An example of a portfolio of securities according to the Harry Markowitz model. Securities portfolio: assessment of profitability and risk Securities portfolio alm htm

90. Formation of a portfolio of securities and methods of assessing financial instruments Formation of a portfolio of securities is based on the ratio of income and risk characteristic of a particular type of portfolio. Depending on the selected type of portfolio, a selection of valuable

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Price of securities The key concept in all transactions with securities is the rate, quotation of a security or its price. If you do not go into the subtleties, then all of the above, in fact, does not differ much from each other, if at all differences can be found. For the "user" it is

Securities Insurance Andy explained everything well. In 2007, I watched with great excitement the collapse of the stock market, knowing the dire consequences for the millions of investors who believed that in the long term the stock market was always growing and

Star Portfolio Style: ARM and Apple Advanced RISC Machines (ARM), a provider of intellectual property to processor manufacturers, develops semiconductor chips and has a particularly strong market position in manufacturing

Let us highlight the general patterns reflecting the relationship between the assumed risk and the expected return on the investor's activities:

- more risky investments, as a rule, are characterized by a higher profitability;

- with an increase in income, the probability of its receipt decreases, while a certain minimum guaranteed income can be obtained with practically no risk.

Recall that investment portfolio Securities - a set of securities owned by an individual or legal entity or individuals or legal entities on the basis of equity participation, serving as an integral object of management. It can include both instruments of the same type (for example, stocks or bonds), and different assets: securities, financial derivatives, real estate.

The main goal of portfolio formation is to strive to obtain the required level of expected return at a lower level of expected risk. This goal is achieved, firstly, by diversifying the portfolio, that is, distributing the investor's funds between various assets (“Don't put all your eggs in one basket”), and, secondly, by carefully selecting financial instruments.

Note!

Modern theory and practice suggest that optimal diversification is achieved when there are 8 to 20 different types of securities in a portfolio. A further increase in the composition of the portfolio is impractical, since the effect of excessive diversification arises, which can lead to the following negative results:

- impossibility of high-quality portfolio management;

- purchase of insufficiently reliable, profitable, liquid securities;

- high costs of searching for securities (costs of preliminary analysis, etc.);

- high costs for the purchase of small lots of securities, etc.

The costs of managing an overly diversified portfolio will not give the desired result, since the portfolio's profitability is unlikely to grow at a higher rate than the costs due to excessive diversification.

The formation and management of a portfolio of securities is the area of ​​activity of professionals, and the created portfolio is a product that can be sold either in parts (they sell shares in the portfolio for each investor), or in whole (when the manager takes the trouble to manage the client's portfolio of securities). Like any commodity, a portfolio of certain investment properties can be in demand in the stock market.

For your information

There are many types of portfolios, and each individual holder adheres to his own investment strategy. The portfolio type is determined depending on the ratio of return and risk. At the same time, an important feature in classifying a portfolio is how and from what source it was obtained: due to the growth of the market value of a security or due to current payments - dividends, interest.

Depending on the source of income, a portfolio of securities can be a growth portfolio or an income portfolio.

The growth portfolio is formed from the shares of companies whose market value is growing. The purpose of the portfolio is to increase capital value along with receiving dividends. There are several types of growth portfolios.

Aggressive growth portfolio aims to maximize capital gains. This includes stocks of young, fast-growing companies. Investing in stocks is quite risky, but it can bring the highest returns.

Conservative growth portfolio the least risky, consists of the shares of large companies. The composition of the portfolio is stable for a long time, aimed at preserving capital.

Medium portfolio combines the investment properties of portfolios of aggressive and conservative growth. Along with safe securities, this includes risky stock instruments. At the same time, average capital growth and a moderate degree of investment risk are guaranteed. This is the most popular portfolio among risk averse investors.

The income portfolio is focused on obtaining high current income - interest and dividend payments. Several types of portfolios are also distinguished here:

- portfolio of regular income - formed from highly reliable securities and brings average income with minimal risk;

- portfolio of income securities - consists of high-yield corporate bonds, securities that bring high income with an average level of risk.

Growth and income portfolios are formed in order to avoid losses in the stock market both from a fall in market value and from a decrease in dividend payments.

