INVESTMENT STRATEGY

Investment Strategy and Portfolio Management

Investment Strategy and Portfolio Management

Introduction

This paper will be discussing future strategic asset allocation and tactical asset allocation ranges. It will be presenting a report in which I will be informing the committee on current issues in the investment environment, present alternatives for plausible strategic asset allocations, and deliver recommendations for the actions the fund should take.The report will also consider to what extent the fund should use 'active' versus 'passive' investment approaches in the different asset classes.

Presentation and Content of the Report

Current Issues in the Investment Environment

The current economic downturn, the unprecedented events of September 11, and recent business failures have combined to create a financial reporting environment unlike any in recent memory. Investor confidence, already shaken by significant volatility in the capital markets, has been further unsettled by highly publicized restatements of financial statements, which have generated questions about the quality of financial reporting, the effectiveness of the independent audit process, and the efficacy of corporate governance.

This environment is creating significant challenges for U.S. businesses and their management, boards of directors, audit committees, and auditors. Always fundamental to the well-being of our capital markets, reliable and transparent financial reporting is particularly important in this troubled environment. Financial reporting cannot forecast the strengths and weaknesses of the economy. However, financial statements and related information, such as Management's Discussion and Analysis (MD&A) can provide useful information that allows users to make informed decisions and facilitates the continued efficient functioning of our capital markets. This requires the attention of management, auditors, and audit committees, who not only must carry out their unique responsibilities in their respective areas, but also must work together to produce the high-quality financial reporting that is vital to our capital markets (Fried, 2010, 54).

Alternatives For Plausible Strategic Asset Allocations

Consequently, we use the mixture of normal method to replace the empirical return

distributions (which often exhibit skewness and positive excess kurtosis) with two normal

distributions to approximate a best fit distribution. This approach ensures that the best fit

return distributions exhibit the higher moments close to their empirical pendants. We then use

the best fit distributions in the optimization procedure. To derive the strategic asset allocation,

we apply a goal function so that we can examine real investor preferences for risk aversion.

Thereafter we apply checks in order to test the validity of our strategic asset

allocation approach. For our proposed strategic allocations following is the table showing all the plausible Strategic Asset Allocations:

TOTAL FUND

30.5

Pounds

Breaking Parts

UK Equities

40%

12.2

Overseas Equities

15%

4.575

UK Corporate bonds

20%

6.1

UK Government bonds

25%

7.625

Implementing Your Asset Allocation: Active or Passive Management

Once you've determined the asset allocation that is best for you, you have to implement it via the investments you choose for your portfolio. At this point, the most important question you have to answer is whether you are going to take an active or a passive approach to investing. In a nutshell, the active investor believes that he or she can regularly generate (or choose fund managers who can generate) returns that are above the returns generated by some benchmark ...