CFA Institute - Volume 3 Equity Portfolio Management

CFA Institute is the premier association for investment professionals around the world, with over 170,000 members more than 160 countries. Since 1963 the organization has developed and administered the renowned Chartered Financial Analyst Program. With a rich history of leading the investment profession, CFA Institute has set the highest standards in ethics, education, and professional excellence within the global investment community, and is the foremost authority on investment profession conduct and practice.

Each book in the CFA Institute Investment Series is geared toward industry practitioners along with graduate-level finance students and covers the most important topics in the industry. The authors of these cutting-edge books are themselves industry professionals and academics and bring their wealth of knowledge and expertise to this series.

Volume 3

Equity Portfolio Management

Cover image: r.nagy/Shutterstock

Cover design: Wiley

Copyright 2004, 2007, 2015, 2021 by CFA Institute. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002.

Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

ISBN 978-1-119-78925-3 (Hardcover)

ISBN 978-1-119-78928-4 (ePDF)

ISBN 978-1-119-78926-0 (ePub)

We are pleased to bring you Equity Portfolio Management, Volume 3 of Portfolio Management in Practice. This series of three volumes serves as a particularly important resource for investment professionals who recognize that portfolio management is an integrated set of activities. The topic coverage in the three volumes is organized according to a well-articulated portfolio management decision-making process. This organizing principle in addition to the breadth of coverage, the currency and quality of content, and its meticulous pedagogydistinguishes the three volumes in Portfolio Management in Practice series of volumes from other investment texts that deal with portfolio management.

The content was developed in partnership by a team of distinguished academics and practitioners, chosen for their acknowledged expertise in the field, and guided by CFA Institute. It is written specifically with the investment practitioner in mind and is replete with examples and practice problems that reinforce the learning outcomes and demonstrate real-world applicability.

The CFA Program curriculum, from which the content of this book was drawn, is subjected to a rigorous review process to assure that it is:

• faithful to the findings of our ongoing industry practice analysis
• Valuable to members, employers, and investors
• Globally relevant
• Generalist (as opposed to specialist) in nature
• replete with sufficient examples and practice opportunities
• Pedagogically sound

The accompanying workbook is a useful reference that provides Learning Outcome Statements, which describe exactly what readers will learn and be able to demonstrate after mastering the accompanying material. additionally, the workbook has summary overviews and practice problems for each chapter.

We hope you will find this and other books in the CFA Institute Investment Series helpful in your efforts to grow your investment knowledge, whether you are a relatively new entrant or an experienced veteran striving to keep up to date in the ever-changing market environment. CFA Institute, as a long-term committed participant in the investment profession and a not- for-profit global membership association, is pleased to provide you with this opportunity.

Special thanks to all the reviewers, advisors, and question writers who helped to ensure high practical relevance, technical correctness, and understandability of the material presented here.

We would like to thank the many others who played a role in the conception and production of this book: the Curriculum and Learning Experience team at CFA Institute with special thanks to the curriculum directors, past and present, who worked with the authors and reviewers to produce the chapters in this book, the Practice Analysis team at CFA Institute, and the Publishing and Technology team for bringing this book to production.

CFA Institute is pleased to provide the CFA Institute Investment Series, which covers major areas in the field of investments. We provide this best-in-class series for the same reason we have been chartering investment professionals for more than 45 years: to lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence.

The books in the CFA Institute Investment Series contain practical, globally relevant material. They are intended both for those contemplating entry into the extremely competitive field of investment management as well as for those seeking a means of keeping their knowledge fresh and up to date. This series was designed to be user friendly and highly relevant.

We hope you find this series helpful in your efforts to grow your investment knowledge, whether you are a relatively new entrant or an experienced veteran ethically bound to keep up to date in the ever-changing market environment. As a long-term, committed participant in the investment profession and a not-for-profit global membership association, CFA Institute is pleased to provide you with this opportunity.