2025 CFA© Program Curriculum Level I Volume 9 - PORTFOLIO MANAGEMENT

How to Use the CFA Program Curriculum
	CFA Institute Learning Ecosystem (LES)
		Designing Your Personal Study Program
		Errata
		Other Feedback
Portfolio Management
	Learning Module 1	Portfolio Risk and Return: Part I
		Introduction
		Historical Return and Risk
			Nominal Returns of Major US Asset Classes
			Real Returns of Major US Asset Classes
			Nominal and Real Returns of Asset Classes in Major Countries
			Risk of Major Asset Classes
			Risk–Return Trade-off
		Other Investment Characteristics
			Distributional Characteristics
			Market Characteristics
		Risk Aversion and Portfolio Selection
			The Concept of Risk Aversion
		Utility Theory and Indifference Curves
			Indifference Curves
		Application of Utility Theory to Portfolio Selection
		Portfolio Risk & Portfolio of Two Risky Assets
			Portfolio of Two Risky Assets
		Portfolio of Many Risky Assets
			Importance of Correlation in a Portfolio of Many Assets
		The Power of Diversification
			Correlation and Risk Diversification
			Historical Risk and Correlation
			Historical Correlation among Asset Classes
			Avenues for Diversification
		Efficient Frontier: Investment Opportunity Set & Minimum Variance Portfolios
			Investment Opportunity Set
			Minimum-Variance Portfolios
		Efficient Frontier: A Risk-Free Asset and Many Risky Assets
			Capital Allocation Line and Optimal Risky Portfolio
			The Two-Fund Separation Theorem
		Efficient Frontier: Optimal Investor Portfolio
			Investor Preferences and Optimal Portfolios
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 2	Portfolio Risk and Return: Part II
		Introduction
		Capital Market Theory: Risk-Free and Risky Assets
			Portfolio of Risk-Free and Risky Assets
		Capital Market Theory: The Capital Market Line
			Passive and Active Portfolios
			What Is the “Market”?
			The Capital Market Line (CML)
		Capital Market Theory: CML - Leveraged Portfolios
			Leveraged Portfolios with Different Lending and Borrowing Rates
		Systematic and Nonsystematic Risk
			Systematic Risk and Nonsystematic Risk
		Return Generating Models
			Return-Generating Models
			Decomposition of Total Risk for a Single-Index Model
			Return-Generating Models: The Market Model
		Calculation and Interpretation of Beta
			Estimation of Beta
			Beta and Expected Return
		Capital Asset Pricing Model: Assumptions and the Security Market Line
			Assumptions of the CAPM
			The Security Market Line
		Capital Asset Pricing Model: Applications
			Estimate of Expected Return
		Beyond CAPM: Limitations and Extensions of CAPM
			Limitations of the CAPM
			Extensions to the CAPM
		Portfolio Performance Appraisal Measures
			The Sharpe Ratio
			The Treynor Ratio
			M2: Risk-Adjusted Performance (RAP)
			Jensen’s Alpha
		Applications of the CAPM in Portfolio Construction
			Security Characteristic Line
			Security Selection
			Implications of the CAPM for Portfolio Construction
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 3	Portfolio Management: An Overview
		Introduction
		Portfolio Perspective: Diversification and Risk Reduction
			Historical Example of Portfolio Diversification: Avoiding Disaster
			Portfolios: Reduce Risk
		Portfolio Perspective: Risk-Return Trade-off, Downside Protection, Modern Portfolio Theory
			Historical Portfolio Example: Not Necessarily Downside Protection
			Portfolios: Modern Portfolio Theory
		Steps in the Portfolio Management Process
			Step One: The Planning Step
			Step Two: The Execution Step
			Step Three: The Feedback Step
		Types of Investors
			Individual Investors
			Institutional Investors
		The Asset Management Industry
			Active versus Passive Management
			Traditional versus Alternative Asset Managers
			Ownership Structure
			Asset Management Industry Trends
		Pooled Interest - Mutual Funds
			Mutual Funds
		Pooled Interest - Type of Mutual Funds
			Money Market Funds
			Bond Mutual Funds
			Stock Mutual Funds
			Hybrid/Balanced Funds
		Pooled Interest - Other Investment Products
			Exchange-Traded Funds
			Hedge Funds
			Private Equity and Venture Capital Funds
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 4	Basics of Portfolio Planning and Construction
		Introduction
		The Investment Policy Statement
			The Investment Policy Statement
			Major Components of an IPS
		IPS Risk and Return Objectives
			Return Objectives
		IPS Constraints
			Liquidity Requirements
			Time Horizon
			Tax Concerns
			Legal and Regulatory Factors
			Unique Circumstances and ESG Considerations
		Gathering Client Information
		Portfolio Construction and Capital Market Expectations
			Capital Market Expectations
		Strategic Asset Allocation
		Portfolio Construction Principles
			New Developments in Portfolio Management
		ESG Considerations in Portfolio Planning and Construction
		Summary
		Practice Problems
		Solutions
	Learning Module 5	The Behavioral Biases of Individuals
		Introduction
		Behavioral Bias Categories
		Cognitive Errors
			Belief Perseverance Biases
			Processing Errors
		Emotional Biases
			Loss-Aversion Bias
			Overconfidence Bias
			Self-Control Bias
			Status Quo Bias
			Endowment Bias
			Regret-Aversion Bias
		Behavioral Finance and Market Behavior
			Defining Market Anomalies
			Momentum
			Bubbles and Crashes
			Value
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 6	Introduction to Risk Management
		Introduction
		Risk Management Process
		Risk Management Framework
		Risk Governance - An Enterprise View
			An Enterprise View of Risk Governance
		Risk Tolerance
		Risk Budgeting
		Identification of Risk - Financial Vs. Non-Financial Risk
			Financial Risks
			Non-Financial Risks
		Interactions Between Risks
		Measuring and Modifying Risk: Drivers and Metrics
			Drivers
			Metrics
		Risk Modification: Prevention, Avoidance, and Acceptance
			Risk Prevention and Avoidance
			Risk Acceptance: Self-Insurance and Diversification
		Risk Modification: Transferring, Shifting, and How to Choose
			Risk Shifting
			How to Choose Which Method for Modifying Risk
		Summary
		Practice Problems
		Solutions
	Glossary