all clients with no additional cost
 Currently we do not support balanced portfolios,
equity and fixed income on separate views 
COMING SOON!
CREATING AND SETTING UP
FIXED INCOME PORTFOLIO
PRTU
 Settings: need to ensure that the asset class of the
portfolio is set to Fixed Income
 Entry of position
Divide by 1000 on PRTU
Option on BBU divide by 1000
Entry of a unique ID: ex. VOD 4.625 Corp, VOD 7 7/8 2030 Corp
 Position types supported for Fixed Income
No shorts
Only Cash/Par amount (no weighted portfolios)
WHAT DO FIXED INCOME PORTFOLIO
MANAGERS LOOK AT?
 Assess total return of portfolio
Absolute
Relative to benchmark
 Assess risk of portfolio
Interest rate
Sensitivity
Sensitivity
Credit risk
Sensitivity
risk
to curve changes
to tenor changes
to credit spread changes
LETS START WITH ONE BOND…
YAS<GO>
 What is Duration (Macauley’s)?
 What is modified duration?
 What is DV01?
 Is yield to maturity accurate? Is it realistic?
 Credit spread
 What is Spread to benchmark?
 What is G spread, I spread?
 Why do we have OAS (conceptually)?
 This is standard when looking at portfolios (most logical)
CHARACTERISTICS TAB
 Basics of the overall portfolio
Yield, Average life, Coupon (ALM)
Want to see this compared to the benchmark? How do I want to
define relative characteristics?
 Credit (overall)
OAS
Composite credit rating
 Interest rate sensitivity measures (overall)
DV01
Modified Duration
 This is a current snapshot, Use “As of” date on top right to see
historical
HISTORICAL PERFORMANCE
 How has my portfolio done? What is the total
return? How much have I outperformed /
tracked the benchmark?
 Total return for a FI portfolio: Where does it
come from? How to break it down?
 Can I see components of total return?
FIXED INCOME ATTRIBUTION
 Explaining the total return values
 In equity we have Attribution, Selection, and
Currency, in Fixed Income how do we break this
down?
 What can we quantify? Currency (for sure)
 How do price and yield move?
Curve change (how has the change in curve affected my return)
Curve carry (How much has this contributed to my return): This is
quantifiable as we can directly observe the change – what is
remaining is “Excess Return”
FIXED INCOME ATTRIBUTION – EXCESS
RETURN
 Excess Return broken down into
Allocation
Selection
Like Equity
 But this depends on the Model – There are 4
choices
Brinson (Total Return)*
Excess Return (% Market Weighted)
Excess Return (Spread Duration Weighted)
Spread Return (Spread Duration Weighted)
FI ATTRIBUTION MODELS
Brinson (Total Return)
 More for equities than Fixed Income
 Only breaks down total return into allocation, currency,
selection, [interaction] (Curve return is not there)
Excess Return (% Market Weighted)
 Breaks it down in to Curve return and excess
 Everything that is not explained by curve is Excess
 The excess is then broken down into Allocation and
Selection
FI ATTRIBUTION MODELS
Excess Return Model (SD weighted)
 Similar to the previous: Still have curve return, in fact the curve return
will be identical
 Difference is the way its weighted: using spread duration (sensitivity to
credit)
 More applicable for corporates rather than govies
 Excess is broken down into: Currency, Allocation, selection
Interpretation of Allocation and Selection similar to previous: if a sector’s
credit spread (relative to benchmark) widens (more risky), decision to LONG
sector would generate negative return
Spread ↑  Price ↓  Negative return  negative allocation effect
If credit spreads of portfolio constituents widens  Portfolio less sensitive
to credit (relative to benchmark) in terms of spread duration  positive
selection effect in the case where credit spreads have widened.
FI ATTRIBUTION MODELS
Spread Return (Spread duration weighted)
 Again – curve Return is the same
 Weighting are the same as previous
 Only difference is that Attribution and Selection effects
now broken down further
Allocation (spread) carry, Allocation (spread) change
Selection (spread) carry, Selection (spread) Change
 Don’t worry about this, specifics not in exam, BUT if
curious: IDOC 2065864<GO>
KEY RATES ON PORT
 Assessing sensitivity: See which sector/group/breakdown has the
highest sensitivity so you know what to address first
 Identify where your interest risk is highly concentrated
 Identify versus benchmark where your interest risk lies
 Passive PM does not want differences between benchmark
(immunization)
 Active PM will want to outperform the benchmark (therefore want
negative)
 Key rates – partial sensitivity
 Relative to benchmark – Long or Short duration?





What is my expectation?
Why have I taken this bet?
How to configure which curve?
What is Key rate and what is DV01?
How to show DV01?
KEY RATES ON KRR<GO>
 Similar to PORT
 Shift in interest rates is 1BP UPWARD shift
 Cannot do it relative to a benchmark
 Shows dollar/monetary sensitivity (can see this
on PORT as well, cannot change on KRR)
 Algorithmics (supports Swaps as well which
PORT does not)
TRACKING ERROR
 Similar to equity, factors are different
Spread
Yield Curve
Currency
 Decompose risk to these factors
 Non-factor: cannot be explained
VAR ON PORT
 Same as equities in methodology
 Only factors used in the model are different
Currency
Yield curve
Spread
 NOTE: If portfolio has swaps and other non-cash
instruments, use VAR<GO> instead
SCENARIOS ON BSA<GO>
 Look at scenarios and how that will affect your position
 Assessing how your return changes pending the
different scenarios
 You expect Market value to go UP when interest rates go DOWN (vice versa)
 Can it be that Market value go UP when interest rate go UP? WHY? HINT: Think of
what is contributing to my returns
 Creating Custom Scenarios
 Can change the nature of the shock
 Instantaneous
 At horizon date
 Security list supported on BSA<GO> help pages
SCENARIOS (PORT)
 Can do custom shifts like BSA, but also have
preset scenarios (Scenario detail tab)
 Can stress other factors too (FX rates, Macro
etc)
 Same reasons/rationale as BSA essentially