Expected Return= sum of each % weight X expected return for each catagory
Strategic Asset Allocation
The allocation process described so far in this module is often referred to as
“strategic asset allocation.” Its focus is the identification of the asset mix that will provide the optimal balance between expected risk and return for a long investment horizon.
Tactical asset allocation
Tactical asset allocation attempts to improve portfolio returns through periodic
revision of the asset mix, such as changing the stock allocation of the portfolio from 50% to 70% when stocks are expected to outperform bonds. It uses
securities selection and market timing approaches to do this
This approach involves a combination of strategic and tactical asset allocation
enabled by dividing a portfolio into a core holding of stocks and bonds, often in low-cost, broad-based index mutual funds or exchange-traded funds (a basket of stocks or bonds that follow an index and trade like stock), and a satellite portion.
The Brinson Study
Security selection. Each fund was professionally managed by experienced individuals making individual securities selections.
Market timing. Each fund moved from equities to bonds, to cash in response
to what the managers perceived to be impending changes in market conditions.
Asset allocation policy (called investment policy in the study).
the basic valuation
formula for preferred stock
Current year dividend
Market yield or investor’s required rate of return