INTRODUCTION
Rationale of the study
Since the 1990s, Vietnam's economy has experienced significant growth, leading to a more developed securities market that enhances capital efficiency for both institutional and individual investors The expansion of this market has coincided with the remarkable development of financial intermediaries, such as stock companies, which have improved their service quality While the securities market presents an attractive investment opportunity, it also carries potential risks, especially for individual investors To mitigate these risks, portfolio management has emerged as a crucial strategy, widely practiced in securities markets globally and integral to the operations of funds and stock companies However, in Vietnam, portfolio management has not received adequate attention from the government and regulatory bodies, leaving many investors unaware of its benefits.
In my research for the thesis, I discovered that securities companies in Vietnam face significant challenges in their operations Consequently, I have selected the topic “Enhancing the Efficiency of Portfolio Management for Individual Investors at Viet Dragon Securities Company” as the focus of my graduation thesis.
Aims of the study
This graduation thesis aims to investigate portfolio management activities and their practical applications through a case study of Viet Dragon Securities Company It begins with a review of the theoretical foundations of investment portfolio management and related services Additionally, the study assesses the current state of the portfolio management sector at Viet Dragon Securities, seeking to identify viable solutions and recommendations to improve the quality of this sector within the company and the broader securities market.
Research questions
This thesis aspires to provide answers to two questions of concerns to practitioners, portfolio managers or those who are interested in studying this investment activity in academia:
What are the major challenges of portfolio management that Viet Dragon Securities Company has to confront now?
To enhance the efficiency of operations at Viet Dragon Securities and across the broader securities market, several feasible solutions can be implemented These include adopting advanced technology for streamlined processes, investing in employee training to improve skills and knowledge, and fostering a culture of innovation to encourage new ideas Additionally, enhancing client communication and feedback mechanisms can help tailor services to meet market demands effectively By focusing on these strategies, Viet Dragon Securities can improve its overall performance and contribute positively to the securities industry.
Research methodology
To effectively address our research question, I adopted a qualitative approach combined with an exploratory research design Utilizing a case study strategy that incorporates qualitative data gathered from observations and interviews proved to be the most suitable method for this research.
To enhance the validity and reliability of findings, information and data are gathered from diverse sources, including meeting notes, documented reports of existing contracts, and databases from reputable market data providers This triangulation of evidence and discussions strengthens the overall quality of the information.
The collected data has been organized based on relevant discussions within various knowledge areas Through analysis, I aim to identify the weaknesses in the current processes and offer recommendations Additionally, I propose a framework that is not only applicable to the case study but also adaptable for other securities corporations in Vietnam.
Thesis organization
The thesis consists of four main chapters: (1) Introduction, (2) Literature review,
(3) Portfolio management for individual investors at Viet Dragon Securities Company and (4) Solutions and recommendations to enhance the efficiency of portfolio management for individual investors in Viet Dragon Securities Company
In the first chapter, the author discusses the selection of the main topic, particularly in light of the ongoing recession in Vietnam The introduction outlines the study's objectives, research questions, methodology, and the overall structure of the thesis.
In the second chapter, the literature review on portfolio management highlights key concepts such as the definition of investment, the defining characteristics of an investment portfolio, the management processes within securities companies, and the metrics used to evaluate the efficiency of portfolio management in these firms.
In the third chapter , the author gives the readers an insight into the Viet Dragon
Viet Dragon Securities Company has established a strong foundation in portfolio management; however, there are several challenges that need to be addressed to enhance the performance of this sector.
In the last chapter , some solutions and recommendation will be suggested to improve the quality and efficiency of portfolio management activity in Viet Dragon Securities Company.
LITERATURE REVIEW
Overview of investment portfolio
There are a wide range of definitions of investment portfolio
A portfolio is a collection of financial assets, including stocks, bonds, and cash, which can be managed by individual investors or financial professionals such as hedge funds and banks The design of a portfolio is typically based on the investor's risk tolerance, investment objectives, and time frame.
A portfolio is a collection of financial assets, including stocks, bonds, commodities, real estate, and cash equivalents, along with their mutual, exchange-traded, and closed-fund versions These portfolios can be directly owned by individual and institutional investors or managed by financial professionals.
