In previous articles, Quintin Rayer gave an overview of portfolio stress-testing, what it can and cannot do, offered a definition, and outlined the range of stress-test methodologies available with a classification, before focusing on historical and artificial stress-tests. In this sixth and final article in the series, he explores the implementation of a portfolio stress-testing programme.
Meaningfully assessing portfolios risks is never easy, and extreme asset moves can negatively impact portfolios in ways that may not be captured by conventional risk measures. Diversification breakdown may mean that portfolio values are not protected. With guidance, stress-testing may be used to estimate portfolios’ impacts and if necessary appropriate restructuring can limit the downside. This helps demonstrate that advisers and investment managers are working hard to protect portfolios and clients can be reassured that robust investment processes are in place.
This article is the sixth in a series making up a helpful introduction to IFAs less familiar with portfolio stress-testing. The previous articles can be found here:
- Q G Rayer (2017), Managing risk: stress-testing investment portfolios, DISCUS, available at http://discus.org.uk/managing-risk-stress-testing-investment-portfolios/, 3 pages, 26 January 2017.
- Q G Rayer (2017), A more detailed look at portfolio stress-testing, DISCUS, available at http://discus.org.uk/portfolio-stress-testing/, 3 pages, 13 February 2017.
- Q G Rayer (2017), The different types of portfolio stress testing, DISCUS, available at http://discus.org.uk/different-types-portfolio-stress-tests/, 3 pages, 9 March 2017.
- Q G Rayer (2017), Managing risk: historical portfolio stress testing, DISCUS, available at http://discus.org.uk/historical-portfolio-stress-testing/, 3 pages, 4 May 2017.
- Q G Rayer (2017), Artificial portfolio stress-testing and how advisers add value to this process, DISCUS, available at http://discus.org.uk/artificial-portfolio-stress-testing/, 3 pages, 24 May 2017.
Download the Implementing a Portfolio Stress-testing Programme
Q G Rayer (2017), Implementing a Portfolio Stress-testing Programme, DISCUS, available at http://discus.org.uk/implementing-portfolio-stress-testing-programme/, 3 pages, 21 June 2017.