Unit03 Asset Allocation - 12/14/2011 Learning Outcomes...

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12/14/2011 1 Unit 3 Asset Classes and Asset Allocation 1 Learning Outcomes • Describe the key asset classes and their investment characteristics • Explain the role of managed funds and derivatives for asset allocation • Explain the concept and purpose of investment policy statement • Suggest and justify asset allocation for a given set of investment objectives and constraints. • Discuss the theory, evidence and implication of time horizon and equity investment risk • Explain different types of asset allocation strategies • Discuss the implication of market efficiencies for market timing and asset allocation 3 Unit 3-1 Asset Classes • Shares • Fixed income securities • Real estate • Commodities • Managed funds • Derivatives 4 Shares (Listed) • Shares are equity investments that represent ownership in a corporation • Each share represents a fractional ownership in the firm • Listed shares offers growth and liquidity • Shares, short term debt, and family home are the most popular investments among individual investors 5 Shares Unlisted (Private Equity) • Private equity is shares in unlisted companies. • The private equity market is relatively • Informationally inefficient • Illiquid and chunky • Private equity is appropriate for high net worth investors or indirectly invested via private equity funds. • Main purpose of this asset class is growth and diversification. 6
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12/14/2011 2 Fixed Income Securities Fixed-Income Securities are a group of investment products that offer a fixed periodic return. – bonds – preference shares – convertible securities • Some forms offer contractually guaranteed interest return while others have specified, but not guaranteed, interest return. 7 Bonds Bonds are the long-term debt instruments of corporations and governments • A bondholder has a contractual right to receive a fixed interest return (known as the coupon rate ) plus the return of the bond’s face value at maturity • Long-term debt instruments issued by corporations can be classified as debentures or unsecured notes • There could be large losses if defaulted 8 Preference Shares • Like shares, preference shares represent an ownership interest in a corporation • Unlike shares, preference shares have a stated dividend rate • Investors typically purchase them for the dividends they pay, but preference shares may also provide capital gains 9 Purpose of Fixed Income Allocation • Liability/liquidity/investment constraint management – Generate income – Maturity matching • Less uncertainty of nominal returns over specific investment horizon compare to growth assets such as shares and property 10 Property • Residential property accounts for 60% of household assets. • Property includes residential homes, vacant
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This note was uploaded on 01/25/2012 for the course FINS 5510 taught by Professor Kingsleyfong during the Three '11 term at University of New South Wales.

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Unit03 Asset Allocation - 12/14/2011 Learning Outcomes...

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