Portfolio Management in Practice, Volume 3 E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: The CFA Institute Series
- Sprache: Englisch
The Equity Portfolio Management Workbook provides learners with real-world problems based on key concepts explored in Portfolio Management in Practice, Volume 3: Equity Portfolio Management. Part of the reputable CFA Institute Investment Series, the workbook is designed to further students' and professionals' hands-on experience with a variety of Learning Outcomes, Summary Overview sections, and challenging exercises and solutions. Created with modern perspective, the workbook presents the necessary tools for understanding equity portfolio management and applying it in the workplace. This essential companion resource mirrors the main text, making it easy for readers to follow. Inside, users will find information and exercises about: * The difference between passive and active equity strategies * Market efficiency underpinnings of passive equity strategies * Active equity strategies and constructing portfolios to reflect active strategies * Technical analysis as an additional consideration in executing active equity strategies While the Equity Portfolio Management volume and its companion workbook can be used in conjunction with the other volumes in the series, the pair also functions well as a standalone focus on equity investing. With each contributor bringing his own unique experiences and perspectives to the portfolio management process, the Equity Portfolio Management Workbook distills the knowledge, skills, and abilities readers need to succeed in today's fast-paced financial world.
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Seitenzahl: 158
Veröffentlichungsjahr: 2020
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CFA Institute is the premier association for investment professionals around the world, with over 170,000 members more than 160 countries. Since 1963 the organization has developed and administered the renowned Chartered Financial Analyst Program. With a rich history of leading the investment profession, CFA Institute has set the highest standards in ethics, education, and professional excellence within the global investment community, and is the foremost authority on investment profession conduct and practice.
Each book in the CFA Institute Investment Series is geared toward industry practitioners along with graduate-level finance students and covers the most important topics in the industry. The authors of these cutting-edge books are themselves industry professionals and academics and bring their wealth of knowledge and expertise to this series.
PORTFOLIO MANAGEMENT IN PRACTICE WORKBOOK
Volume IIIEquity Portfolio Management
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ISBN 978-1-119-78930-7 (ePDF)
ISBN 978-1-119-78931-4 (ePub)
Contents
Cover
Title Page
Copyright
PART I: LEARNING OBJECTIVES, SUMMARY OVERVIEW, AND PROBLEMS
CHAPTER 1: OVERVIEW OF EQUITY SECURITIES
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 2: MARKET EFFICIENCY
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 3: OVERVIEW OF EQUITY PORTFOLIO MANAGEMENT
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEM
CHAPTER 4: PASSIVE EQUITY INVESTING
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 5: ANALYSIS OF ACTIVE PORTFOLIO MANAGEMENT
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 6: ACTIVE EQUITY INVESTING: STRATEGIES
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 7: ACTIVE EQUITY INVESTING: PORTFOLIO CONSTRUCTION
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
CHAPTER 8: TECHNICAL ANALYSIS
LEARNING OUTCOMES
SUMMARY
PRACTICE PROBLEMS
PART II: SOLUTIONS
CHAPTER 1: OVERVIEW OF EQUITY SECURITIES
SOLUTIONS
CHAPTER 2: MARKET EFFICIENCY
SOLUTIONS
CHAPTER 3: OVERVIEW OF EQUITY PORTFOLIO MANAGEMENT
SOLUTIONS
CHAPTER 4: PASSIVE EQUITY INVESTING
SOLUTIONS
CHAPTER 5: ANALYSIS OF ACTIVE PORTFOLIO MANAGEMENT
SOLUTIONS
CHAPTER 6: ACTIVE EQUITY INVESTING: STRATEGIES
SOLUTIONS
CHAPTER 7: ACTIVE EQUITY INVESTING: PORTFOLIO CONSTRUCTION
SOLUTIONS
CHAPTER 8: TECHNICAL ANALYSIS
SOLUTIONS
ABOUT THE CFA PROGRAM
END USER LICENSE AGREEMENT
Guide
Table of Contents
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PART I
LEARNING OBJECTIVES, SUMMARY OVERVIEW, AND PROBLEMS
CHAPTER 1OVERVIEW OF EQUITY SECURITIES
LEARNING OUTCOMES
The candidate should be able to:
describe characteristics of types of equity securities;
describe differences in voting rights and other ownership characteristics among different equity classes;
distinguish between public and private equity securities;
describe methods for investing in non-domestic equity securities;
compare the risk and return characteristics of different types of equity securities;
explain the role of equity securities in the financing of a company’s assets;
distinguish between the market value and book value of equity securities;
compare a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return.