When developing an investment strategy, it is necessary to take into account the state of the securities market and constantly evaluate the investment portfolio, timely purchase high-yield securities and get rid of low-yield assets as quickly as possible. Therefore, there is no need to try to cover all the variety of existing portfolios, it is only necessary to determine the principles of their formation.

Thus, the assessment of the investment portfolio is the main criterion for making strategic decisions on the purchase or sale of securities.

Portfolio return

A portfolio of securities is a collection of different securities, and its yield can be determined using the following formula:

Portfolio yield = (Cost of securities at the time of calculation - Cost of securities at the time of purchase) / Cost of securities at the time of purchase.

Example 1

There are two alternative portfolios A and B, in which 100 thousand rubles have been invested. One year later, the value of portfolio A amounted to 108 thousand rubles, portfolio B - 120 thousand rubles. Accordingly, the return on portfolio A will be 0.08, or 8% per annum ((108 thousand rubles - 100 thousand rubles) / 100 thousand rubles), and portfolio B - 20% per annum.

The expected return on the portfolio is understood as the weighted average of the expected values ​​of the return on the securities included in the portfolio. In this case, the "weight" of each security is determined by the relative amount of money directed by the investor to purchase this security. The expected return on the investment portfolio is:

R portfolio,% = R 1 × W 1 + R 2 × W 2 + ... + R n × W n,

where R n is the expected return on the i-th share;

W n - the specific weight of the i-th share in the portfolio.

Example 2

Suppose that the portfolio is formed from two shares A and B, the yield of which is 10 and 20% per annum, respectively (Table 1).

Table 1. Return on securities portfolio

The return, for example, of the first portfolio will be: R portfolio 1 = 0.1 × 0.8 + 0.2 × 0.2 = 0.12, that is, 12%.

Measuring portfolio risk

All participants in the stock market operate under conditions of incomplete certainty. Accordingly, the outcome of almost any securities purchase and sale transaction cannot be accurately predicted, that is, transactions are subject to risk. In general, risk refers to the likelihood of an event occurring. Assessing risk means assessing the likelihood of an event occurring. Portfolio risk is explained not only by the individual risk of each individual security in the portfolio, but also by the fact that there is a risk of the impact of changes in the observed annual values ​​of the return on one share on the change in the return on other shares included in the investment portfolio.

The overall portfolio risk consists of systematic risk (non-diversified / market / non-specific) as well as non-systematic risk (diversified / non-market / specific). Market risk is caused by common factors affecting all assets. The systematic risk of changes in indicators such as GDP, inflation, the level of interest rates, as well as the average level of corporate profit in the economy, is most strongly influenced by the systematic risk. Non-market risk is associated with the individual characteristics of a particular asset. This risk can be mitigated through diversification.

For your information

In developed markets, to eliminate a specific risk, it is enough to make a portfolio of 30-40 assets. In emerging markets, this figure should be higher due to high market volatility.

In order to determine the risk of a portfolio of securities, first of all, it is necessary to determine the degree of interconnection and the direction of change in the yields of two assets. For example, if the price of one security goes up, then the rate of another security also grows, and vice versa, price movements are multidirectional or completely independent of each other. To determine the relationship between securities, indicators such as covariance and correlation coefficient are used.

Covariance- interdependent joint change of two or more signs of the economic process. Covariance is used to measure the degree of joint volatility between two securities, such as a stock.

The covariance index is determined by the formula:

Cov ij = ∑ (R the yield of the i-th share - R the average yield of the i-th share) × (R the yield of the j-th share - R the average yield of the j-th share) / n - 1,

where n is the number of periods for which the profitability of the i-th and j-th shares was calculated.

Example 3

Let's determine the value of covariance for two securities A and B. In table. 2 shows data on the yield of securities.

Table 2. Profitability of securities A and B

R is the average return on the i-th share = 0.1 + 0.16 + 0.14 + 0.17 / 4 = 0.1425, or 14.25%.

Cov ij = ((0.1 - 0.1425) × (0.12 - 0.1475) + (0.16 - 0.1425) × (0.18 - 0.1475) + (0.14 - 0 , 1425) × (0.14 - 0.1475) + (0.17 - 0.1425) × (0.15 - 0.1475)) / 4 = 0.0004562.

