The portfolio management process has three steps: planning, execution, and feedback.
The planning step
The planning step involves obtaining an understanding of the client’s needs and documenting it through a (written) an investment policy statement (IPS), a statement of a client’s objectives and constraints, which may also list some relevant benchmark against which the portfolio performance would most likely be measured.
The execution step
The execution step is concerned with determining the target asset allocation, selecting appropriate securities, and constructing the ultimate portfolio.
Asset allocation refers to the relative proportion of different asset classes (equities versus fixed-income vs real estate, etc.) that an investor would hold. This decision is guided by the creation of economic and capital market expectations.
Top-down vs bottom-up
In the top-down approach, economists form a broad economy-wide view which is used to identify asset classes expected to perform well. An alternative or complementary approach, called the bottom-up approach, requires an analyst to look at management quality and a company’s profile to identify good candidates for investment.
Portfolio construction process
Once the asset allocation has been finalized and investment candidates identified, the portfolio construction process is initiated whose core objective to achieve diversification benefits. Portfolio construction must comply with the risk tolerance threshold identified in the IPS. Different investors have different risk tolerance. Portfolio construction also involves trading in securities, hence management of transaction costs is also important.
The feedback step
The feedback step involves portfolio monitoring and rebalancing and its measurement and reporting. Once a portfolio has been created, it needs to be monitored periodically to ensure that it continues to stay in compliance with the IPS and investment strategy. The asset weights may drift away from intended asset allocation or the investor’s circ*mstances may change, necessitating a rebalancing of the portfolio. An important part of the feedback phase is a measurement of return earned by a portfolio to see whether the investor’s objectives have been met. Such measurement and reporting are often carried in comparison to a relevant benchmark.
FAQs
The Portfolio Management (PM) topic is at the core of the CFA® Program, thus making it the most highly ranked career of interest among the candidates. The material starts relatively light at Level 1 (8-12%) and increases in scope and weight at Level 2 (10-15%). PM makes up 35-40% of the Level 3 exam.
How many correct answers to pass CFA level 1? ›
To pass this exam, aim for correctly answering at least 75% of the questions. That means you need to correctly answer at least 180(0.75) = 135 questions total, or about 68 questions in each session.
Can you pass CFA 1 by guessing? ›
If you can be 100% sure of the answers to half of the questions, and correctly guess at a 50% rate for the other half, you've just passed the exam!
What is the hardest module for CFA Level 1? ›
Hardest topics by CFA Level
Generally, our research shows that candidates' CFA Level 1 hardest topics are Financial Statement Analysis, Fixed Income, Quantitative Methods, Derivatives and Economics.
Why do so many people fail CFA Level 1? ›
Some candidates consider themselves to be fairly ethical people and so think that the answers on the exam will be intuitive. They neglect the topic and end up failing on the exam. Other candidates read the material, to the point of memorizing the Code and Standards, but neglect to do practice problems.
Can you pass CFA level 1 with 60? ›
Passing Scores
Candidates must get a minimum passing score (MPS) of 70% on the multiple-choice questions on the CFA Level I exam, a minimum score of 65% to 70% on the multiple-choice questions on the CFA Level II exam, and a minimum passing score (MPS) of 60% on the multiple-choice questions on the CFA Level III exam.
How many people pass CFA Level 1 on first attempt? ›
Here's what you should know about pass rates on the CFA: Average pass rates tend to fluctuate. Level 1 pass rates have hovered around 37% Level 2 pass rates have been around 45%
How hard is the CFA Level 1 actually? ›
#1. CFA exams are not easy, and Level 1 is just the start. Commonly cited as one of the world's hardest exams, CFA Level 1's difficulty is comparable to a diploma level and gets harder from then on. But I didn't know that it's never-seen-before-and-by-the-way-you-could-definitely-fail tough.
What percent of portfolio managers have CFA? ›
Overall, 30% of asset management professionals working in the Americas have a CFA. Those with zero to three years of experience are on par with that percentage.
Is CFA useful for portfolio management? ›
Most employers require portfolio managers to hold financial analyst certifications. The most prominent certification in the field and in demand by employers is the Chartered Financial Analyst (CFA) designation awarded by the CFA Institute.
Easiest Level 1 CFA Exam Topics
| Level 1 CFA Exam Topic | Short Description | No. of Formulas |
|---|
| Portfolio Management | Portfolio: structure, risks & returns | around 30 |
| Corporate Issuers* | Corporate governance & decision-making | around 30 |
| Equity | Market, industry & company analysis | around 40 |
Feb 28, 2024
If you work and study hard enough, you will (probably, hopefully) be able to make it through, but with the exams being so short relative to the totality of the curriculum, luck will likely play a role for the *average* candidate.
What is the average IQ to pass the CFA exam? ›
A survey carried out using a sample of 50 CFA Level I candidates reveals an average IQ of 105. Assuming that IQs are distributed normally, carry out a statistical test to determine whether the mean IQ is greater than 100.
Does CFA reuse questions? ›
Many questions/topics repeat themselves. Also, when you go over old exams and see a really “out there” question (there's at least one in every exam, in my experience), it will prepare you a bit for a surprise question on the real exam.
Is CFA good for portfolio managers? ›
Most employers require portfolio managers to hold financial analyst certifications. The most prominent certification in the field and in demand by employers is the Chartered Financial Analyst (CFA) designation awarded by the CFA Institute.
What is the most easy subject of CFA Level 1? ›
The Easiest Topics:
- Equity Investments (EI)
- Corporate Issuers (CI)
- Portfolio Management (PM)
Becoming a portfolio manager takes a lot of time and effort, but if you have the right skills, it can be a worthwhile venture. Portfolio managers often start out as financial analysts. With several years of experience—and professional certifications—they can work their way up.
