Asset Allocation Strategies and Security Selection

The complete Solution for Islamic Investments

July 6, 2011

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Asset Allocation

Risk Free Assets Risky Assets Portfolio Construction Co-relation among asset classes Diversification Return Enhancement

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Asset Allocation Strategies

Buy and Hold Constant Mix with Periodic Rebalancing Constant Mix with Threshold Rebalancing Constant Proportion Portfolio Insurance

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Buy and Hold

Low Cost due to passive holding Best Solution for passive strategy in up trending market Long term savings approach Constant build up for regular investors Market neutral strategy

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Constant Mix

Periodic

Fixed Allocation towards Asset Class Periodic Rebalancing (monthly, weekly, semi-annually, etc) Transactions Cost in Rebalancing Preferred solution in a passive strategy down trending market Period Selection should be based on risk tolerance level

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Constant Mix

Threshold

Better for Targeted Risk tolerance levels Transactions cost for rebalancing

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Constant Proportion Portfolio Insurance (CPPI)

Downside Protection of Portfolio For a fixed time period Minimum Threshold calculation Constant Rebalancing (higher cost of transactions) Risky Asset: Multiplier X cushion Cushion = Portfolio threshold Multiplier based on risk tolerance level

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Market Scenarios

Up trending Market Down Trending Market Oscillating (up, down, up, down) Oscillating (Down, up, down, up) Random Market

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Security Selection

Pure Indexing
Low Transactions Costs Passive Management Lower return as compared to benchmark Impact cost on rebalancing Rebalancing based on benchmark re-composition

Enhanced Indexing
Matching sectors and risk factors Lower transactions costs Low turnover Lower cost of monitoring Less liquidity crunches

Full Blown Active Management

High transactions cost Offset market inefficiencies Must outperform benchmark to justify high cost of trading
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Investment Styles

Growth Stocks
Potential for income growth Long term Capital Gains

Value Stocks
Consistent Income and Dividend Stream Stable companies

Large Cap Medium Cap Small Cap Micro Cap

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Benchmark Selection

Representative of portfolio Risk Tolerance Investable Liquidity Addressing

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Planner and Manager Fee

Fixed Fee Variable Fee Performance Fee

Fixed plus outperformance Outperformance Profit Sharing

High Watermarks

Risk transfer and risk bearing for portfolio managers

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research

Questions

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Thank You

Fortune Kaamil Fortune Kaamil Fortune Securities Limited | Equity Research