Let us analyze the influence of the correlation coefficients (Cor) included in the securities portfolio on the portfolio risk.

For your information

Correlation is a mathematical term for a systematic and conditional relationship between two sets of data.

In the stock market, it is customary to consider the correlation (interdependence) of different stocks, or stocks and indices. It is believed that Russian stocks are highly correlated, that is, at a certain point in time, all stocks move in the same direction. The correlation coefficient ranges from -1 to +1. A positive value of the coefficient indicates that the profitability of assets changes in one direction when the market conditions change, while a negative one - in the opposite direction. If the coefficient is zero, there is no correlation between asset returns.

The correlation indicator is determined by the formula:

Cor = Cov ij / (δ i × δ j),

where Cov ij is the covariance of the profitability of the i-th and j-th shares;

δ i is the standard deviation of the profitability of the i-th share;

δ j is the standard deviation of the return on the j-th stock.

Variance is the squared standard deviation, calculated by the formula:

δ 2 = ∑ (R share return - R average share return) 2 / n - 1.

Thus, the standard deviation is the square root of the variance.

In general, using the correlation data, we can draw the following conclusions:

1) the lower the correlation coefficient of the shares in the portfolio, the lower the portfolio risk, therefore, when forming the portfolio, it should include the shares that have the least correlation;

2) if the correlation coefficient of the shares in the portfolio is +1, then the portfolio risk is averaged;

3) if the correlation coefficient of the shares in the portfolio is less than +1, then the portfolio risk decreases;

4) if the correlation coefficient of the shares in the portfolio is -1, then you can get a portfolio without risk.

For your information

The principle of building a portfolio of securities, in which risk reduction is achieved by including a large number of different stocks in the portfolio, is called diversification. The founder of this theory is Harry Markowitz. In 1952, the American economist G. Markowitz (in the future, the Nobel Prize in Economics (1990)) published a fundamental work, which until now is the basis of the approach to investment from the point of view of the modern theory of portfolio formation. Diversification of Markowitz- This is a strategy to reduce risk as much as possible while maintaining the required level of profitability; it consists in choosing those assets, the returns of which will have the least possible correlation.

According to G. Markowitz's theory, when justifying a portfolio, an investor should be guided by the expected return and standard deviation. Intuition plays a decisive role in this. Expected return is viewed as a measure of the potential reward associated with a particular portfolio, and standard deviation as a measure of risk associated with a given portfolio. At the same time, an important assumption is made that the investor, under all other conditions, will prefer high returns if two portfolios with the same standard deviations are given. If the investor has to choose between portfolios that have the same level of expected return, then preference is given to a portfolio with minimal risk, that is, in fact, getting more income with a minimum of possible deviation.

Markowitz's theory was a huge step towards the creation of the Capital Asset Pricing Model (CAPM). The asset pricing model describes the relationship between risk and the expected return on assets. Relationship between risk and return according to the long-term asset valuation model is described as follows:

D = D b / r + β × (D p - D b / r),

where D is the expected rate of return;

D b / r - risk-free rate (income);

D p - the profitability of the market as a whole;

β - coefficient beta.

The main idea of ​​the CAPM is that investors should receive 2 types of compensation: for time (time value of money) and for risk. The value of money over time is represented by the risk-free rate and is the compensation to the investor for placing funds in any investment for a certain period of time.

Note!

Risk-free income is usually measured at government bond rates, since those are virtually risk-free. In the west, the risk-free income is about 4-5%, while in our country it is 7-10%. The overall market return is the rate of return for that market's index. In the USA, for example, the S&P 500 index, and in Russia - the RTS index.

The remainder of the formula represents compensation for the additional risk that the investor has assumed. Here, the measure of risk is the beta coefficient, which compares the return on the asset with the market return for the period, as well as with the market premium.

Coefficient betadetermined by the formula:

β = Сr х × δ х / δ

or β = Cov x / δ 2,

where Cox is the correlation between the yield of a security x and the average level of yield of securities in the market;

Cov x - covariance between the yield of a security x and the average level of yield of securities in the market;

δ х is the standard deviation of the yield for a particular security;

δ is the standard deviation of returns on the securities market as a whole.

