Contemporary Issues in Portfolio Management

1
Chapter 25

• Contemporary Issues in Portfolio Management

2
Key Terms

• CFA Program
• Cover a short
• Exchange-traded funds
• Hypothecation agreement
• Islamic finance
• Majority voting
• Margin

• Merger arbitration
• Portfolio margining
• Regulation FD
• Stock lending
• Stock loan finder
• Short Sale
• Structured Products

3
Key Concepts

• ETFs growing popularity Globe Investor on ETFs
• Objectivity of security analysts CIRI on
  objectivity
• Stock (securities) lending RBC report
• Short selling ban on naked short-selling
  permanent in U.S.
• Certificateless trading
• Security Transfer Association of Canada
• Generic stock certificates on TSX
• CSA and rules regarding beneficial owners (street
  name issue)
• Proxy voting
• Majority voting
• Separation of Chairman and CEO

4
Key Concepts

• Role of derivative assets
• Portfolio margining
• Islamic finance
• Principles-based versus rules-based financial
  oversight
• Structured Products
• CFA program
• Regulation Fair Disclosure

5
Derivatives

• Investor education required
• Board education required
• Change in attitudes from fear to understanding of
  the role of risk management
• Hedge vs. speculate

6
Portfolio Margining

• Traditional margining requires the placing of a
  performance bond or good faith deposit
• Assumes risk in the single position rather than
  the sum total of risks taken in the portfolio
  sense.
• SEC has tested the idea
• Cooperation between Canada and U.S. on the issue

7
Islamic Finance

• Emerging financial issue
• Opportunity for practicing Muslims to honour
  Shariah law
• Opportunity for financial institutions both in
  Muslim-dominant countries as well as others
• SP/TSX launched a Shariah Index in spring of
  20097/08/09

8
Principles-based Oversight

• Goal is to reduce net regulatory burden
• Pioneered in Britain by their Financial Services
  Authority (FSA)
• Britain is now reconsidering given the lessons
  learned in the financial crisis.
• Outcomes focussed is the new jargon
• Investment Executive on the issue in April of 2009

9
Structured Products

• Financial innovation among financial product
  manufacturers to develop unique products with
  unique risk/return characteristics to meet
  ever-evolving needs of financial consumers.
• Levered and inverse ETFs
• Principal Protected Notes
• Financial Consumer Agency
• Canadian Business article
• CSAs Concerns
• CIBCs Product Information

10
Key Concepts

• Market Timing mutual fund issue in the early
  2000s

11
Key Concepts

• Regulation (FD)Fair Disclosure (information
  asymmetry problem)
• Quarterly videostreaming meetings with
  investors/analysts
• Revealing of interest in BBN interviews with
  analysts/portfolio managers, etc.
• Osler Law comment
• An interesting blog on selective disclosure here
  in Canada (SEDAR)

12
Sample Questions

• How does an ETF differ from a mutual fund?
• What are the advantages of ETFs?
• Why should there be an effective firewall between
  the investment banking unit of an investment
  house and its research department?
• What is the purpose of stock lending?
• Why is stock lending outside the purview of the
  SEC?
• Why did the SEC suspend short-selling in the fall
  of 2008?
• What is majority voting?