SUMMARY
Equity securities play a fundamental role in investment analysis and portfolio management. The importance of this asset class continues to grow on a global scale because of the need for equity capital in developed and emerging markets, technological innovation, and the growing sophistication of electronic information exchange. Given their absolute return potential and ability to impact the risk and return characteristics of portfolios, equity securities are of importance to both individual and institutional investors.
This chapter introduces equity securities and provides an overview of global equity markets. A detailed analysis of their historical performance shows that equity securities have offered average real annual returns superior to government bills and bonds, which have provided average real annual returns that have only kept pace with inflation. The different types and characteristics of common and preference equity securities are examined, and the primary differences between public and private equity securities are outlined. An overview of the various types of equity securities listed and traded in global markets is provided, including a discussion of their risk and return characteristics. Finally, the role of equity securities in creating company value is examined as well as the relationship between a company’s cost of equity, its accounting return on equity, investors’ required rate of return, and the company’s intrinsic value.
We conclude with a summary of the key components of this chapter:
Common shares represent an ownership interest in a company and give investors a claim on its operating performance, the opportunity to participate in the corporate decision-making process, and a claim on the company’s net assets in the case of liquidation.
Callable common shares give the issuer the right to buy back the shares from shareholders at a price determined when the shares are originally issued.
Putable common shares give shareholders the right to sell the shares back to the issuer at a price specified when the shares are originally issued.
Preference shares are a form of equity in which payments made to preference shareholders take precedence over any payments made to common stockholders.
Cumulative preference shares are preference shares on which dividend payments are accrued so that any payments omitted by the company must be paid before another dividend can be paid to common shareholders. Non-cumulative preference shares have no such provisions, implying that the dividend payments are at the company’s discretion and are thus similar to payments made to common shareholders.
Participating preference shares allow investors to receive the standard preferred dividend plus the opportunity to receive a share of corporate profits above a pre-specified amount. Non-participating preference shares allow investors to simply receive the initial investment plus any accrued dividends in the event of liquidation.
Callable and putable preference shares provide issuers and investors with the same rights and obligations as their common share counterparts.
Private equity securities are issued primarily to institutional investors in private placements and do not trade in secondary equity markets. There are three types of private equity investments: venture capital, leveraged buyouts, and private investments in public equity (PIPE).
The objective of private equity investing is to increase the ability of the company’s management to focus on its operating activities for long-term value creation. The strategy is to take the “private” company “public” after certain profit and other benchmarks have been met.
Depository receipts are securities that trade like ordinary shares on a local exchange but which represent an economic interest in a foreign company. They allow the publicly listed shares of foreign companies to be traded on an exchange outside their domestic market.
American depository receipts are US dollar-denominated securities trading much like standard US securities on US markets. Global depository receipts are similar to ADRs but contain certain restrictions in terms of their ability to be resold among investors.
Underlying characteristics of equity securities can greatly affect their risk and return.
A company’s accounting return on equity is the total return that it earns on shareholders’ book equity.
A company’s cost of equity is the minimum rate of return that stockholders require the company to pay them for investing in its equity.
Practice Problems
Which of the following is
not
a characteristic of common equity?
It represents an ownership interest in the company.
Shareholders participate in the decision-making process.
The company is obligated to make periodic dividend payments.
The type of equity voting right that grants one vote for each share of equity owned is referred to as:
proxy voting.
statutory voting.
cumulative voting.
All of the following are characteristics of preference shares
except
:
They are either callable or putable.
They generally do not have voting rights.
They do not share in the operating performance of the company.
Participating preference shares entitle shareholders to:
participate in the decision-making process of the company.
convert their shares into a specified number of common shares.
receive an additional dividend if the company’s profits exceed a pre-determined level.
Which of the following statements about private equity securities is
incorrect
?
They cannot be sold on secondary markets.
They have market-determined quoted prices.
They are primarily issued to institutional investors.
Venture capital investments:
can be publicly traded.
do not require a long-term commitment of funds.
provide mezzanine financing to early-stage companies.
Which of the following statements
most accurately
describes one difference between private and public equity firms?
Private equity firms are focused more on short-term results than public firms.
Private equity firms’ regulatory and investor relations operations are less costly than those of public firms.
Private equity firms are incentivized to be more open with investors about governance and compensation than public firms.
Emerging markets have benefited from recent trends in international markets. Which of the following has
not
been a benefit of these trends?
Emerging market companies do not have to worry about a lack of liquidity in their home equity markets.
Emerging market companies have found it easier to raise capital in the markets of developed countries.
Emerging market companies have benefited from the stability of foreign exchange markets.