The risk level of individual securities is determined based on the following values:

β = 1 - average risk level;

β> 1 - high level of risk;

β < 1 — низкий уровень риска.

A stock with a large beta (β> 1) is called aggressive, a stock with a low beta (β< 1) — защитными. Например, агрессивными являются акции компаний, чьи доходы существенно зависят от конъюнктуры рынка. Когда экономика на подъеме, агрессивные акции приносят большие прибыли. Например, акции автомобилестроительных компаний являются агрессивными. Инвесторы, ожидающие подъема экономики, покупают агрессивные акции, обеспечивающие больший уровень доходности в условиях растущего рынка, чем защитные. Акции компаний, чья прибыль в меньшей степени зависит от состояния рынка, являются защитными (например, акции компаний коммунальной сферы). Доходы таких компаний сокращаются в меньшей степени в условиях экономического спада. Поэтому использование защитных акций в периоды кризисов позволяет инвестору извлечь большую прибыль в сравнении с агрессивными акциями.

For a portfolio of securities, β is calculated as a weighted average β - the coefficient of individual types of investments in the portfolio, where their share in the portfolio is taken as the weight. Thus, the more relaxed the portfolio, the greater the β indicator, and therefore, the income should be higher, and vice versa.

Consequently, the CAPM model demonstrates a direct relationship between the risk of a security and its return, which allows it to show fair returns in relation to the existing risk and vice versa.

Example 4

Let us determine the value of the coefficient β for security A. In table. 3 shows data on the profitability of the security and the entire market for nine years.

Table 3. Profitability of securities A and B

Market yield variance:

δ 2 markets = ((5 - 6.7) 2 + (-4 - 6.7) 2 + (-2 - 6.7) 2 + (4 - 6.7) 2 + (9 - 6.7) 2 + (7 - 6.7) 2 + (12 - 6.7) 2 + (14 - 6.7) 2 + (15 - 6.7) 2) / 9 - 1 = 44.5.

Sample covariance coefficient of stock and market returns:

Cov = ((3 - 4.8) (5 - 6.7) + (-2 - 4.8) (- 4 - 6.7) + (-1 - 4.8) (- 2 - 6.7 ) + (2 - 4.8) (4 - 6.7) + (6 - 4.8) (9 - 6.7) + (5 - 4.8) (7 - 6.7) + (8 - 4.8) (12 - 6.7) + (10 - 4.8) (14 - 6.7) + (12 - 4.8) (15 - 6.7)) / 9 - 1 = 31.42 ...

Β coefficient for security A:

β = 31.42 / 44.5 = 0.706.

The obtained result suggests that if next year the market's profitability grows by 1%, then the investor has the right to expect an increase in the share's profitability by an average of 0.706%.

Thus, the totality of various securities belonging to the investor forms a securities portfolio, the formation of which is aimed at providing an optimal combination of profitability (profitability), reliability and liquidity of securities. And constant monitoring and assessment of the risk of a portfolio of securities will allow the investor to increase the return on investment.

The essence of portfolio investment is the distribution of investment potential between different groups of assets. Portfolio investment allows you to plan and monitor the results of investment activities. Typically, a portfolio is a set of corporate stocks, bonds with varying degrees of risk, securities with a fixed income guaranteed by the government, which means that with minimal risk of loss of invested funds and income.

Large banks form their investment portfolios as follows: about 70% are government securities, about 25 - municipal, 5% - others. Small banks adhere to a more cautious strategy and form their portfolio mainly at the expense of government and municipal securities as the most reliable and highly liquid.

When forming an investment portfolio, they adhere to the principles of safety of investments, stability of income and liquidity of investments (the ability to quickly and without loss turn them into cash).

However, none of the securities has all these properties at the same time. A compromise is needed here, since the most promising investments from the point of view of earning income are at the same time the most risky, and the safest ones bring low returns. The main goal in the formation of a portfolio is to achieve the optimal ratio of risk and return for the investor. This problem can be solved by using the principles of diversification and sufficient liquidity.

Principle sufficient liquidity consists in the fact that in the portfolio it is necessary to have a certain share of quickly realizable assets, sufficient to fulfill obligations to clients and to complete the emerging highly liquid transactions.

