Risk Management
&
Asset allocation
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What is Asset Allocation
• A comprehensive and complex process oriented towards optimizing returns within comfort zones
• 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
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The goal of asset allocation
• - select an “optimal” portfolio of assets given a plan’s risk tolerance and capital market expectations.
• • 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 Document Name
and Diversification
• Don’t put all your eggs in one basket
• Simply a strategy to spread risk with the assumption that downside in one area will get covered by upside in
another investment.
• Asset allocation allows building of portfolios having specific financial goals in mind
• Control risk
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Importance of rebalancing
• picture
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Diversification- theory
• Mean/ variance optimization
• Picture
• Efficient frontier pic
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What is risk?
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• Standard deviation
• Beta
Asset allocation models Document Name
• Between 4 objectives:
• -Capital preservation
• Income
• Balanced
• Growth Oriented
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Adopting the right model
• Set specific future financial
goals
• Determine time horizon
• Analysis of Risk tolerance
ASSETS MANAGED IN THE UK Document Name
Asset Allocation £1 trillion Fixed Income Allocation £366 billion
High Yield
Other Bonds Government
10.1% 0.5% Debt
Money Market Equities
7.7% 51.5%
45.8%
Bonds Investment
36.4% Grade Bonds
48.0%
Source: Investment Management Association
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HEDGING
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Example of a saxo clients portfolio
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• Building optimal portfolio using leverage/collateral
• Asset classes available on the Saxo trader
• Risk management tools
• Practical strategies
• - stop/loss
• -trailing
Thank you for your time!