After taking a deep look in the two definition above, I have synthesized and summarized them into the definition of investment portfolio below:
An investment portfolio is a strategic collection of assets tailored to meet specific financial goals, taking into account factors like risk tolerance, time horizon, asset preferences, and liquidity requirements Typically, these portfolios combine various asset types to optimize returns while effectively managing risk and volatility through careful diversification and balance.
In this thesis, the assets will be mainly securities in context of the securities company
2.1.2 Return and risk of an investment portfolio:
2.1.2.1 Return of an investment portfolio:
The return on a single asset within an investment portfolio can be assessed using various methods, including the holding period return (HPR), average returns such as arithmetic and geometric mean returns, and the money-weighted rate of return, among other performance metrics.
The expected return on a portfolio is a weighted average of the expected returns on the individual assets that are included in the portfolio
E(r p ): the expected return on a portfolio
W i : proportion (weight) of the portfolio allocated to Asset i
E(R i ) : the expected return on Asset i
2.1.2.2 Risk of an investment portfolio: a Variance of an investment portfolio:
Investment portfolio risk refers to the likelihood of volatility and the variation of returns across different economic conditions High volatility indicates a significant disparity between potential returns and the expected portfolio return, resulting in elevated risk levels Conversely, lower volatility suggests reduced risk in the investment.
Variance and standard deviation of a portfolio return are often considered measures of risk of a portfolio investment Variance of a portfolio return can be calculated as the formula below: p 2 = ∑ i 2 i 2 + ∑ ∑ i W k Cov (r i , r p ) with i k
p : is the standard deviation of portfolio return
p 2 : is the variance of portfolio return
W i, W k : proportion (weight) of the portfolio allocated to Asset i and Asset k
i : is the standard deviation of return of asset i
Cov (r i , r p ): is the covariance of returns for asset i and asset k
A portfolio perspective emphasizes the assessment of individual securities based on their impact on the overall risk and return of the investor's portfolio Consequently, the volatility of portfolio returns is influenced not only by the risk associated with individual stocks but also by the covariance and correlation among the stocks within the portfolio.
Covariance is a measure of volatility of returns between two assets
Cov (R 1 , R 2 ): covariance of returns between two assets 1 and 2
R 1i, R 2i : the return of asset 1 and 2 in the period i
E(R 1 ), E(R 2 ): the expected return of asset 1 and 2
If covariance is positive, it is implied that when expected return of asset 1 increases, the one of asset 2 will go up as well; and vice versa
If the covariance if negative, it is implied that when expected return of asset 1 increases, the one of asset 2 will go down; and vice versa
If the covariance is equal zero, the expected returns of two assets are independent c Correlation coefficient of an investment portfolio:
Covariance is a crucial statistical measure, yet its interpretation can be challenging due to its unbounded nature In contrast, the correlation coefficient offers a more accessible understanding, as it is bounded and conveys similar information The correlation can be calculated using a specific formula.
Cov ( R 1 , R 2 ) : is the covariance of returns between asset 1 and 2
12 : is the correlation coefficient of return between asset 1 and 2
1 2 : is the standard deviation of return of asset 1 and 2
Correlation measures how consistently two investments behave together, with the correlation coefficient ranging from -1 to +1 A positive correlation indicates that the assets move in the same direction, while a negative correlation suggests they move inversely Understanding the correlation between assets is crucial for assessing the impact on portfolio risk when these assets are combined.
If 12 = +1: returns of the two assets are perfectly positively correlated
If 12 = -1: returns of the two assets are perfectly negatively correlated
If 12 = 0: returns of the two assets are uncorrelated Movement of Asset 1 provides no prediction regarding the movement of Asset 2
2.1.3 Risk diversification of investment portfolio:
Total risk associated with portfolio investment includes systematic risk and unsystematic risk (Mas-Colell, 1995)
Systematic risk, often referred to as non-diversifiable or market risk, is the unavoidable risk that impacts the entire market or economy This type of risk is inherent to the market and cannot be mitigated through diversification Key factors contributing to systematic risk include fluctuations in interest rates, inflation, economic cycles, political instability, and significant natural disasters.
Nonsystematic risk refers to the potential for loss associated with a specific company or industry, as it is localized and does not impact assets outside that particular sector Examples include events like a failed drug trial, significant oil discoveries, or an airline crash, which primarily affect the companies involved without influencing unrelated industries Investors can mitigate nonsystematic risk by diversifying their portfolios, incorporating assets that are not closely correlated, thereby reducing the overall impact of adverse events on their investments.
