WORKING WITH PORTFOLIOS IN PALTRAK SEMINAR NOTES SERIES SUBJECT

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Portfolio Analytics Limited

Working with Portfolios

In PALTrak

WORKING WITH PORTFOLIOS IN PALTRAK SEMINAR NOTES SERIES SUBJECT

Seminar Notes Series

Subject: Working with Portfolios

INTRODUCTION

Creating portfolios suitable to a client’s profile is the goal of the advisor. Once the individual funds have been selected, the advisor creates a portfolio, taking into account the client’s objective(s), time horizon, risk tolerance, etc. PALTrak allows the advisor to store portfolio information for clients, providing quick access to client information.

Upon creating the client’s portfolio, the advisor is able to access pertinent information on the portfolio by utilizing the various reports available to him/her within PALTrak. Providing reports to clients not only keeps clients advised as to the status of their investments; the reports also serve as a tool in helping to explain various investment concepts to clients, and setting client expectations.

CREATING A NEW PORTFOLIO

To create a new portfolio within PALTrak, highlight the funds to be placed in the portfolio by right-clicking on them.

Once the funds have been highlighted, choose the Portfolio menu option; then select New.

A dialog box appears, showing the highlighted funds. You can then specify the initial investment amounts by clicking on the field which corresponds to a particular fund, and typing in the information.

When selecting a start date, you can place a check mark in the all funds have the same start date box. This automatically inserts the launch date of the youngest fund in the portfolio as the start date for all funds. Un-checking this box changes the start date for each fund to its own respective start date. Alternatively, you can type in the desired dates manually for each fund.

The end date defaults to the effective date of the most recently installed data.

Setting up a PAC involves typing in a dollar amount in the PAC Flow field for the applicable fund(s). PACs are assumed to begin the month following the date of the initial investment for the fund.

Typing a negative sign before the amount in the PAC Flow field creates a systematic withdrawal.

CREATING A NEW PORTFOLIO CONT’D

The PAC Frequency field allows you to choose from among monthly, quarterly and annual frequencies. Clicking on the field once activates a pull-down button which, when clicked, displays the 3 options. Click on the applicable frequency.

End dollar values for each fund and the total for the portfolio are automatically calculated.

To add a fund to your list, click on the Add Fund button. A scroll box appears listing all of the funds within PALTrak. Type in the first few letters of the fund name to get to the fund you want. Highlight it, click Add, and then click Close. The fund has now been added to the Create Portfolio dialog box for you to specify investment amounts, etc.

To delete a fund on your list, left-click once on it to highlight it and press the Delete button.

Once all of the information has been captured, save the portfolio by typing in a name (typically the client’s name, surname first) in the Portfolio Name field, then click on the OK button.

When saved, all portfolios are listed at the bottom of the All Funds list. Also, a Port tab is created along the bottom of the window, on which you can click to view only client portfolios.

Portfolios are stored by default in the order in which they were created. If the portfolios were all entered with the surname first, you can double-click on the Fund Name header to sort by client name.

EDITING AN EXISTING PORTFOLIO

To edit an existing portfolio, the cursor must be on a portfolio in the Funds Window.

Choose the Portfolio menu option then choose Edit.

To add a lump sum purchase or withdrawal, click on the Lump Sum button. A dialog box appears.

The name of the first fund entered in the portfolio appears at the top of the dialog box. Click once in the fund name field to show a pull-down list of all of the funds in the portfolio.

EDITING AN EXISTING PORTFOLIO CONT’D

Highlight the fund to which you want to make a subsequent transaction. Click on the date field to activate it and enter the information. Do the same thing with the investment amount (negative sign first for redemptions).

Click on the Add button. Repeat these steps for all funds for which you wish to add a subsequent transaction. Click OK when all transactions have been entered.

The end dollar values in the Portfolio Edit screen will be updated to reflect the subsequent transactions.

COPYING A PORTFOLIO

You may have created a portfolio that you intend to use for all clients with a certain profile. To avoid having to select the funds repeatedly, highlight the portfolio you wish to copy. Select the Portfolio menu option then choose copy. PALTrak prompts you to enter a new name for the portfolio. Type in a new name and make the applicable changes to the purchase dates, investment amounts, etc. Click OK and your and the new portfolio has been saved.

Backing-up the Portfolios

Copy all of the files with the extension .POR. These files are your Portfolios Files. There should be 8 files. These files will be located in your PALTrak directory. The names of these files are: PORTFOLI.POR, PORTDATE.POR, FT_BREAK.POR, MF_ALLOC.POR, MF_DESC.POR, MF_PERF.POR, MF_ROR.POR, MF_RR.POR. The files listed in the C:\PFW Directory would be your current Portfolio Files and the ones located in the C:\PFW\Backup would be the previous months Portfolio Files.

** Optional ** The following files can also be backed up: SAVEDSET.PAL, SAVELIST.PAL, HIGHLITE.PAL, SETUP.PAL and all files beginning with FIL and ending in .PAL (FIL*.PAL). These files are associated with the Filter Files Lists.

Your files have now been backed-up.

STOPPING OR CHANGING A PAC

As an example, let’s assume that the XYZ fund in a portfolio already has a monthly PAC for $50, but the amount will increase to $100 in the future. To implement the change, we must “close” the fund with a $50 PAC, and “re-open” it with a $100 PAC.

