CFA Level 3 IPS Writing

讲师：吴轶 CFA FRM CQF CISI

日期：2010年5月
地点： ■上海

上海金程国际金融专修学院

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Essay writing in level 3

Essay writing in CFA level 3

Introduction to essay writing

ƒ Part 1

Individual IPS writing

ƒ Part 2

Institution IPS writing

ƒ Part 3

Beyond the IPS writing

ƒ Part 4

Conclusions
ƒ Part 5

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 Introduction to essay writing

Part 1
Portfolio
zBehavioral Finance
Management and
zIndividual Portfolio IPS
Wealth Planning
zInstitutional Portfolio IPS
(55%-65%)
zAsset Allocation
zExecution
zMonitoring & rebalancing
zEvaluation & attribution

Topic Area Weights for Part 2

the CFA Exam for
Level Ⅲ zFixed Income Analysis
Ethical and Asset zEquity Investments
Professional Classes zAlternative Investments
Standards (total) (23%-35%) zDerivative Investments
(<5%) zRisk Management

Part 3

zEthical and Professional Standards

zGIPS

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Essay in the morning session 1

¾Essay 1 – Prepare the IPS

¾ Individual investor
¾ Institutional investor
¾Essay 2 – Select (circle) and explain
¾ Behavior finance
¾ Fixed income analysis
¾ Alternative investments
¾ Risk management
¾ Execution
¾ Monitoring & rebalancing

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Essay in the morning session 2

¾Essay 3 – Identify (define or determine) and justify

¾ Factors or components …
¾ Advantages or disadvantages …
¾Essay 4 – Recommend and justify
¾ Asset allocation …
¾ Risk management strategy …
¾Essay 5 – Calculate (determine) and show your calculation
¾ Related calculation in IPS
¾ Alternative investments
¾ Derivatives
¾ Monitoring & rebalancing
¾ Evaluation & attribution

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Individual Investors’ IPS

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Overview

¾Investor 1’s IPS writing

¾Investor 2’s IPS writing

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 6 steps to formulate individual’s IPS

ƒ 6 steps to formulate personal IPS

Investors classify

Cash flow analysis

Renew the objectives … &
TIA estimation

IPS

Constraints (T&L) Calculate Returns

Risks (2i2d)

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 Investor 1’s IPS - 1

ƒ Investor classify …

• Personal investor 1

•Source of wealth
•Employee with annual salaries
•Own invest-able asset (deposit)
•Trust distribution/Inherit money/one-time windfall
•Size of wealth
•There is one-time windfall, size is large
•or size will be small
Contingent in Exam •Stage of life
•The pre-retirement period is long
•There is also the period after retirement
•Personal considerations
•With children – education expenses
•With mortgage – liquidity needs
•With tax

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 Investor 1’s IPS - 2

ƒ Return objectives …

• Personal investor 1

•Asset
•Maintain the inflation-adjusted value
•Asset appreciation

•Cash flow needs

Always just covered
by salary in Exam
•Support living expense (now and retirement)
•Support mortgage – liquidity needs
•Support children’s education
•Support parents’ living expense
•Support families’ health care expense
•Support insurance premium payment

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 Investor 1’s IPS - 3

ƒ Cash flow analysis …

• Personal investor 1

•Cash inflow
•Salary
•Trust distributions/Inheritance
•Other cash inflow (dividends/interest payment)

•Cash outflow
•Tax
•Living expense
•Down payment at T0
•Mortgage payment from T1
•Donation just on T0 or from T0 to Tn
•Other one-time need now

•Net cash flow

•Net CF at T0 > 0, as a part of TIA
•Net CF from T1 < 0, as the liquidity needs

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 Investor 1’s IPS - 4

ƒ Cash flow analysis …

Time T0 T1
Inflow
Salary P P * (1+f)
Trust / Inheritance N 0
Total inflow P+N P * (1+f)

Outflow
Tax P*t P * (1+f) * t
Living expense Q Q * (1+f)
Down payment M 0
Mortgage payment 0 MG
Donation D 0
Other one-time need T 0
Total outflow P*t+Q+M+D+T P * (1+f) * t + Q * (1+f) + MG

Net cash flow Total in – Total out Total in – Total out

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 Investor 1’s IPS - 5

ƒ Return Calculation …

• Personal investor 1

•TIA
•Current portfolio’s value
•Net CF in at T0
•Excluding the house and other unavailable Inheritance

•Real Return

Net CFs at T1
Rr = −
TIA
•Nominal Return

Net CFs at T1
Rf = − +f
TIA

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 Investor 1’s IPS - 6

ƒ Risk …

• Personal investor 1

•Ability - 2i
•They have a long time horizon
•They are young, with more human capital
•They may get inheritance in future
•Their job and income are secure
•Their health insurance is provided

•Ability - 2d
•After-tax salary can not cover living expense
•Sustained Cash flows (Mortgage) must be paid
•Asset base is small
•Other uncertainties

•Willingness
•Based on “……” in the case

•Overall
•The narrow one dominants

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 Investor 1’s IPS - 7

ƒ Investment constraints …

1. Liquidity
¾The A need portfolio to provide B for next year’s C
¾ A: Name B: Money C: Use (Mortgage pay)

2. Time horizon
¾They have a long term two – stage horizon
¾In the 1st stage, the A must pay B , and also pay C for their D
¾In the 2ed stage, they are in retirement, E years from now
¾ A: Name B: Living expense, mortgage payment …
¾ C: Education fee / health care fee D: Children / parents
¾ E: How many years from now (30)

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 Investor 1’s IPS - 8

ƒ Investment constraints …

3. Tax
¾The tax rate is … , the tax aspect should be considered
¾ The … ‘s tax treatment is uncertain, they need a legal counsel

4. Regulations
¾The prudent investor rule is applied
¾The … need a legal counsel to create a trust to …

5. Unique
¾The … say they do not want to invest in …
¾The … want to create a trust to care for …
¾The … want to donate … to local charity

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 Investor 1’s IPS - 9

ƒ Renew objectives

Main issue: Renew return objective close to retirement

a. Re-calculate the net CF need annually → PMT
b. Re-calculate the asset base now → PV
c. Calculate the target asset value when retire → FV
d. Calculate the required rate of return → I/Y

New objectives:
1. Support living expense in retirement
2. Support donating money to charity
3. Provide inheritance for children

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 Investor 1’s IPS - 10

ƒ Case analysis

1. Case 1 – 2008 CFA level 3 morning session Q1

2. Case 2 – 2009 CFA level 3 practice volume 1 Exam 2 morning session
Q1
3. Case 3 - 2002 CFA level 3 morning session Q5

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