Portfolio analysis

Detail notes on portfolio analysis.. Helps in easy study with full notes.. For bot degree and master degree students.

1. Name: Vidya kabade M.Com 2 nd year Roll no:20 SJMVS Arts and Commerce college for women Department of PG studies in Research and Commerce S eminar on: Portfolio analysis

2. INTRODUCTION: Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual. The term portfolio refers to any collection of financial assetssuch as stocks, bonds, and cash. Portfolios may be held byindividual investors and/or managed by financialprofessionals , hedge funds, banks and other financialinstitutions . It is a generally accepted principle that a portfoliois designed according to the investor's risk tolerance, timeframe and investment objectives.

3. What is the Portfolio Analysis? Portfolio Analysis is one of the areas of investment management that enable market participants to analyze and assess the performance of a portfolio (equities, bonds, alternative investments, etc.), intending to measure performance on a relative and absolute basis along with its associated risks.

4. Example Shine Shoes manufactures and markets 55 models of women shoes. The General Manager realized that sales increased but profitability steadily decreased over the past two years. He did not know what happened and he asked a consultant to conduct a portfolio analysis. The study provided some interesting results. The top five models represented 17% of total sales. However, those five were not profitable at all because production costs were too high.At the same time other models were highly profitable but their sales were negligible within the overall portfolio. The Manager decided that higher investment in marketing and sales effort should be made in the most profitable models and thus to push the overall profit up. The results were positive and the company improved notably its finances thanks to the insights obtained by the portfolio analysis.

5. Steps to Portfolio Analysis #1 – Understanding Investor Expectation and Market Characteristics The first step before portfolio analysis is to sync the investor expectation and the market in which such Assets will be invested. Proper sync of the expectations of the investor vis-à-vis the risk and return and the market factors helps a long way in meeting the portfolio objective. With a higher information ratio, fund manager B has delivered superior performance.

6. #2 – Defining an Asset Allocation and Deployment Strategy This is a scientific process with subjective biases. It is imperative to define what type of assets the portfolio will invest, what tools will be used in analyzing the portfolio, which type of benchmark the portfolio will be compared with, the frequency of such performance measurement, and so on.

7. #3 – Evaluating Performance and Making Changes if Required After a stated period as defined in the previous step, portfolio performance will be analyzed and evaluated to determine whether the portfolio attained stated objectives and the remedial actions, if any, required. Also, any changes in the investor objectives are incorporated to ensure portfolio analysis is up to date and keeps the investor expectation in check.

8. Advantages It helps investors to assess the performance periodically and make changes to their Investment strategies if such analysis warrants. This helps in comparing the portfolio against a benchmark for return perspective and understanding the risk undertaken to earn such return, enabling investors to derive the risk-adjusted return. It helps realign the investment strategies with the changing investment objective of the investor. It helps in separating underperformance and outperformance, and accordingly, investments can be allocated.

9. Limitations 1. It is not easy to define product/market segments. 2. It provides an illusion of scientific rigor when some subjective judgments are involved.

10. Conclusion Portfolio analysis is an indispensable part of investment management and should be undertaken periodically to identify and improvise any deviation observed against the investment objective. Another important objective it intends to achieve is to identify the real risk undertaken to achieve the desired return and whether the risk is commensurate with the return achieved by the investor. In short, it is a complex task and requires professional expertise and guidance to make it impactful.

11. Thank you