The main advantage of portfolio investment is the ability to use it to solve specific investment problems: to provide income and a quantitative ratio of profit and risk. To do this, it is necessary to improve the already formed portfolio and find the best options for new ones.

The balance between the existing risk of investing in securities and the expected return is achieved using different types of portfolios: portfolio of income, portfolio of growth and portfolio of growth and income (Figure 10.11).

Rice. 10.11.

Income portfolio focused on the primary receipt of high current income through dividends and interest. It is formed from highly reliable stock market instruments. Distinguish portfolios:

• regular income - formed from highly reliable securities, capable of generating an average income with a minimum level of risk;
• profitable securities - consists of high-yield securities that bring high income at an average level of risk.

Growth portfolio is focused on the predominant growth in the market value of the securities included in it and is divided into portfolios by its investment properties:

• aggressive growth - focused on maximum capital growth; it may include risky stocks of young fast-growing companies that bring high income;
• conservative growth - aimed at preserving capital; consists of shares of large and well-known companies with low sustainable growth rates of market value;
• medium height - the most common; typical for risk-averse investors. Combines the investment properties of portfolios of aggressive and conservative growth.

Growth and income portfolio. Any of the portfolios listed above is not a homogeneous aggregate and may include securities with other investment properties, so a portfolio of growth and income can be formed. This portfolio is created in order to insure the investor against possible losses in the event of a fall in the market value of securities and low dividend or interest payments. The growth and income portfolio consists of two parts: one contains the financial assets that provide their owner with the growth of capital value, and the other contains income.

When classifying a portfolio, one should take into account the investment qualities inherent in securities placed in a particular portfolio: liquidity, tax exemption, industry and regional affiliation.

Portfolio liquidity means the possibility of its transformation into cash without loss of value. This is done through a money market portfolio that includes primarily cash or fast-moving assets (short-term securities).

Portfolio management. As the world experience shows, the higher the risks in the securities market, the higher requirements are imposed on the portfolio manager. The portfolio type also corresponds to the type of management - active or passive.

Passive control consists in the purchase of securities for a long time. This is a relatively new direction in investment activities. Until the mid-1960s. investors were looking for mispriced stocks. Certain features of a passive strategy were the long-term purchase of securities of reliable blue chips (shares of reliable, first-class companies). The concept of broad diversification and passive management has not been used in practice.

This changed in the 1960s when Markowitz's concept of portfolio selection became common knowledge and the market efficiency hypothesis was introduced. In the early 1950s. Harry Markowitz proposed a mathematical model for choosing the optimal portfolio. An efficient market was recognized as a market in which the price of each security is always equal to its investment value - the cost of the security at the moment, taking into account the prospective estimate of the price of demand for it and its income in the future.

The essence of passive management is that the investor chooses a certain indicator as a goal and forms a portfolio, the change in the profitability of which corresponds to the dynamics of the indicator movement. The target chosen is usually a highly diversified market index. Therefore, passive management is called indexed, and the passive portfolios themselves are called index funds. The first national stock index fund was launched in the United States in 1971, and hundreds of billions of dollars are now invested in national and international stock and bond index funds. Individual investors have also come to favor index funds.

Passively managed portfolios have evolved into one of the fastest performing investment products offered by many mutual funds.

An example of a passive investment strategy is the even distribution of funds between securities with different maturities (ladder method) and polar urgency (barbell method).

The ladder method consists in buying securities of various maturities within the banking investment horizon.

For example, a bank plans to have an investment portfolio with a five-year horizon. He divides the amount allocated for investment into five equal parts and buys one-year, two-year and other securities, and after the redemption of one-year securities, the released amount is again invested in five-year securities, etc. As a result, the bank will constantly have an average rate of return on investment.

The essence of the barbell method is that the bulk of funds is invested in short-term and long-term securities, and only a small part in medium-term securities: short-term ones provide liquidity, while long-term ones usually bring higher returns.

Active management has many approaches, but any active management includes the search for incorrectly priced securities or their groups. Accurately identifying and skillfully buying or selling these chain securities enables the active investor to get better results than the passive ones. At the same time, the commission charged by active managers, as a rule, is significantly higher than that of passive ones, and higher with active management and transaction costs. All this allows proponents of passive management to argue that they get better results than active managers.

