Plain-English definitions of the portfolio-management terms for CFA Level III study. Simplified for learning; CFA Institute’s curriculum is authoritative.
| Term | Definition |
|---|---|
| Investment Policy Statement (IPS) | A document of a client’s objectives and constraints. |
| Return objective | The return a client needs or wants. |
| Risk tolerance | Ability plus willingness to take risk. |
| Strategic asset allocation | The long-term target mix of asset classes. |
| Tactical asset allocation | Short-term shifts away from the strategic mix. |
| Rebalancing | Trading back to target weights after drift. |
| Liability-driven investing | Structuring assets to meet future liabilities. |
| Goals-based investing | Allocating around specific client goals. |
| Behavioural finance | How biases affect investor decisions. |
| Loss aversion | Feeling losses more strongly than equal gains. |
| Anchoring | Over-relying on an initial reference point. |
| Efficient frontier | Portfolios with the best return for each risk level. |
| Sharpe ratio | Excess return per unit of total risk. |
| Active return | Portfolio return minus its benchmark return. |
| Immunisation | Matching duration to a liability horizon. |
| Risk budget | Allocating tolerable risk across positions. |
| Pathway | A Level III specialisation: Portfolio Management, Private Markets or Private Wealth. |
| Code and Standards | CFA Institute’s ethics rules for members and candidates. |