Figure 2.1: Risks and number of portfolio assets
Investors have the theoretical ability to purchase all available securities to eliminate unsystematic risk However, research indicates that as the number of stocks in a portfolio increases, the overall risk approaches the level of market risk, as illustrated in the accompanying diagram.
2.1.4.1 Markowitz model and efficient frontier:
The Markowitz model serves as the foundation of Modern Portfolio Theory, shifting the focus from traditional investment methods that analyze individual securities through fundamental and technical analysis Instead, Markowitz introduced a strategy for constructing diversified portfolios that optimize the balance between risk and return across various asset types.
Markowitz model uses the efficient frontier, which is shown through the diagram below:
To optimize portfolio returns while minimizing risk, we can adjust the weights of individual assets, resulting in a collection of portfolios that form the minimum-variance frontier In a risk versus return graph, the portfolio with the lowest risk is identified as the global minimum-variance portfolio, positioned furthest to the left.
The efficient frontier represents portfolios that offer the highest expected return for each level of risk, aligning with the upper section of the minimum-variance frontier Risk-averse investors prefer portfolios on the efficient frontier, as those not on it provide lower expected returns for the same risk level Among these, the global minimum-variance portfolio stands out as the option with the least risk.
The optimal portfolio concept, rooted in modern portfolio theory, posits that investors diligently seek to minimize risk while maximizing potential returns This theory assumes that investors behave rationally, consistently making decisions that aim to achieve the highest returns for their chosen level of risk.
Portfolio management service for investors at security company
This thesis focuses on portfolio management strategies tailored for individual investors, who have diverse motivations for investing and portfolio construction Short-term objectives may involve funding children's education, saving for significant purchases, or launching a business, while a primary long-term goal is to secure income for retirement, which is a critical aspect of most individuals' investment planning.
Many investors lack the necessary knowledge to make informed investment decisions To address this, securities companies provide portfolio management services, assisting clients in constructing and managing their investment portfolios to safeguard their interests.
2.2.2 Portfolio management activity in security company:
In today's financial landscape, portfolio management has evolved into a highly specialized service that extends beyond internal operations within financial institutions It encompasses investment advisory services where clients entrust portfolio managers with the authority to make investment decisions aligned with their specific objectives, preferences, and constraints This financial service is recognized by various names, including Asset Management, Private Wealth Management, Investment Management, and Investment Trust.
There are three major steps in the portfolio management process: a Step 1: Planning step:
Preparation of an investment policy statement (IPS)
The planning phase starts with a thorough assessment of an investor's risk tolerance, return goals, time horizon, tax situation, liquidity requirements, income needs, and any specific preferences This evaluation culminates in an Investment Policy Statement (IPS), which outlines the investor's objectives and constraints Additionally, the IPS should define a benchmark, such as an index return, to measure the effectiveness of the portfolio management strategy.
The IPS should be updated at least every years and any time the investors’ objectives or constraints change significantly b Step 2: Execution step:
The execution step focuses on analyzing the risk and return profiles of different asset classes to select appropriate securities Typically, a portfolio manager employs a top-down analysis, assessing current economic conditions and macroeconomic forecasts—such as GDP growth, inflation, and interest rates—to identify the most appealing securities for portfolio construction.
The feedback step is crucial for portfolio management, as it involves monitoring changes in investor circumstances, asset class risk and return characteristics, and the actual weights of securities due to price fluctuations Portfolio managers must periodically rebalance the portfolio to maintain the desired allocation percentages across various asset classes Additionally, they need to assess portfolio performance and compare it against the benchmark portfolio specified in the Investment Policy Statement (IPS).
Investors who trust in the efficiency of market prices typically adopt a passive investment strategy, which involves investing in an index of risky assets that represents the market portfolio They also allocate a portion of their investable assets to risk-free assets, like short-term government securities.
Many investors and portfolio managers often perceive their security value estimates as more accurate than current market prices As a result, they tend to deviate from market portfolio weights, investing more in perceived undervalued securities and less in those deemed overvalued This approach is known as active portfolio management strategy, which encompasses various tactics such as value investing (targeting stocks with low price-to-earnings and price-to-book ratios), growth investing (focusing on stocks with high growth potential), and market investing (buying shares of small or well-known companies based on popular trends).
