Smart Portfolios

About the author
Note about this eBook edition

Preface
Who should read this book
Finding your way around
What's in this book

Introduction
Investing today
Why this book?
Is this book still relevant?

Prologue: What do we know
What we probably don't know: future average returns
What we probably know: similarity and risk
What we definitely know: costs
What we might, perhaps know: forecasting returns

Part One: Theory of Smart Portfolios
Chapter One: What is the Best Portfolio?
Chapter overview
Geometric mean return
Expectations
Risk and investment horizon
Costs
Real returns
Embarrassment: absolute returns versus relative returns
Currency
A purely financial judgement
Key points

Chapter Two: Uncertainty and Investment
Chapter overview
The investment game
Statistical modelling
The uncertain past
Key points

Chapter Three: Trying to Find the Best Portfolio
Chapter overview
Portfolio optimisation, made simple
Uncertain returns and unstable portfolios
Why the future won't be like the past
Key points

Chapter Four: Simple, Smart, and Safe Methods to find the Best Portfolio (Without Costs)
Chapter overview
Dealing with different risk appetites
Risk weighting
The handcrafting method
Some practical issues with portfolio allocation
Key points

Chapter Five: Smart Thinking About Costs
Chapter overview
Why costs are important
Cost measurement
How to compare the costs of different ETFs
How much does it cost to diversify an ETF portfolio?
A warning about cost comparisons
Smart tactics for reducing costs
Key points

Chapter Six: The Unknown Benefits and
Known Costs of Diversification
Chapter overview
Diversification: What is it good for?
Should you diversify?
The different costs of ETFs and individual shares
Handcrafting, equal weighting, or market cap weighting?
Buy the whole index, or just part of it?
The smartest way to invest in a given country
Does diversifying by buying multiple funds make sense?
Key points

Part Two: Creating Smart Portfolios
Chapter Seven: A Top-Down Approach to Building Smart Portfolios
Chapter overview
Why is top-down smart?
The top-down portfolio
The road map
Issues to consider

Chapter Eight: Asset Classes
Chapter overview
Which asset classes?
What division of asset classes?
What appetite for risk?
The smart way to weight asset classes
How should smaller investors weight their portfolio and get exposure to asset classes?
Summary

Chapter Nine: Alternatives
Chapter overview
Different groups of alternatives
Genuine alternatives
Equity-like alternatives
Bond-like alternatives
Alternative assets for ETF investors
Summary

Chapter Ten: Equities Across Countries
Chapter overview
How to structure an equity portfolio
My framework for top-down allocation in equities
Summary

Chapter Eleven: Equities Within Countries
Chapter overview
Allocating to sectors within a country
Allocating to individual equities within sectors
Ethical investment
Summary

Chapter Twelve: Bonds
Chapter overview
The world of bonds
How to get exposure to bonds
How to weight bonds – in theory
Weighting bonds for US investors
Weighting bonds for UK investors
Summary

Chapter Thirteen: Putting It All Together
Chapter overview
Example 1: Sarah – US institutional investor
Example 2: David – UK investor with £500,000
Example 3: Paul – US investor with $40,000
Example 4: Patricia – UK investor with £50,000
Summary

Part Three: Predicting Returns
Chapter Fourteen: Predicting Returns and Selecting Assets
Chapter overview
Why predicting risk-adjusted returns is so difficult
How can we use smart forecasting models to construct portfolios?
Introducing two smart forecasting models
Using forecasting models in a top-down handcrafted portfolio
Adjusting portfolio weights when you don't have a model
Stock selection when you don't have a model
Summary

Chapter Fifteen: Are Active Fund Managers Really Geniuses? And is Smart Beta Really Smart?
Chapter overview
Active fund managers
Smart beta
Robo advisors
Summary

Part Four: Smart Rebalancing
Chapter Sixteen: The Theory of Rebalancing
Chapter overview
Why do you need to rebalance?
Is it worth reweighting and by how much?
When to substitute and when not to
Tax considerations
Summary

Chapter Seventeen: Portfolio Maintenance
Chapter overview
Annual review
Reacting to external events
Periodic portfolio reweighting
Tax implications of portfolio maintenance
Rebalancing example
Summary

Chapter Eighteen: Portfolio Repair
Chapter overview
What is portfolio repair?
A six-step plan for portfolio repair
Some practical points on repair
Portfolio repair example
Summary
Epilogue
Glossary

Appendices
Appendix A: Resources
Further reading
Websites

Appendix B: Cost and Return Statistics
Trading costs
Standard deviations
Correlations

Appendix C: Technical Stuff
Aggregate returns
Standard deviation
Geometric means, standard deviations, and Sharpe ratio
Gaussian distributions
Correlations
Bootstrapping and sampling distributions
Portfolio optimisation
Forecasting models
Acknowledgements
Reference
Investor types and recommended portfolios
Costs
Minimum investments
Choosing ETFs
Information for weighting