equity pm

[shangfhai]

in equity portfolio mgmt:
for stratified sampling:
it says: a stratified sampling process can be used to mimic the performance of concentrated positions within an index without taking the actual concentrated positions.
i dont get it. i thought you are supposed to buy the total market cap of all cells by picking a few representative stocks. so if positions are concentrated. maybe within one cell, you only have one stock. then you can only buy that stock.
please help guys. thanks.

 

[cpk123]

you could adjust the “strata” properties - which classify the cells - in a different way - so you end up with fewer concentrated positions (I guess).
you would not be buying the entire market cap of the concentrated position either. you would buy as much as is necessary in the portfolio to get to the “weight” of the cell in the index.

 

[BayStreet]

the whole point of strata is to match the exposure of the index as efficiently as possible. this is done by dividing the index into strata as cpk said and then buying enough securities from each stratum so that the overall portfolio has the same risk representation as the strata in the index. definitely not buying the market cap