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Contemporary Issues in Portfolio Management

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Chapter 25 Contemporary Issues in Portfolio Management Key Terms CFA Program Cover a short Exchange-traded funds Hypothecation agreement Islamic finance Majority ... – PowerPoint PPT presentation

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Title: Contemporary Issues in Portfolio Management


1
Chapter 25
  • Contemporary Issues in Portfolio Management

2
Key Terms
  • CFA Program
  • Cover a short
  • Exchange-traded funds
  • Hypothecation agreement
  • Islamic finance
  • Majority voting
  • Margin
  • Merger arbitration
  • Portfolio margining
  • Regulation FD
  • Stock lending
  • Stock loan finder
  • Short Sale
  • Structured Products

3
Key Concepts
  • ETFs growing popularity Globe Investor on ETFs
  • Objectivity of security analysts CIRI on
    objectivity
  • Stock (securities) lending RBC report
  • Short selling ban on naked short-selling
    permanent in U.S.
  • Certificateless trading
  • Security Transfer Association of Canada
  • Generic stock certificates on TSX
  • CSA and rules regarding beneficial owners (street
    name issue)
  • Proxy voting
  • Majority voting
  • Separation of Chairman and CEO

4
Key Concepts
  • Role of derivative assets
  • Portfolio margining
  • Islamic finance
  • Principles-based versus rules-based financial
    oversight
  • Structured Products
  • CFA program
  • Regulation Fair Disclosure

5
Derivatives
  • Investor education required
  • Board education required
  • Change in attitudes from fear to understanding of
    the role of risk management
  • Hedge vs. speculate

6
Portfolio Margining
  • Traditional margining requires the placing of a
    performance bond or good faith deposit
  • Assumes risk in the single position rather than
    the sum total of risks taken in the portfolio
    sense.
  • SEC has tested the idea
  • Cooperation between Canada and U.S. on the issue

7
Islamic Finance
  • Emerging financial issue
  • Opportunity for practicing Muslims to honour
    Shariah law
  • Opportunity for financial institutions both in
    Muslim-dominant countries as well as others
  • SP/TSX launched a Shariah Index in spring of
    20097/08/09

8
Principles-based Oversight
  • Goal is to reduce net regulatory burden
  • Pioneered in Britain by their Financial Services
    Authority (FSA)
  • Britain is now reconsidering given the lessons
    learned in the financial crisis.
  • Outcomes focussed is the new jargon
  • Investment Executive on the issue in April of 2009

9
Structured Products
  • Financial innovation among financial product
    manufacturers to develop unique products with
    unique risk/return characteristics to meet
    ever-evolving needs of financial consumers.
  • Levered and inverse ETFs
  • Principal Protected Notes
  • Financial Consumer Agency
  • Canadian Business article
  • CSAs Concerns
  • CIBCs Product Information

10
Key Concepts
  • Market Timing mutual fund issue in the early
    2000s

11
Key Concepts
  • Regulation (FD)Fair Disclosure (information
    asymmetry problem)
  • Quarterly videostreaming meetings with
    investors/analysts
  • Revealing of interest in BBN interviews with
    analysts/portfolio managers, etc.
  • Osler Law comment
  • An interesting blog on selective disclosure here
    in Canada (SEDAR)

12
Sample Questions
  • How does an ETF differ from a mutual fund?
  • What are the advantages of ETFs?
  • Why should there be an effective firewall between
    the investment banking unit of an investment
    house and its research department?
  • What is the purpose of stock lending?
  • Why is stock lending outside the purview of the
    SEC?
  • Why did the SEC suspend short-selling in the fall
    of 2008?
  • What is majority voting?
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