Methods of evaluating the efficiency of portfolio management for clients
2.3.1 Measure of portfolio management efficiency at security company:
Return on investment (ROI) measures the efficiency of an investment by comparing the benefits gained relative to the resources invested It serves as a performance metric to evaluate and compare various investments, indicating that a higher ROI signifies a more efficient investment In economic terms, ROI reflects the relationship between profits and capital invested.
Money-weighted rate of return (IRR)
In investment management, the internal rate of return (IRR) is referred to as the money-weighted rate of return, as it considers both the timing and magnitude of all cash flows in and out of the portfolio The IRR represents the rate, r, at which the present value of cash inflows matches the present value of cash outflows.
The money-weighted rate of return, commonly used to assess investment managers, has a significant limitation: it is heavily influenced by client decisions regarding the timing and amount of funds allocated These client-driven choices can substantially impact the calculated return, potentially distorting the true performance of the investment manager.
Time-weighted rate of return
The time-weighted rate of return is a key investment metric that remains unaffected by additional contributions or withdrawals of funds Widely recognized in the investment management sector, this performance measure calculates the compound growth rate of an initial $1 investment in a portfolio over a specified time frame.
2.3.2 Risk-adjusted measures of return from portfolio management at security company
Sharpe Ratio (Reward-to-variability ratio)
The Sharpe ratio measures a portfolio's excess returns relative to its total risk, with higher values indicating superior risk-adjusted performance By incorporating both systematic and unsystematic risks, the Sharpe ratio provides a comprehensive assessment of a portfolio manager's effectiveness However, it is important to note that the Sharpe ratio is most valuable when compared to that of other portfolios.
E(R p ): the expected return of the portfolio
∂p: the standard deviation of the portfolio
Jensen’s alpha and Treynor measure
Two other measures of risk-adjusted returns based on systematic risk (beta) rather than total risk are the Treynor measure and Jensen's alpha They are similar to the
The Treynor measure, akin to the Sharpe ratio, focuses on slope, while Jensen's alpha quantifies the percentage returns that exceed those of a portfolio with an equivalent beta positioned on the security market line.
R p : return of the observed portfolio
β p : standardized measure of the covariance of the security's return with the market return
PORTFOLIO MANAGEMENT FOR INDIVIDUAL INVESTORS
Introduction to portfolio management activity at Viet Dragon Securities
3.1.1 Overview of the establishment and development of Viet Dragon
Viet Dragon Securities Company (VDSC), established in December 2006 by prominent financial and trading institutions such as Eximbank, Saigon Trading Group, and Sai Gon Asia Financial Investment Group, began with a chartered capital of VND 100 billion By August 2010, VDSC increased its chartered capital to VND 349.8 billion, solidifying its position as a financially robust player in the local market.
Our professional and dedicated team, combined with advanced technology and a diverse range of products and services, enables us to deliver exceptional solutions to individuals, institutions, and funds both domestically and internationally We pride ourselves on our extensive network and strong relationships with local and foreign organizations, ensuring we meet the varied needs of our clients.
Viet Dragon Securities has established a reputable brand in Vietnam's securities market after three years of operation, earning the title of "Vietnam Leading Stock Brand" for three consecutive years (2008, 2009, 2010) Additionally, the company officially listed its shares on the Hanoi Stock Exchange (HNX) under the stock code VDS on May 25, 2010.
Figure 3.1: Organizational chart of Viet Dragon Securities Company
(Source: http://www.vdsc.com.vn/)
The organization model of Viet Dragon Securities Company includes 2 main blocks: business block and office block
The business block encompasses several key sectors, including Financial Advisory, which offers financial and investment advisory services as well as underwriting Additionally, it includes a Business sector focused on brokerage and transaction management services, along with a Securities Trading sector and an Analysis sector dedicated to market insights.
- The office block includes Business Development sector carrying out the research about product development, marketing and PR; Business Plan sector with
HR management, office management and Accounting; Customer Service sector and
3.1.3 Portfolio Management Activity in Viet Dragon Securities Company: 3.1.3.1 Overview of portfolio management for individual customers in Viet
Portfolio management for individual clients is a key service offered by brokers at VDSC With a dedicated team of 94 brokers, the firm operates from its headquarters in Ho Chi Minh City and has branches in Hanoi, Nha Trang, and Can Tho, contributing to its robust workforce of 300 employees.
