Portfolio Management Styles and Strategies

• Portfolio Managers manage mutual fund investments
• They select securities, ensure fund goals are met, maximize returns, manage risk, analyze market trends, evaluate opportunities, and make strategic decisions

Investment Styles of Portfolio Managers

• Value investing involves buying undervalued stocks with growth potential
• Growth investing involves investing in companies with high future growth potential
• Growth at a reasonable price combines growth and value, seeking reasonably priced growth stocks

Investment Management Strategies

• Passive management seeks to replicate a specific market index with minimal trading, it is cost-effective
• Active management involves active selection and trading of securities to surpass the market, and incurs higher costs with economic data, market trends, and corporate performance assessments

Investment Approaches

• Top-down investing starts with analyzing the overall economy and market trends
• It then narrows to specific sectors, selecting individual companies within those sectors
• Bottom-up investing focuses on analyzing individual companies first, assessing financial health and management quality, without emphasizing broader economic conditions

Investment Selection Methodologies

• Fundamental analysis assesses a company’s financial health and management quality to estimate its true value
• Technical analysis uses historical price and volume data to identify patterns and predict future price movements

Elements of a Financial Statement

• Balance sheets reveal a company's assets, liabilities, and owner's equity at a specific time
• Income statements summarize revenue, expenses, and overall profit or loss over a period
• Cash flow statements track a company’s cash inflow and outflow, showing available cash
• Statements of retained earnings indicate profits reinvested versus paid as dividends

Common Ratios Used in Evaluating Companies

• Current Ratio = Current assets ÷ Current liabilities (liquidity)
• Return on Equity = Net income ÷ Shareholders' equity (profitability)
• Price-to-Earnings Ratio = Market price per share ÷ Earnings per share (valuation)

Standard Performance Data for Non-Money Market Funds

• Total Return
• Benchmark Comparison
• Annual Compounded Rate

Mutual Fund Risks

• Systematic risk affects the entire market due to things like interest rate changes or economic events
• Unsystematic risk is specific to a company or industry, like poor management or product problems
• Currency risk occurs when exchange rate changes affect foreign investment values

Measures of Investment Risk

• Standard Deviation measures return variability
• Beta measures a stock's movement relative to the market; over 1 is more volatile, under 1 is less
• Duration indicates a bond's sensitivity to interest rate changes; longer duration means more price changes with rates

Relationship Between Risk and Return

• High-risk investments, such as stocks, can yield higher returns but also carry a higher risk of losses
• Lower-risk investments, like bonds, offer stable but lower returns

Portfolio Theory and Efficient Frontier

• Portfolio theory suggests investors can reduce risk by diversifying with assets that don't move in the same direction
• The efficient frontier is a graph of portfolios with the highest return for a specific risk level, portfolios below it are have lower return for same risk