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Stock Portfolio Risk Management
 
❓What is stock portfolio risk and what, in your opinion, is the most important factor in risk management?
Risk management is as important as profit-seeking for the portfolio. To illustrate, consider this example: if a portfolio decreases by 50% in a year, it will need a large increase of 100% the following year to bring the portfolio back to its starting point. A 30% decrease requires a 43% increase, while a lower decrease of 15% only needs a 17.7% increase.
Risk is the possibility of loss or unwanted fluctuation in the investment value. These risks may include market risk, sector risk, stock price volatility, and other factors that may affect portfolio value. Risk management is an important process to ensure that the portfolio achieves its profit goals in volatile market conditions.
A primary risk for the portfolio is fluctuations or deteriorations related to a company/industry’s fundamental factors. To manage this risk, we adhere to a strict investment process, including analyzing potential investment-related situations.

❓What is the risk management approach you take to manage VLGF?
We focus on risk management rather than risk elimination because risk elimination means allocating capital to risk-free assets with no profit potential. Risk management is a dynamic process that requires flexibility to adapt to market fluctuations, ensuring that the level of risk is appropriate for the fund's investment objectives.
In fact, we view market price fluctuations not only as risks but as opportunities. This perspective helps us build investment positions in leading companies during market correction phases, taking advantage of when market prices deviate significantly from fundamental valuations. This method reduces the portfolio's risk level and utilizes market inefficiencies to increase the fund's investment performance.
We apply various measures to manage portfolio risk. Each individual stock must be thoroughly researched and evaluated from multiple aspects, debated, and approved by the fund's Investment Committee before being added to the portfolio. The investment portfolio must also achieve a certain level of diversification by investing in multiple stocks across different sectors, along with flexible cash allocation to minimize overall portfolio risk. The scale of each investment position in the portfolio is managed tightly to minimize the impact of any single investment on the fund's performance, especially liquidity risk given VLGF's significant scale.
 
Post-investment, we monitor the fundamental factors of companies and stock price fluctuations to evaluate and take appropriate actions. For example, when a stock reaches a certain weight, or decreases to a
certain level below its peak price (within a certain period), the fund's Management Board must discuss with the Investment Committee to decide on appropriate actions to manage risk
Admin

Admin

Published:

28/03/2024

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