Number of brokers Places Individual Customer Block Corporate Customer Block
Table 3.1: the number of brokers working at VDSC
(Source: www.vdsc.com.vn)
Between 2009 and 2012, VDSC experienced a remarkable surge in account openings, rising from 6,649 to 51,592 Notably, individual investors constituted 95% of these accounts, primarily utilizing brokerage services However, only about 21% of these brokerage accounts engaged in portfolio management services.
Figure 3.2: Number of accounts in VDSC from 2009 to 2012
(Source: Statistical Reports of Brokerage Department in VDSC)
In addition, the management fee for individual investors delegating the portfolio investment management to brokers is still calculated in the same way with brokerage fee
No Total value of the transaction Fee
1 Below 100 million VND 0-30% per transaction
2 From 100 million VND to 500 million VND 0-25% per transaction
3 From 500 million VND to 1 billion VND 0-20% per transaction
4 Over 1 billion VND 0-15% per transaction
Table 3.2: Management fee structure for individual investors in VDSC
(Source: www.vdsc.com.vn)
Total accounts opened in VDSCIndividual accounts using brokerage serviceIndividual accounts using portfolio management service
To efficiently manage client investment portfolios, VDSC's brokerage sector has implemented various initiatives to support individual investors These include offering diverse and competitive transaction assistance services through partnerships with financial institutions, which enhance capital utilization efficiency Additionally, VDSC provides exceptional transaction utilities leveraging advanced information technology, featuring prominent functions and an extensive network.
No Utilities Contents Via channel
1 Newsletter before the transaction hour
Summary of hot news about global and Vietnam economy, security market and investing judgments
- Email for sub- scribed clients
2 Report Report about meetings with enterprises, professionals and shareholders’ meeting
- Email for sub- scribed clients
Summary of information about security market daily
4 Warning Information Information and events affecting the securities and market
- Email for sub- scribed clients
5 Security Information Fundamental Statistics - Website
Table 3.3: Five main utilities for clients of VDSC
(Source: Brokerage Department of VDSC)
The process of carrying out portfolio management in VDSC is illustrated in the diagram below:
Figure 3.3: The portfolio management process in Viet Dragon Securities Company
(Source: Brokerage Department of VDSC) a Step 1: Determining the client’s objectives and constraints:
Brokers play a crucial role in assessing clients' expected returns, risk tolerance, investment habits, and constraints by analyzing the information clients provide Meetings with clients at VDSC reveal distinct characteristics among different client groups regarding their investment preferences.
From 30 to 50 year old Above 50 year old
Diversified Few securities within the knowledge
Risk aversion Low Medium High
Fresh areas Stable Stable and long- term
• Expected return and risk tolerance
1.Determining the client's objectives and constraints
4 Evaluating the efficiency of the portfolio investment
Short-term Short-and-medium term
Table 3.4: The different characteristics between aged groups in investment
(Source: Brokerage Department of VDSC) b Step 2: Constructing the investment portfolio:
Brokers use the information obtained from step 1 to construct the portfolio including suitable securities through fundamental and technical analysis c Step 3: Executing the transaction and portfolio management:
After creating an investment portfolio, brokers execute buy or sell orders for securities while closely monitoring accounts based on a predetermined strategy Throughout the investment period, market volatility and price fluctuations may necessitate portfolio restructuring, prompting brokers to sell securities to secure profits and minimize losses, while also acquiring securities with high potential for profitability Finally, evaluating the effectiveness of portfolio management is crucial for optimizing investment outcomes.
Investment portfolios are regularly assessed by brokers to evaluate management efficiency, focusing on rates of return and actual gains or losses Additionally, portfolio performance is compared against benchmarks such as interest rates on deposits, bond yields, and the overall growth of the securities market.
The efficiency of portfolio management for individual customers at Viet
As of November 23, 2012, statistics from the brokerage sector reveal that 46.3% of individual clients' portfolio management accounts at VDSC are experiencing recognized and estimated losses This highlights a concerning lack of attention to risk management in clients' investment portfolios, with the company failing to implement specific solutions to address these risks effectively.