Let’s say the $100 amount begins in July/97. When editing the portfolio, change the end date for the XYZ fund (with a $50 PAC) to June/97. The end value for this fund will no longer be taken into account in the end value for the portfolio. Click on Add Fund to add the XYZ fund a second time (to be called XYZ part 2). The initial investment amount for XYZ ‘part 2’ is the end value from the ‘closed’ XYZ fund and the start date is June/97. From this point, change the PAC amount for XYZ ‘part 2’ to $100, and you are done. Remember, the PAC is assumed to begin the month following the date of the initial investment, or the start date. The start date for XYZ fund ‘part 2’ is June/97, which means the $100 PAC will begin in July/97.

To stop the $50 PAC for the XYZ fund, the steps are almost identical to the above procedure. The only difference is that, instead of putting in $100 for the PAC amount, you would put in “0” which is the default PAC value in PALTrak.

CLIENT REPORTING

One of the many benefits of using PALTrak is its ability to monitor the status of clients’ portfolios using various reports. These reports can also assist you in explaining various investment concepts to the investor. For the sake of any client reporting, PALTrak treats portfolios as any other item in the funds menu. As a result, you can compare portfolios to individual funds, averages, and indexes.

The Summary Report is used to provide a ‘snapshot’ of a portfolio from various perspectives, detailing performance and asset allocation information. Clicking on the asset allocation graph’s Canadian Equity, Canadian bond or cash positions allows the client to see a further breakdown of the holdings of their portfolio (TSE sub-sectors, bond maturities, and types of cash instruments respectively). Double-click on a portfolio to display a Summary report.

Using PALTrak’s Risk/Return Report, you can communicate the benefits of diversification to a client. Do this by plotting only the portfolio and the funds contained within the portfolio on the graph. Highlight the portfolio, choose the Portfolio menu option and select Highlight Funds in Portfolio.

All of the funds within your portfolio all now highlighted. Because we want to show only the portfolio and its funds on the graph, we want to remove all other rows from the Funds Window. To do this, go to the Funds menu and select show only highlighted funds. Now choose the Reports menu option, then select Risk/Return and a Time Horizon. The graph will show that combining relatively ‘volatile’ funds (funds more to the right) in a portfolio effectively reduces the risk associated with each individual fund.

You can also combine reports in a way that keeps clients focused on the long term, and not the short term. Pull up a Monthly Return report (highlight the portfolio; choose Reports; Performance; Monthly Returns; and a time frame. Point out that even a well-diversified portfolio will experience not only volatility, but possibly negative returns over very short time periods.

Then pull up a Cumulative return report for the same time period for the portfolio (Reports; Performance; Cumulative, then choose the time frame). The idea here is that although there are short-term ups and downs, the long-term trend, as indicated by the cumulative return graph, is up. This gives the client expectations for the future, which may result in less hand-holding for you to do during periods of extreme market volatility.

The Trailing Return report allows you to approach long vs. short-term volatility from another perspective. Highlight the portfolio and select Reports; Performance; Trailing Returns; 1-year. You can demonstrate that there were one-year periods that were not as good as others, including periods with negative returns, depending on the end date for the period. You can also use the table at the bottom of the report to point out the best, worst and average 1-year returns.

Pulling up the same report using a 3-year period will show that there were fewer 3-year periods where the portfolio had negative returns, regardless of the end date. This is also confirmed by the best, worst and average returns. The range between the best and worst compound returns should be lower than those for the one-year time period.

The Asset Allocation reports show the client what their portfolio contains from a variety of perspectives. Observing a client’s portfolio from these different perspectives allows you to note any parts of the portfolio that may be overexposed to a particular asset class, TSE sub-sector or country. This overexposure can be adjusted by making changes to the weights in the portfolio. To view a report, highlight the portfolio and select Reports; Asset Allocation; and the type of report you wish to view.

The Standard report shows how the portfolio invested between the asset classes: cash, Canadian equities, foreign equities, Canadian bonds, foreign bonds, etc.

The TSE Sector report looks at how the Canadian equity component of the portfolio is invested among the TSE’s 14 subsectors.

The Geographic report shows the countries in which a portfolio is invested, regardless of the type of security.

The Bond maturity report breaks out the Canadian bond component of the portfolio in terms of short, medium and long-term fixed income instruments.

All asset allocation data is based on classification of securities data collected by Portfolio Analytics. Securities classification is conducted in-house. PALTrak contains no surveyed information from fund companies. This is one of the distinguishing characteristics of the PALTrak product relative to its competitors. In this way, PALTrak is unaffected by contradictory information being sent out by mutual fund staffers, and the inherent inconsistencies one fund company is bound to have relative to others in describing its asset allocation. We routinely invite observers to compare and validate the information that is being presented in PALTrak to those of our competitors. We feel this is one of the primary reasons why mutual fund analysts and research departments prefer the PALTrak system to competitive products.

Creating portfolios in PALTrak allows you to analyze client portfolios just like any fund contained within PALTrak. You have access to performance data, risk measures, as well asset allocation information. This information can be printed and presented to clients to not only explain how the markets work, it helps to set realistic client expectations. The reports also give clients a record of the status of their investments on an on-going basis.

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