CH-5.3 Portfolio Management & Performance Evaluation

FINANCIAL INSTITUTIONS &
INVESTMENT MANAGEMENT
Dr. Kishor Chandra Meher
Professor(Accounting &Finance)
Debre Berhan University
PORTFOLIO
MANAGEMENT
What is Portfolio
What is Portfolio
1. Portfolio is a group of financial assets such as shares, stocks,
bonds, debt instruments, mutual funds, cash equivalents, etc. A
portfolio is planned to stabilize the risk of non-performance of
various pools of investment.
 Portfolio refers to invest in a group of securities rather

to invest in a single security.
 “Don’t Put all your eggs in one basket”
 Portfolio help in reducing risk without sacrificing return.

What is Management
 Management is the organization and

coordination of the activities of an
enterprise in accordance with well-
defined policies and in achievement
of its pre-defined objectives.
Portfolio Management
 Portfolio Management is the process of
creation and maintenance of investment
portfolio.
 Portfolio management is a complex

process which tries to make investment
activity more rewarding and less risky.
Phases of Portfolio Management
Portfolio management is a process of many
activities that aimed to optimizing the
investment. Five phases can be identified in
the process:
1. Security Analysis.
2. Portfolio Analysis.
3. Portfolio Selection.
4. Portfolio revision.
5. Portfolio evaluation.
Each phase is essential and the success of each

phase is depended on the efficiency in
carrying out each phase.
Security Analysis
 Security analysis is the initial phase of the
portfolio management process.
 The basic approach for investing in

securities is to sell the overpriced securities
and purchase under priced securities
 The security analysis comprises of

Fundamental Analysis and technical
Analysis.
Portfolio Analysis
 A large number of portfolios can be
created by using the securities from
desired set of securities obtained from
initial phase of security analysis.
 . It involves the mathematically calculation

of return and risk of each portfolio.
Portfolio Selection
 The portfolios that yield good returns at a
level of risk are called as efficient
portfolios.
 The set of efficient portfolios is formed

and from this set of efficient portfolios, the
optimal portfolio is chosen for investment.
Portfolio Revision
 Due to dynamic changes in the economy
and financial markets, the attractive
securities may cease to provide profitable
returns.
Portfolio Evaluation
 This phase involves the regular analysis

and assessment of portfolio performances
in terms of risk and returns over a period
of time.
PORTFOLIO PERFORMANCE EVALUATION
 Investors always are interested in evaluating the
performance of their portfolios. It is both expensive
and time consuming to analyze and select
securities for a portfolio, so an individual,
company, or institution must determine whether
this effort is worth the time and money invested in
it.
 Investors managing their own portfolios should
evaluate their performance as should those who
pay one or several professional money managers.
 We can catalog some possible risk-adjusted
performance measures and examine the
circumstances in which each measure might be
most relevant.
MEASURES OF PORTFOLIO
EVALUATION
 Sharpe’s portfolio performance measure
 Treynor’s portfolio performance measure
 GO TO WORD FILE
Conclusion
 SECURITY ANALYSIS: Classification of securities( shares,
debentures, bonds etc..), examining the risk-return
characteristics of individual securities, fundamental and
technical analysis.
 PORTFOLIO ANALYSIS: Identification of range of possible

portfolio from a different set and ascertaining risk and return.
 PORTFOLIO SELECTION: Efficient portfolio is identified and

optimal portfolio is selected.
 PORTFOLIO REVISION: Addition or deletion of securities due to

change in availability of additional funds, change in risk, need
for cash etc.
 PORTFOLIO EVALUATION : Comparison of objective norms with

relative performance. Provides feedback mechanism for
improving the entire portfolio management process.

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FINANCIAL INSTITUTIONS &

 Portfolio refers to invest in a group of securities rather

 “Don’t Put all your eggs in one basket”

 Portfolio help in reducing risk without sacrificing return.

 Management is the organization and

 Portfolio management is a complex

Each phase is essential and the success of each

 The basic approach for investing in

 The security analysis comprises of

 . It involves the mathematically calculation

 The set of efficient portfolios is formed

 This phase involves the regular analysis

 PORTFOLIO ANALYSIS: Identification of range of possible

 PORTFOLIO SELECTION: Efficient portfolio is identified and

 PORTFOLIO REVISION: Addition or deletion of securities due to

 PORTFOLIO EVALUATION : Comparison of objective norms with

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