However, despite the rapid growth of assets that are managed by passive managers, the majority of national and international portfolios of stocks and bonds use active management methods.

Large institutional investors, like pension funds, choose medium management: they use the services of both passive and active managers.

As for Russian practice, portfolio investing has not yet become a "norm of life", since the securities market is still being formed, there are no normal statistical series for most financial instruments, no historical statistical base, which prevents the widespread use of classical Western methods. However, many banks and other institutional investors are setting up portfolio management departments.

• Cm.: Investments. M.: INFRA-M, 2001.
• Cm.: Usoskin V.M. Modern commercial bank. M .: Vasar-Ferro, 1999.
• Cm.: Sharpe W.F., Alexander G.J., Wayley D.W. Decree. op.

Investing represents an advanced functional approach to money. The opportunity for financial investment has revolutionized the basic model of earning income - to earn more, you need to work harder and better. The growth of finances is also facilitated by their competent redistribution and long-term investment.

Investments are distinguished in the financial market direct or portfolio... Direct implies participation in the statutory capital of the enterprise in order to obtain increased income in the future. Most often, direct investors are: the management apparatus, trustees headed by the founder. When an enterprise starts to generate income, it is distributed among direct investors in proportion to the contribution of each.

Portfolio investing involves the purchase of securities. Each has a certain initial cost and investment attractiveness and begins to generate income for the owner according to a pre-developed schedule for receiving dividends.

Portfolio investment is considered a more advanced and safer way of long-term investment, so it needs to be considered in more detail.

What is a portfolio of securities? Concept, formation, methods of portfolio investment management

A portfolio of securities provides investment characteristics that cannot be achieved from the position of owning a single security.

In essence, a portfolio is a capital invested in assets, which should generate income, but has potential risks. With insufficient or irrational management, the percentage of income falls, and the likelihood of risks and large financial losses increases.

The portfolio can be managed directly by the owner, or by an expert stock market intermediary. This is a common practice, often experts in the consulting and financial environment organize entire investment funds, trusts and hedge funds, and ordinary entrepreneurs who are just looking at investing cannot sufficiently assess the risks and bonuses of portfolio investment, since “they don’t cook in this boiler ".

When it comes to choosing a fund intermediary, the credibility of the fund agency, the size of the commission for services and the credibility of a particular consultant play a key role.

Portfolio management: concept, strategies, risks

The investment portfolio management process can be defined as the sum of the owner's investment resources, analysis and forecasting tools, and strategies for responding to changes in the stock market.

Today it is a common practice in European countries to give gifts for a wedding or the birth of a child, not toys, equipment, cash, but securities. In a relatively stable economy, an investment package is considered the most reliable way to ensure regular passive income in the future.

The most popular way to mitigate risks without resorting to second-tier investing or hedging is through smart diversification. Diversification- investing in various assets. This approach is based on the fact that the management of a package of securities can begin with the correct distribution of investments in various areas and industries. The market for all goods and services cannot collapse at the same time. This diversified distribution of stocks helps to ensure the portfolio's return in any unpredictable market situation.

Defining investment objectives

This is the first stage of portfolio management, it precedes the purchase of stocks, options, bonds. Investment objectives correlate with the importance of each criterion in portfolio management. The main criteria for portfolio management are considered profitability, liquidity and risk.

Profitability and investment safety are the main key objectives of portfolio management. But the proportion of safety and profitability often redistributes the deep investment goals and the category of the investor.

Most often, the achievement of "invulnerability" of the invested capital is ensured by the purchase of an investment with a low profit.

The expected return on a portfolio is calculated based on the return on all of its assets.

The liquidity of the investment portfolio also matters. It is determined by how quickly, if necessary, you can turn securities into real money, whether you can withdraw your statutory share or resell securities.

Securities that can be converted into cash in up to two weeks are considered highly liquid. Sometimes for low-liquid securities (with the term liquidity for more than six months), the highest rate of return, or "liquidity premium", is calculated. This means the following: for an investment that cannot be taken back, the highest percentage of income is accounted for.

Investment portfolio formation

After defining investment goals, you can begin to form and manage your portfolio of securities.

