Download Investment Strategy Module - Introduction and Objectives

FSA – INVESTMENT, RETIREMENT TRACKS
Investment Strategy Module
SECTION 1: MODULE OVERVIEW
Introduction
The focus of the Investment Strategy module is to provide you with an understanding of the investment
theories to implement the investment process. Throughout this module, you will be exposed to case
studies from real experiences that illustrate the range of considerations in managing investment portfolios
supporting particular liabilities and goals.
The primary goal of this module is to enable you to construct and recommend a portfolio based on given
objectives. Specifically, after completing this module, you should be able to define, design, monitor and
modify an overall investment strategy given a client’s objectives and constraints. You should also be able
to communicate results to the client.
There is no mandate order of modules and exams for FSA Investment track candidates. However this
module would assume the candidates have the general knowledge of FH&E module, FETE and APM
exams material and be able to apply such knowledge to address pratical situations posed in the module.
Through a combination of case studies and Ask the Expert vignettes, this module presents practical
examples of how the material can be applied. You will see several examples of how different practitioners
develop investment strategies to fit a variety of situations.
It is important for you to recognize that the information presented in this module may not be the only way
to complete a task and that alternatives might also be appropriate. Methods also change over time as
new techniques are developed and old techniques are improved or discredited.
Module Objectives
By the end of the module, you will be able to:
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Develop an investment policy statement (IPS).
Design an investment strategy.
Monitor and modify an investment strategy.
Communicate results to the client.
Apply all skills and knowledge to a practical scenario.
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Module Sections
This module consists of four sections:
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Section 1: Module Overview (You are here now.).
Section 2: Develop an Investment Policy Statement (IPS).
Section 3: Design an Investment Strategy.
Section 4: Monitor and Modify an Investment Strategy.
In addition, this module includes an End-of-Module Test and an End-of-Module Exercise.
© 2013 Society of Actuaries
Investment Strategy Module Objectives.Docx
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SECTION 2: DEVELOP AN INVESTMENT POLICY STATEMENT (IPS)
Introduction and Objectives
Now that you have been provided an overview of the material to be covered, let’s focus on client
objectives. Creating an investment policy statement focused on objectives and constraints will drive the
entire process. Defining goals does not have to be technical or involve a lot of mathematics. Often the
best objectives, agreed to by all parties, are qualitative. Examples of objectives for individuals might
include a secure retirement and paying college expenses, while an institutional example might be
providing a specific income from a college endowment fund necessary for normal expenses growing with
inflation. Objectives that communicate the underlying goals effectively generate buy-in from all parties.
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SECTION 3: DESIGN AN INVESTMENT STRATEGY
Introduction
Investment policy statement and prepared to develop an investment strategy.
During your Section 3 study, you will learn how to design an investment strategy given the framework of
objectives established in the Section 2. We will:
 Review the procedures for identifying suitable asset classes for portfolio and benchmark
construction.
 Examine how to quantify and manage risks in the portfolio.
 Present how to set an overall portfolio strategy that is consistent with the investment policy
statement.
 Review the process for communicating the strategy with the client.
Objectives
After you complete Section 3, you will be able to:
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Identify the asset universes and constraints.
Evaluate alternative strategies and their impact on the benchmark.
Consider tradeoffs and determine the optimal strategy.
Apply techniques to quantify and manage market, credit, interest rate, model, currency,
operational and liquidity risks.
Quantify aggregate risks considering correlation among different risks.
Identify key considerations in developing investment strategies for financial institutions and
individuals.
Set portfolio strategies specifying asset selection criteria, incorporating capital market expectations
and risk management strategies including hedging.
Evaluate a strategy for conformity with the investment policy statement.
Communicate results with clients.
© 2013 Society of Actuaries
Investment Strategy Module Objectives.Docx
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SECTION 4: MONITOR AND MODIFY AN INVESTMENT STRATEGY
Introduction
Previous sections of this module introduced the need to define objectives and constraints through an
investment policy statement and then to convert qualitative statements into quantitative benchmarks as
the asset strategies were designed. In Section 4, you will learn how to tell if the current investment
strategy should be updated and how to do so.
Objectives
The focus of Section 4 is on how to monitor and modify an investment strategy. In Sections 2 and 3 an
investment policy statement has been introduced and developed, with a consistent investment strategy
designed. In Section 4 we will build off that base to show how performance is monitored and modified as
conditions change.
After completing Section 4, you will be able to:
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Determine compliance with investment policy.
Assess performance against benchmarks.
Describe strategies to stay abreast of recent developments.
Identify and resolve implementation challenges.
Update and apply portfolio rebalancing strategies.
Communicate results.
END-OF-MODULE TEST
END-OF-MODULE EXERCISE
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