CPPI or C&M

CFA Level III Portfolio Management
#1

Hello everyone,

We all know CPPI could outperform C&M in a trending market and offer portfolio with a protection, and vice versa for C&M.

However, what if the question inform us the market is a reversal or volatile, while the customer need us to keep a protection for the portfolio. Which one would you choose?

Thanks!

#2

volatile market = constant mix

#3

then how could you protect a bottom for the customer’s portfolio?

#4

market goes up, you sell

market goes down you buy

market goes back up, you sell again

market goes back down, you buy

volatile in this sense means up/down/up/dow/up/down

if you continuously sell after the market goes up buy when it goes down, you will outperform (theoretically)

#5

CM has no cash floor, when stock goes to 0, cash goes to 0.

I would choose buy and hold.

buy and hold strategy has a fixed cash floor from the beginning. even when stock goes to 0, that cash floor still holds.

it outperforms CPPI in volatile market, underperforms constant mix.

#6

hi mcap,

the point is how could protect your client’s portfolio with a bottum with C&M ,

the protection means even though the equity market is going down to 0, the investor still have a percentage of money, say a floor of 60% of the portfolio, to cover his or her basic needs.

#7

hi mcap,

the point is how could protect your client’s portfolio with a bottum with C&M ,

the protection means even though the equity market is going down to 0, the investor still have a percentage of money, say a floor of 60% of the portfolio, to cover his or her basic needs.

#8

I was also thinking B&H -

  1. has a floor - as per client’s need

  2. Given reversals - you do not need to do anything - it would still be at the original level (or around) and would not incur any transaction costs - so it would outperform the CPPI.

#9

if the market goes to zero is that a trending downwards market? if so, then CPPI is best

if oscillating market the Cm would outperform

#10

now i think B&H is the best choice

#11

now i think B&H is the best choice

#12

yeah

in CM => M (multilplier) takes value from 0 - 1

in B&H —M = 1

in CPPI----M > 1, here investment in risky assets (equity) is deteremined as per formula = m (Total asset - Floor)

in Both CPPI & B&H----> floor value is the minimum required portfolio value…under CM----floor value is zero

So both CPPI & B&H may work for a client who has expressed protection for portfolio. However CPPI is not appropriate coz market is expected to remain volatile. So B&H

#13

your logic is more convincing to me

#14

Down - Up = Best is Cst Mix

Down Down = CPPI / Buy and Hold

#15

I’m noticing since days, this Rahuls is a miniature version of CPK123. He knows everything.

#16

Thanks a lot…that’s really motivating…if you can atleast follow the suit of an expert …but i believe cpk123 (Sir) is by far the best…I am no where on the count…we are lucky to have many more people like him to guide us if we get stuck…almost like an expert…luck has been bit hard on him for sure for the first time…

ATB, we all gonna make it…just keep the ball rolling

Cheers!

#17

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