Figure 3.4: Results of portfolio management accounts in VDSC in 2012
(Source: Annual report of Brokerage Department in VDSC in 2012)
In term of quantitative aspect, the efficiency of portfolio management can be measured through Sharpe, Jensen and Treynor ratio
Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Portfolio 5 r p 29.68% -2.92% 17.88% -3.00% 29.45% r f 11% 11% 11% 11% 11% p 0.19 n/a (*) 0.0735 0.2208 0.0435
Evaluation More efficient than market
Table 3.5: Efficiency of five typical investment portfolios in Viet Dragon
Securities Company in 2012 (Source: Annual Report of Brokerage Department in 2012)
Total accounts using portfolio management service: 9874
1076 accounts recognizing profit 1096 accounts recognizing loss
4202 accounts estimated to have profit
3500 accounts estimated to suffer loss
The results from VDSC's management of five typical clients' investment portfolios reveal that three portfolios outperformed the market, achieving returns of 19.82%, 10.86%, and 13.14% However, two portfolios experienced unsuccessful management, resulting in losses of -0.96% and -7.25%.
Major issues about portfolio management activity at Viet Dragon
3.1.1 Major issues about portfolio management activity at Viet Dragon
In today's financial landscape, many clients prefer to manage their portfolios independently rather than relying on brokers from securities companies They typically make their own investment decisions and utilize brokerage services primarily for transaction assistance and analytical reports As a result, the customer base for traditional portfolio management services remains underdeveloped.
Brokers face challenges in assessing clients' expected returns and risk tolerance, as many individual investors lack sufficient investment knowledge This ambiguity around risk aversion is compounded by the absence of a specific quantitative method for its estimation.
Broker analyses can be both subjective and objective, leading to inconsistencies in their accuracy and efficiency Consequently, they cannot guarantee successful portfolio management or meet client return expectations Additionally, the lack of a function model or matrix for calculating expected returns and risk levels increases the risk of erroneous technical analysis, potentially resulting in poor investment decisions for investors.
Vietnam's security market, characterized by weak form inefficiency, currently lacks the necessary conditions for effective portfolio construction and management Amidst a recession, the market is experiencing significant losses and negative signals Consequently, brokers may be compelled to select securities that, while potentially offering better returns, may not align with their clients' specific objectives and constraints.
3.1.2.1 The security market in Vietnam:
Vietnam market security has established for 12 years, therefore, still remained in the unstable and poor-organized, which lead to a lot of difficulties for long-term investments
Public corporations often issue securities spontaneously, with many enterprises seeking to mobilize capital for investments in the securities market rather than focusing on enhancing their manufacturing and business operations This trend has significantly contributed to market bubbles and increased default risks during market downturns.
The Vietnamese securities market currently lacks diversification and fails to meet investors' demands for quality, transparency, and effective risk management Additionally, the market's efficiency is hindered by the limited availability of crucial elements such as short-selling and derivative products.
3.1.2.2 Legal framework and policies in Vietnam:
Vietnam's security laws have a limited scope and do not encompass all activities in the security market as per international standards There are overlaps and inconsistencies among various regulatory documents, leading to confusion Additionally, there is a delay in enacting legal regulations, and some provisions within the security laws lack clear implementation guidelines.
3.1.2.3 Clients of portfolio management service in Vietnam
Many clients prefer to manage their investments independently, often overlooking the crucial role that delegated brokers play in portfolio management Additionally, some clients have unrealistic expectations regarding their investment returns, which can pose challenges for portfolio managers.
3.1.2.4 Weaknesses of portfolio management process in Viet Dragon
The portfolio management process at Viet Dragon Securities Company, like many others, lacks standardization Additionally, the transaction system often experiences errors and inefficiencies, hindering the frequency of transactions.
The qualifications of brokers in Securities Companies lack standardization, leading to challenges in applying technical analysis for investment decisions At Viet Dragon Securities Company, management focuses on fundamental and technical analysis for security selection and allocation; however, they do not utilize theoretical models such as function generation or the Markowitz frontier, which compromises the ability to ensure an optimal investment portfolio.
SOLUTIONS AND RECOMMENDATIONS TO ENHANCE THE
Solutions to enhance the quality of portfolio management for individual
In order to achieve its goal of becoming one of the top ten securities companies in Vietnam by 2016, VDSC must establish a sustainable development strategy that leverages its strengths and boosts its competitive capabilities in the portfolio management sector.
