Based on Reading 15 practice problem 3, yes. A change in mrket conditions affecting long-term risk-return relationship among sssets classes will trigger a review of IPS. But I remember I came across similar question before. It said that IPS changes only if personal circumstance changes, not driven by macro market situations. Can someone address my confusion?
No, IPS has to be revised if macro condition cause a change in LONG TERM capital market expectations. Remember these expectations are one of the inputs to get to strategic asset allocation through MVO or such. Changes in short term CME do not cause change in SAA but they can lead to TAA.
Hmm…IPS should have Return, Risk, Time Horizon, Liquidity, Taxes, Legal/Regulatory, Unique Circumstances. How does any of this get impacted by market conditions directly? These would be (Along with CME) be inputs to SAA, but CME should not impact IPS.
I am with CareerChange’s view. Macro conditions should impact Strategic Asset Allocation (SAA), not necessarily Investor Personal Statement (IPS). I think it is the view from Shweser and seems making sense. But the view that Macro factors should trigger a review of IPS is from CFA curriculum , which seems weigh more in my mind. that confused me which side I should be in.
Ok lets see. T-bonds 30y today @ 6% ytm, tommorow @ 18%, what da ya think, return requirements are not going to change? Return requirements are driving by spending needs AND growth.
One just cant change/review the IPS without appraising the client on the situation and only then proceed to change IPS according to the client’s needs. A change in market conditions and the PERSISTENCE of the same would require review of IPS. Initially, when the IPS would be formualted, certain things are assumed. If there is a conflict in the things that have been assumed and the current persistant market situation, The investor must be updated of the situation and take suitable actions after that.
comp_sci_kid Wrote: ------------------------------------------------------- > Ok lets see. T-bonds 30y today @ 6% ytm, tommorow > @ 18%, what da ya think, return requirements are > not going to change? Return requirements are > driving by spending needs AND growth. Not sure. If the rate of return on T-bonds changed, why would the spending needs or growth requirements for the portfolio change? Your retirement or spendings are most likely independent of what the market throws up every day. You strategic allocation however may change. I agree with what Manju said, a persistent change in risk/return characteristics of market may trigger the need for changing Asset Allocation and perhaps your IPS.
A change in long term expected inflation definitely changes the IPS, as it affects the risk objective. But a change in asset correlations? I got to side with careerchange It doesn’t affect Return, Risk, Time Horizon, Liquidity, Taxes, Legal/Regulatory, Unique Circumstances. I though the develoment of the IPS and the development of capital market expecrtations were 2 seperate steps on the portfolio management process.
comp_sci_kid Wrote: ------------------------------------------------------- > Ok lets see. T-bonds 30y today @ 6% ytm, tommorow > @ 18%, what da ya think, return requirements are > not going to change? Return requirements are > driving by spending needs AND growth. r = spending (T1) / current portfolio + expected inflation How does a change in Tbills affect that equation?
CFAI Reading 42 (I think) on monitoring portfolios. Your return requirements are worth nothing if long term market conditions cannot support them. So IPS review is necessitated.