portfolio are still discretionary if client imposed restrictions do not prevent the firm from implementing the intended investment strategy… could have one provide some examples regarding this? if client doesn’t want to have exposure to tobacco stocks - would this one make it non-discretionary??? I’d say yes… having trouble to judge “restrictions do not prevent the firm from implementing the intended investment strategy” thanks
No, limited exposure to tobacco stocks doesnt necessarily make in non-discretionary. A firm needs to decided what it considers discretionary to begin with. But typically an SRI based portfolio won’t definitely make it non-discretionary. Now if I told you not to sell any stocks with capital gains or losses then that would be non-discretionary or if I told you that you must run all portfolio decisions by me first, that would also be non-disc.
it would be yes only if you have a tobacco-only strategy.
thanks bigwilly, you are good at every topic! but to me, SRI is kind of imposed restriction on buying… any difference to the case that investor want to have restricted sale of holdings on low basis stocks? it’s hard to draw the line here…
non-discretionary ~ The limits have to be so tight that basically there is no strategy that can be applied. Not being able to hold Tobacco stocks provides only a small limitation. If for example you have to hold 95% of the portfolio in cash, than that would be non-discretionary.
Mr.Good.Guy Wrote: ------------------------------------------------------- > non-discretionary ~ The limits have to be so tight > that basically there is no strategy that can be > applied. Not being able to hold Tobacco stocks > provides only a small limitation. If for example > you have to hold 95% of the portfolio in cash, > than that would be non-discretionary. like your comments, key is the size of the restriction. thanks!
read page 299 of CFA book cha 18
of course this rule isnt really fair to managers. ‘descretionary’ and ‘non desc’ are binary terms. So a client who impedes your performance by having loads of resctrictions, but not quite enough to tip it to non-descretionary status will impact your composite returns, and short of refusing his work you have no options.