In this introductory section, we provide an overview of the asset management industry. We begin with the portfolio approach and how it helps investors achieve their financial objectives. Then, we outline the steps in the portfolio management process, describe the different investor types, and compare their financial needs. Next, we focus on defined contribution and defined benefit pension plans. Finally, we discuss mutual funds and how they compare to other pooled investment vehicles that asset managers offer.

This section of the Portfolio Management course covers the basics of the major return measures. We start with the calculations, then we highlight the key differences between them. The most important factors we need to consider when creating a portfolio are the risk and return of the individual assets. In this section, you will learn how to calculate and interpret the mean, variance, and covariance of asset returns. We also discuss the main types of investors and their risk-return preferences. Then, we delve deeper into the role of correlation in determining a portfolio’s risk. And finally, we describe the efficient frontier of risky assets and the global minimum-variance portfolio.

To earn a portfolio management certificate, you need not only theoretical knowledge but practical experience as well. So, in this section, we calculate the risk and return of a five-asset portfolio in Excel. Then, using matrix algebra and the Markowitz optimization process, we find the minimum variance and optimal risky portfolio.

Our goal in this section of the Portfolio Management training is to identify the optimal risky portfolio by using the Capital Asset Pricing Model. We lay the foundations by discussing the consequences of combining a risk-free asset with the market portfolio and some key concepts to help you see the big picture. Then, we explain the differences between Capital Allocation Line and Capital Market Line. We decompose total risk into systematic and nonsystematic risk and discuss their characteristics. After building the necessary theoretical background, we calculate the expected return of an asset. Finally, we examine the security market line and its applications and cover some of the most popular measures for evaluating the performance of a portfolio.

In this section, we study investment policy statements from a practical perspective. First, we discuss the importance of written statements and break down the concept into its constituent parts. We move on to the investor’s risk and return objectives, the difference between the ability and willingness to take risks, and the resulting investment and portfolio management constraints. Next, we examine the various asset classes and their role in strategic asset allocation. Lastly, we describe the principles of portfolio construction and the extent of ESG integration into the investment processes.

After the 2008 financial crisis and the 2001 Enron scandal, risk management became an integral part of the decision-making process of investors and companies. In the last section of the Portfolio Management training, we discuss the definitions and elements of effective risk management, governance, and budgeting. Next, we examine the differences and interactions between financial and non-financial sources of risk. At the end of the Portfolio Management course, we present the ways of modifying risk exposures.