Risk Management & Asset allocation by
Jony Islam
What is Asset Allocation •
A comprehensive and complex process oriented towards optimizing returns within comfort zones
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Systematised approach to invest in various asset class Based on defined future goals and requirements Investors circumstances, risk profile and time horizon available for investments Analysis of risk tolerance of the investor
The goal of asset allocation •
- select an “optimal” portfolio of assets given a plan’s risk tolerance and capital market expectations.
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• Risk tolerance includes factors such as: — Time horizon; — Demographics; — Plan design; — Funded level; and • Typically, assets are modeled with a “mean/variance” optimizer, and the results are integrated with liability modeling. Goal analysis- The goal of the asset allocation process is to select an “optimal” portfolio of assets given a plan’s risk tolerance and capital market expectations exposure.
Connection between Asset allocation and Diversification •
Don’t put all your eggs in one basket
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Simply a strategy to spread risk with the assumption that downside in one area will get covered by upside in another investment.
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Asset allocation allows building of portfolios having specific financial goals in mind
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Control risk
Importance of rebalancing •
picture
Diversification- theory •
Mean/ variance optimization
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Picture
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Efficient frontier pic
What is risk?
• Standard deviation • Beta
Asset allocation models • Between 4 objectives: • -Capital preservation • Income • Balanced • Growth Oriented
Adopting the right model • Set specific future financial goals • Determine time horizon • Analysis of Risk tolerance
ASSETS MANAGED IN THE UK Asset Allocation £1 trillion
Money Market 7.7%
Other 10.1%
Bonds 36.4%
Source: Investment Management Association
Fixed Income Allocation £366 billion
High Yield Bonds 0.5%
Equities 45.8%
Investment Grade Bonds 48.0%
Government Debt 51.5%
HEDGING
Example of a saxo clients portfolio
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Building optimal portfolio using leverage/collateral
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Asset classes available on the Saxo trader
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Risk management tools
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Practical strategies - stop/loss -trailing
Thank you for your time!