Brokers and portfolio managers must improve customer service quality to foster long-term trust and enhance investment efficiency VDSC should explore innovative strategies to attract new clients and generate additional contracts Currently, VDSC relies on basic customer outreach methods, such as direct calls and referrals from existing clients Moving forward, VDSC can establish new communication channels, such as online platforms and newsletters, which can be both effective and cost-efficient.
The company can enhance its visibility through various advertising strategies, including weekly workshops to showcase services, investor meetings, and public press commercials It is essential for the company to tailor its advertising campaign to align with the preferences and interests of its target customer group.
To enhance portfolio management within Viet Dragon Securities Company, it is crucial to prioritize immediate training for employees Brokers must meet high professional standards, typically possessing advanced degrees and recognized certifications The company should actively encourage brokers to pursue both internal and external training courses, as well as strive to obtain relevant career certifications, to elevate their skills and performance in portfolio management.
VDCS should consider some factors of candidates before assigning them to the portfolio management such as:
Have a deep passion with the career
Be dedicated and assiduous with the job
Have a good qualification and adequate competency
Be sensible of market changes to make a due analysis and reasonable judgments
Viet Dragon Securities Company should develop a compelling compensation and promotion strategy to foster employee loyalty Additionally, prioritizing a positive working environment and a strong corporate culture is essential to inspire employees and encourage long-term commitment to the company.
In the security industry, effective information technology is essential for efficient business management and timely transaction execution to meet client demands To establish a robust IT system, companies must select an experienced technology partner that offers cost-effective services Recently, VDSC conducted research on software applications tailored for securities companies, focusing on both back-office and front-office systems.
4.1.4 Solutions to complete the portfolio management process
The portfolio management process is crucial for effective implementation, as strict and consistent adherence by portfolio managers ensures that management is conducted legally, logically, and transparently This approach ultimately enables managers to achieve maximum efficiency in their portfolio management activities.
The suggested process included six primary steps:
Step 1: Consulting the investors and collecting client’s information to file the client’s documents
Investors in Vietnam's securities market must be well-informed about essential market information, investment tools, and emerging trends This knowledge is crucial for empowering portfolio managers to make informed investment decisions on behalf of their clients.
Step 2: Construct the basic targets for the portfolio management
According to the signed contract, brokers are responsible for establishing the asset allocation policy, investment constraints, and investment strategy to optimize customer benefits, and these stipulations must be adhered to rigorously as outlined in the agreement.
Step 3: Signing the portfolio management delegation contract and depositing money to the bank
Upon signing the contract, the securities firm will establish an account for the customer as outlined in the agreement Customers are required to deposit funds into the bank to prepare for investment disbursement.
Step 4: Constructing the investment portfolio
Step 5: Carrying out the portfolio management
These steps may be similar to the step portfolio construction existing portfio management process in Securities Company
Step 6: Terminating the portfolio management contract
Two to three months before the contract's terminal date, both parties will evaluate the option to extend the contract Customers have the freedom to either continue or terminate the agreement If they choose to terminate, all securities will be liquidated, and the proceeds will be returned to the customers.
4.1.5 Solutions to better the method of estimating the risk aversion of individual investors:
Estimating clients' risk aversion is a complex task that necessitates a deep understanding of their characteristics and significant experience for accurate assessment Various factors, including psychological and physical aspects, contribute to the abstract nature of this evaluation, making it challenging to determine To address this issue, Viet Dragon Securities Company should implement psychological testing by creating client information polls and questionnaires to effectively measure clients' risk aversion.
Based on the collected and processed information, the level of client’s risk tolerance can be divided into three categories: (1) Risk averse , (2) Risk-neutral and
(3) Risk-seeking or risk-loving
Viet Dragon Securities leverages three key categories to create a diverse array of portfolio management products tailored to meet clients' objectives, constraints, and risk tolerance These standardized products aim for maximum efficiency Additionally, VDSC can draw inspiration from the foundational portfolio management products offered by BESTFIT Investment at Vietcombank Securities Company in 2009.
