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CFP Hong Kong study materials
CFP Hong Kong study resources

CFP Hong Kong: Investment Planning and Asset Management

CFP Hong Kong · Work through your exam, one topic at a time.

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Investment Planning and Asset Management

This domain tests portfolio construction, risk measurement, product due diligence, and Hong Kong market regulation. You must distinguish asset allocation from product selection and justify performance with evidence.

Risk and return

  • Total risk equals systematic plus unsystematic risk. Diversification reduces unsystematic risk; beta measures systematic risk; standard deviation measures total volatility.
  • Correlation drives diversification. Lower or negative correlation improves risk-adjusted return more than adding many similar funds.
  • Use expected return, variance, Sharpe ratio, and time horizon. Past returns are not forecasts.

Asset classes and products

  • Main asset classes are cash, bonds, equities, property/REITs, funds/ETFs, and derivatives. Hong Kong specifics include HKEX, the Hang Seng Index, Stock Connect, H-shares and red chips, SFC-authorised collective investment schemes, and the REIT Code.
  • Strategic allocation sets long-term policy weights; tactical tilts are short-term. Rebalance back to policy weights.
  • Due diligence covers fees, liquidity, currency, counterparty, leverage, concentration, and tax.

Regulation and suitability

  • The SFC licenses intermediaries and authorises collective investment schemes; authorisation is not a guarantee. Professional investor rules and derivative knowledge requirements may apply.
  • Suitability requires knowing the client, risk tolerance, capacity for loss, concentration, and product complexity.

Worked example. A 60/40 portfolio has expected returns of 7% and 3%, standard deviations of 15% and 5%, and correlation of 0.2. Expected return is 0.6×7 + 0.4×3 = 5.4%. Variance is 0.6²×15² + 0.4²×5² + 2×0.6×0.4×0.2×15×5 = 81 + 4 + 7.2 = 92.2, so standard deviation is 9.6%. With a risk-free rate of 2%, the Sharpe ratio is (5.4 − 2)/9.6 = 0.35. The reasoning is that correlation lowers portfolio volatility below the weighted-average 11%, so allocation matters.

Traps that cost marks: confusing beta with standard deviation; comparing returns without risk; ignoring currency and liquidity; assuming SFC authorisation means safe; chasing past performance; over-concentrating in employer stock; and using derivatives without a mandate.