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Smart Portfolios

A practical guide to building and maintaining intelligent investment portfolios

By Robert Carver

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About the Author

Robert Carver

Robert Carver is an independent investor, trader and writer. He spent over a decade working in the City of London before retiring from the industry in 2013. Robert initially traded exotic derivative products for Barclays Investment Bank and then worked as a portfolio manager for AHL – one of the world’s largest hedge funds – before, during and after the global financial meltdown of 2008. He ... Read more on Robert Carver

Contents Listing

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
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: f ...

Jacket Text

Smart Portfolios is about building and maintaining smart investment portfolios. At its heart are the three key questions every investor needs to answer:

1. What to invest in.
2. How much to invest.
3. When to make changes to a portfolio.

Author Robert Carver addresses these three areas by providing a single integrated approach to portfolio management. He shows how to follow a step-by-step process to build a multi-asset investment portfolio, and how to rebalance the portfolio efficiently. He covers both investment in collective funds like ETFs, and also direct investment in individual equities.

Important features include:

-- Why forecasting future returns is so difficult, and how to account for uncertainty when making investment decisions.
-- How to accurately calculate the true costs of an investment, including costs that you may not even be aware of.
-- How to select the best ETF for each asset class.
-- How to compare the costs and other features of different ETFs.
-- How to select individual shares.
-- Calculating the number of shares needed for adequate diversification.
-- How to use systematic forecasting algorithms to adjust portfolio allocations.
-- How to cut trading costs through smart rebalancing strategies and execution tactics.

Robert Carver also explains how to blend assets with different levels of risk, and how to construct portfolios that suit the level of risk that the investor can cope with.

Smart Portfolios is detailed, comprehensive, and full of practical methods, rules of thumb and techniques, all fully explained with examples. It is intended for professional investors worldwide, including financial advisors, private bankers, wealth managers and institutional funds; as well as experienced private investors.

Professional Reviews

Two years after the excellent Systematic Trading, Rob has done it again. Smart Portfolios offer a unique insight into how a finance professional approaches portfolio construction and investment. This books clears up many misconceptions about investing and offers rational methods and tools for taking care of your hard earned money. Andreas Clenow, CIO Acies Asset Management, Zurich

"Smart Portfolios introduces plenty of concepts that anyone should follow in thinking about how to structure their investment dollars… Smart Portfolios makes for a valuable read, because it always brings you back to the practical macro-level questions (what to invest in, how much to invest, what changes to make) instead of going so far down the rabbit hole that you forget why various formulas or charts are relevant. Carver’s pedigree and current status make him the right kind of author for this type of book.” Adam Justko, Proud Money

"In Finance (like many other subjects) there is a large amount of research that is smart but impractical and an equally large amount of popular literature that is practical but dumb. This book is in that rare category of smart and practical – it is also an entertaining read in its own right.” Francis Breedon, Professor of Finance Queen Mary, University of London and former head of currency strategy at a major investment bank

"Smart Portfolios is a sophisticated but not overly technical treatment of a topic that every investor has to come to grips with. As such, it is a recommended read." Brenda Jubin, Investing.com

"This is one of those reference books that you put on the shelf - one of those great; just the facts; very practical reference guides that you can't go wrong with... The book is a solid piece of work so check it out... You can really open up to any page and get the juices flowing in terms of what's a good thought process... It's about the process and there are some really practical ways, mathematical ways, to put a good process in motion for your life... A great Christmas present!" Michael Covel, Trend Following


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Media Coverage

Proud Money

"Smart Portfolios introduces plenty of concepts that anyone should follow in thinking about how to structure their investment dollars… Smart Portfolios makes for a valuable read, because it always ...

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Investing.com

Robert Carver, author of Systematic Trading, has turned his attention to the thorny problem of portfolio construction. In Smart Portfolios: A Practical Guide to Building and Maintaining Intelligent ...

Read more

Reading the Markets

Smart Portfolios is a sophisticated but not overly technical treatment of a topic that every investor has to come to grips with. As such, it is a recommended read.

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Kevin Davey, Champion full time trader and author

I've been a fan of Robert Carver's work for quite a while now, and this book definitely adds to the knowledge and experiences he willingly shares with others.  Carver skillfully mixes theory and ...

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Master Investor

" Smart Portfolios is a very detailed, practical and comprehensive guide for anyone interested in building a portfolio of assets and increasing their long-term wealth."

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Informed Choice Radio

A brilliant new book

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Trend Following

This is one of those reference books that you put on the shelf - one of those great; just the facts; very practical reference guides that you can't go wrong with... The book is a solid piece of work ...

Read more

Reading the Markets

Robert Carver, author of Systematic Trading, has turned his attention to the thorny problem of portfolio construction. In Smart Portfolios: A Practical Guide to Building and Maintaining Intelligent ...

Read more

Professional Adviser

Warren Buffett, ESG and the end of cash: This year's best Xmas reads
Lawrence Gosling's top financial books
Stuck on what to buy the financial services professional in your life for Christmas? How ...

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Investment Week

The book speaks well to the industry practitioner, as well as the self-directed private investor.

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