1 Long-term growth of capital
2 Medium-term growth of capital
5 to 7 years High 130% of Vnindex
3 Short-term growth of capital
2 to 4 years High 120% of Vnindex
4 Medium-term growth of capital
6 Balance 5 to 7 years Medium 40% of Vnindex +
7 Balance 2 to 4 years Below medium
8 Frequent income 5 to 7 years Low GBY-5 + 2%
10 Index follow 5 to 7 years Above medium
11 Index follow 2 to 4 years High Vnindex + 6%
Table 4.1: Basic portfolio management products in Vietcombank Securities in 2009 (Source: Annual reports of Vietcombank Securities in 2009)
4.1.6 Solutions to manage risk of individual investor’s portfolio:
Viet Dragon Securities Company must prioritize the management and control of client portfolio risks The initial step in effective risk management involves selecting appropriate methods and strategies tailored to mitigate potential risks.
In practice, there are some strategies which can be efficiently employed such as:
Risk avoidance is the most effective strategy in risk management, emphasizing the importance of thoroughly exploring options to eliminate potential hazards This approach often involves refraining from undertaking certain tasks or projects altogether Alternatively, it may require redesigning processes to eliminate risky steps Overall, avoidance strategies prioritize not engaging in activities that pose risks, ensuring a safer operational environment.
Recommendations
The government must enhance the securities market and portfolio management environment by implementing favorable regulations and promotions that attract foreign investors.
To maintain a healthy and stable securities market, the government must ensure regulatory stability Additionally, regulatory authorities should enhance the existing legal frameworks and regimes to improve market performance.
Firstly , the investor should not over-expect in the profitability of the portfolio management, which can cause some difficulties for the managers in construct and manage the portfolio
It is crucial for investors to acquire fundamental knowledge about securities to gain the necessary expertise for effective portfolio management delegation.
Lastly , investors should record the investment documents and update frequently the situation of macro-economic, securities market, etc., thereby facilitating the discussion between investors and portfolio managers
This final chapter of the graduation thesis presents solutions and recommendations aimed at improving the quality and efficiency of portfolio management at Viet Dragon Securities Company and across the broader landscape of securities firms in Vietnam By addressing critical issues identified in the theoretical framework and practical application of portfolio management, the thesis offers valuable insights for both the government and individual investors.
The growth of the security market in Vietnam has created numerous investment opportunities for individual investors, but recent challenges have highlighted the need for support from financial analysts Professional financial services, such as portfolio management, are essential for navigating this complex environment This thesis explores four key issues to develop effective portfolio management strategies at Viet Dragon Securities Company, aiming to provide actionable solutions and recommendations for individual investors.
The first chapter discusses the selection of the topic, particularly in light of the ongoing recession in Vietnam It outlines the study's objectives, research questions, methodology, and the overall structure of the thesis.
Chapter two provides a comprehensive literature review on portfolio management, defining key concepts such as investment returns and associated risks It highlights the efficient frontier and the Markowitz model for constructing optimal portfolios by integrating the investor's indifference curve with the capital allocation line Additionally, the chapter outlines the management process in three main steps and discusses both general and risk-adjusted measures of portfolio management efficiency within a securities company By the end of this chapter, readers gain a clear understanding of portfolio management practices in the context of a securities firm.
In the third chapter , the author gives the readers an insight into the Viet Dragon
Viet Dragon Securities Company demonstrates effective portfolio management practices by leveraging insights from the literature review in the second chapter With a strong foundation supported by a substantial team of brokers and a growing number of client accounts, the company excels in key areas of portfolio management This includes identifying client targets, optimizing asset allocation, and regularly constructing and monitoring portfolios to ensure alignment with clients' financial goals.
An analysis of five typical portfolios at Viet Dragon Securities Company reveals several challenges hindering portfolio management efficiency Key issues include an under-developed customer base, ineffective risk tolerance assessment methods for individual investors, potential biases from portfolio managers' subjective judgments, and difficulties in applying theoretical frameworks from developed countries within the context of Vietnam's securities market Additional contributing factors are also acknowledged for further consideration.
In the final chapter, the author proposes strategies to improve portfolio management at Viet Dragon Securities Company, focusing on expanding the customer network, enhancing human resources, and refining the portfolio management process Key recommendations include methods for assessing investors' risk tolerance and implementing risk management strategies such as avoidance, transference, acceptance, and mitigation, particularly through the use of derivative products Additionally, the chapter discusses suggestions for both the government and individual investors to support these initiatives.
Despite extensive research and valuable guidance from my lecturer, this thesis encounters some unresolved challenges Nevertheless, I aspire for my findings to offer significant insights into improving portfolio management efficiency for individual investors at Viet Dragon Securities Company and, ideally, within the broader Vietnamese securities market.