2016 Level II Portfolio Management - Major Updates

Level II Portfolio Management has changed substantially relative to last year. This is good news because some of the 2015 Level II Portfolio Management readings were very difficult to digest. In fact, of all ten topics, I generally got the most complaints related to Portfolio Management.

So far I’ve made video lectures for the first two Portfolio Management readings.

This first 2016 Level II Portfolio Management reading is titled “An Introduction to Multifactor Models”. This reading is largely a subset of the 2015 reading called “Portfolio Concepts”. The 2015 reading had a lot of concepts from Level I such as the efficient frontier, CML, CAPM, etc. The new 2016 reading skips the Level I material and focuses on multifactor models. Specifically it covers:

· Multifactor models in the context of modern portfolio theory

· Arbitrate pricing theory

· Different types of multifactor models

· Applications of multifactor models

The examples in this reading are very good and will help you grasp the underlying concepts. The final section of the reading (Applications of Multifactor Models) touches on the concept of active risk and active return. A basic understanding of these concepts will serve you well as you dive into the second reading titled: “Analysis of Active Portfolio Management”.

“Analysis of Active Portfolio Management” is far more intuitive compared to the two 2015 readings which it replaces (Residual Risk and Return and The Fundamental Law of Active Management). As with the first reading the examples are excellent. There are some formulas which appear a bit quirky but if you focus on the main concepts you will do fine on the questions.

The third reading is titled “Economics and Investment Markets”. This is a huge reading and deals with how economic variables impact asset pricing. It connects concepts from Level I and Level II Economics with asset valuation. I’ve just started on this reading and will have more to say when I’m done.

The final reading in Portfolio Management (and in the Level II curriculum) is titled “The Portfolio Management Process and the Investment Policy Statement”. This reading is unchanged from last year and in fact has been around for a while. It will give you an introduction to concepts which you’ll cover in detail at Level III.

That is it for now.

Good luck with your Level II prep.

PM is a tough subject to crack…

Hi Arif (or anyone else who has studied the Portfolio Management material),

Do you have any advice on how to study the Economics and Investment Markets chapter? It just seems very heavy and long, and Econ is not my strong point to begin with.

I appreciate any advice anyone has. Thanks

Still it includes the little trivial formulas regarding IR, IC, ω and a dozen more right? Little b…ds