A portfolio of securities can be combined with assets from different industries in different proportions:

1. Newcomers to investing often form a purely conservative block of shares, which almost 100% guarantees the safety of capital, but does not provide tangible profit. These are mainly government bonds or blue chips of large corporations. The latter are stocks of reliable, highly liquid companies with a high reputation and a stable dividend payout schedule. The term migrated to the stock environment from casinos, where blue chips have the highest value in the game.
2. More risky, but also a profitable portfolio option - balanced from highly liquid reliable shares and second-tier securities.
3. The third option is most suitable for short-term investment, it involves the purchase of rather risky securities, but with the likelihood of huge returns. Such a portfolio, in addition to classic stocks and bonds, often includes options and default swaps.

Portfolio strategies

In the stock market, the expression is used: “Investing is when money is not working, but fighting, and it is the portfolio management strategies that decide whether the money comes back victorious or perishes forever.”

The fundamental importance of proper investment portfolio management is underestimated by many. But it is important to understand that investing is not a lottery or gambling. It is very rare for a risky investment to actually generate real super profits. But history also knows such happy accidents: as an optimal example, we can recall the cult movie hero Forest Gump and his joint investment with the captain in the Apple Company. But in the real financial world, the reliability of investments is most often clearly correlated with their low return on investment and vice versa.

Distinguish between active and passive strategies. There is also a list of alternative strategies, but they can be classified into one of these main categories.

Active strategy- the best management option in a dynamic, in places unstable market. Most often, active management is the prerogative of stock intermediaries or investors themselves, who have the opportunity to clearly analyze the index data of rating agencies and carry out a prompt resale or purchase of securities.

Passive style management is admissible in more or less permanent market segments. The basic principle of a passive strategy is “buy and hold”. The investment horizon of passive investors does not include SWAP analyzes or includes them only at the time of purchase, does not imply the purchase of additional financial instruments.

The main forms of active portfolio management

The basis of active management is considered to be its frequent revision, the refusal of shares that no longer meet the stated requirements for payback. The key to high-quality active management is the ability to accurately predict the likelihood of changes in the stock market and the prices of financial instruments. If the participants in active strategies are most often banks, investment funds, stock intermediaries and other "big fish" of the stock market, they often resort to predictive, guerrilla, and sometimes manipulative methods.

Often, active portfolio management involves the use of the “swap” method. A swap is a transaction that includes a cash purchase and sale of assets with the simultaneous conclusion of counterpoints on a specific line. This is a multi-instrumental method. There are both currency and gold swaps. But this does not negate the fact that, thanks to swapping, multimillion-dollar fraud became possible, which, however, were carried out within the framework of the law. Let's take an example of active portfolio management. The manager owns, say, 40% of the shares of the small industrial company Shurupchik. He plans to abandon them. He can resell them or take his part of the capital. He calculates the risks that he can create for Shurupchik by taking his share of the capital. Let's say he predicts a fall in the value of the rest of the firm's shares by more than 8%. Before giving up the shares, the manager sends an agent to some bank to buy swaps for a certain amount, with the expectation that in the next six months Shurupchik's shares will fall by less than 5%.

If we talk about the management of a bank's portfolio of securities, then we can only talk about an active strategy. First, the banking sector itself implies the participation of all its dealers in active financial activities. The investment policy of great banks is based on increasing profits and eliminating risks.

A common security in the banking sector is a bond. This is a kind of bank IOU. The bank issues bonds, clients buy them up and expect to pay off their value with interest within a specified period. The bank can insure itself against financial losses in an insurance company, but this implies monthly insurance payments, that is, additional financial losses. Also - with the flourishing of the lending market, with the growth of the risk of unpaid loans - the management of the bank's securities portfolio includes more and more instruments in order to hedge unwanted risks.

This is where synthetic CDO bonds, or second-tier bonds, enter the arena. That is, the paper on the likelihood. The bank issues another bundle of bonds, which are sold between second-tier investors. Holders of synthetic bonds receive periodic payments from the bank or other holder of credit protection for agreeing to assume the credit risk of the bank.

In 2000, the synthetic bond market ballooned to the point that banks issued Level 5 bonds.