When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to:
the depository bank.
the investors in the depository receipts.
the issuer of the shares held in the trust.
With respect to Level III sponsored ADRs, which of the following is
least likely
to be accurate? They:
have low listing fees.
are traded on the NYSE, NASDAQ, and AMEX.
are used to raise equity capital in US markets.
A basket of listed depository receipts, or an exchange-traded fund, would
most likely
be used for:
gaining exposure to a single equity.
hedging exposure to a single equity.
gaining exposure to multiple equities.
Calculate the total return on a share of equity using the following data:
Purchase price: $50
Sale price: $42
Dividend paid during holding period: $2
–12.0%
–14.3%
–16.0%
If a US-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is:
lower than the ETF’s total return.
higher than the ETF’s total return.
the same as the ETF’s total return.
Which of the following is
incorrect
about the risk of an equity security? The risk of an equity security is:
based on the uncertainty of its cash flows.
based on the uncertainty of its future price.
measured using the standard deviation of its dividends.
From an investor’s point of view, which of the following equity securities is the
least
risky?
Putable preference shares.
Callable preference shares.
Non-callable preference shares.
Which of the following is
least likely
to be a reason for a company to issue equity securities on the primary market?
To raise capital.
To increase liquidity.
To increase return on equity.
Which of the following is
not
a primary goal of raising equity capital?
To finance the purchase of long-lived assets.
To finance the company’s revenue-generating activities.
To ensure that the company continues as a going concern.
Which of the following statements is
most accurate
in describing a company’s book value?
Book value increases when a company retains its net income.
Book value is usually equal to the company’s market value.
The ultimate goal of management is to maximize book value.
Calculate the book value of a company using the following information:
Number of shares outstanding
100,000
Price per share
€52
Total assets
€12,000,000
Total liabilities
€7,500,000
Net Income
€2,000,000
€4,500,000.
€5,200,000.
€6,500,000.
Which of the following statements is
least accurate
in describing a company’s market value?
Management’s decisions do not influence the company’s market value.
Increases in book value may not be reflected in the company’s market value.
Market value reflects the collective and differing expectations of investors.
Calculate the return on equity (ROE) of a stable company using the following data:
Total sales
£2,500,000
Net income
£2,000,000
Beginning of year total assets
£50,000,000
Beginning of year total liabilities
£35,000,000
Number of shares outstanding at the end of the year
1,000,000
Price per share at the end of the year
£20
10.0%.
13.3%.
16.7%.
Holding all other factors constant, which of the following situations will
most likely
lead to an increase in a company’s return on equity?
The market price of the company’s shares increases.
Net income increases at a slower rate than shareholders’ equity.
The company issues debt to repurchase outstanding shares of equity.
Which of the following measures is the
most difficult
to estimate?
The cost of debt.
The cost of equity.
Investors’ required rate of return on debt.
A company’s cost of equity is often used as a proxy for investors’:
average required rate of return.
minimum required rate of return.
maximum required rate of return.
CHAPTER 2MARKET EFFICIENCY
LEARNING OUTCOMES
The candidate should be able to:
describe market efficiency and related concepts, including their importance to investment practitioners;
distinguish between market value and intrinsic value;
explain factors that affect a market’s efficiency;
contrast weak-form, semi-strong-form, and strong-form market efficiency;
explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management;
describe market anomalies;
describe behavioral finance and its potential relevance to understanding market anomalies.
SUMMARY
This chapter has provided an overview of the theory and evidence regarding market efficiency and has discussed the different forms of market efficiency as well as the implications for fundamental analysis, technical analysis, and portfolio management. The general conclusion drawn from the efficient market hypothesis is that it is not possible to beat the market on a consistent basis by generating returns in excess of those expected for the level of risk of the investment.
Additional key points include the following:
The efficiency of a market is affected by the number of market participants and depth of analyst coverage, information availability, and limits to trading.
There are three forms of efficient markets, each based on what is considered to be the information used in determining asset prices. In the weak form, asset prices fully reflect all market data, which refers to all past price and trading volume information. In the semi-strong form, asset prices reflect all publicly known and available information. In the strong form, asset prices fully reflect all information, which includes both public and private information.
Intrinsic value refers to the true value of an asset, whereas market value refers to the price at which an asset can be bought or sold. When markets are efficient, the two should be the same or very close. But when markets are not efficient, the two can diverge significantly.
Most empirical evidence supports the idea that securities markets in developed countries are semi-strong-form efficient; however, empirical evidence does not support the strong form of the efficient market hypothesis.