The main forms of passive portfolio management

The passive management style is applicable only in markets with a level of reliability above average and in markets where assets have a high degree of efficiency. The high efficiency of assets means that they quickly and clearly react to the usual changes in the market environment, and these changes can be figured out by the investor himself without the help of financial intermediaries.

A passive investor cannot count on double excess profits, but with the correct analysis of the assets being purchased, a fair return on own shares can be expected. Although passive models of portfolio management do not imply high returns, they also do not incur additional losses: commissions to intermediaries, expenses for notaries, representatives, transportation costs, which is inevitable with active strategies.

In long-term investments, a passive management method is very advisable. Portfolio management practices as part of a passive strategy often include indexing. This is one of the most intelligent passive management tools. As you know, the investment market is not a secret door, the transparency of information is ensured at the proper level. Indexing is a kind of reflection of the securities market. The investor, based on the analysis of data from rating agencies, compiles a portfolio of stocks of companies that have an even index. This simple strategy is called "buying the market"

Most often, passive strategies are chosen by small companies or individuals to accumulate and increase their savings.

Assessment of the relationship between profitability and investment risk

The return on an investment portfolio depends on the securities included in it and the share of each in the portfolio structure. In fact, the return and risk of a portfolio is the arithmetic average of the return and risk of its constituent securities.

Risk is the determination of any kind of deviation from the expected event. The indicators that are the main measures of risk are standard deviation and variance. The first is also called “volatility”. The measure of risk can be determined based on data on previous investment returns. If the issue of investing in the assets of a newly created enterprise is being considered (when there is no data on previous periods of profitability), then the risks of such securities are almost impossible to determine.

But proper risk management of a portfolio of securities begins with their diversification. If the likelihood of risk is still high, you can spend some of the money on hedging or insurance.

Models of formation of a portfolio of securities

Markowitz model focused on acquiring higher profit margins. The main method of countering risks within the framework of this model is the principle of diversification, that is, the distribution of investments in different areas.

Portfolio management by Harry Markowitz is based on the analysis of random variable variants and expected mean values. This model was invented half a century ago, but is still relevant. Its disadvantage is that a lot of relevant and reliable information is needed to perform calculations on the model.

CAPM model belongs to the American economist James Tobin. His portfolio management model emphasizes market structure rather than portfolio structure. Tobin allows the use without risky, short-term assets, even synthetic options. But the author of the model recommends combining them with long-term, reliable securities, such as bonds or blue chips. Risk calculations Tobin advises to carry out only short-term investments with dubious reliability.

The index is also used. Sharpe's model. The principles of portfolio management behind the Sharpe model are considered under a slightly different key. The model also comes from America and is considered the newest. Today, the largest banks and stock companies use this model when assessing the effectiveness of an investment portfolio. If prior to Sharpe, investment management specialists tried to complicate the models, then Sharpe dared to simplify the calculations as much as possible, without neglecting the accuracy of the forecasts. He suggested using the index regression analysis method to reduce the complexity of the portfolio analysis process.

The practice of trust management of investments in the United States and in Russia

Trust management of a portfolio of securities implies participation in the selection, purchase and management of securities of a qualified financial intermediary.

Trust funds, investment funds, exchange intermediaries, etc. conduct large-scale research of the stock market, develop skills for years to predict trends for the growth or decline of its individual segments, hone professional intuition, thanks to which they can best implement the correct methods of portfolio management.

In addition to individuals, assistance from intermediaries in investing is also ordered by large firms that also have their own financial specialists, but for competent investment they prefer to get the help of a person from an expert environment.

In the countries of the Anglo-American economic and legal system, the main form of mediation between investors and clients is trusts(from the English Trust - trust). In America, trust activities, in addition to funds, are also carried out by large banks.

In our country, trust management of the clients' securities portfolio is also carried out by some banks licensed by the Bank of Russia. Trust management is legally regulated by the Law on the Securities Market and Chapter 53 of the State Code of the Russian Federation.

Portfolio management strategies involve investing at the highest level. Portfolio management as a category appeared almost simultaneously with the inception of investment. Over the hundreds of years of investment management's existence, several dozen strategies, models and management principles have emerged. The development of corporate, public and private investment would not be so rapid without the right management technologies.