Modern Portfolio Theory Guaranteed a portfolio that was prudent and risk-averse, List & Investments ‘Line-by-Line’ – but they also resulted in a portfolio that might not keep pace with inflation and so real value was eroded per [1994] 1 All ER 118. Nestle v National Westminster Bank Modern Portfolio Theory – The aim of modern portfolio theory is to maximise growth minimising risk Aim – through a diversification of investments. Investments should be spread between – - Land, shares, bonds and cash; and A range of investments higher and lower risks must be balanced. A range of risk profiles – Trustee Act 1958 (Vic) – Duty not to invest in speculative investments. S7(2) – Viewed in its entirety to encourage modern portfolio theory, s 8(1) – however s7(2)(b) seems to reviewing individual investments annually - – favour line by line. Implies that as long as trustee keeps portfolio balanced – can used either. Regular review and formulation of investment strategy encourage s 12C – modern portfolio theory The extended set-off jurisdiction also supports portfolio theory. s 12D – Review of Investments There is a positive duty to make regular reviews of Trustee Act 1958 (Vic) s 6(3) – investments as imposed by Statute. This can be altered by the trust declaration. trustee must, at least once in each year, review the performance of trust ‘a investments’ Requires a trustee, when investing, to take into account the results of a review of S8(1)(m) – existing trust investments. Matters to which a trustee must have regard when investing
Modern Portfolio Theory List & ‘Line-by-Line’ Investments – Guaranteed a portfolio that was prudent and risk-averse, but they also resulted in a portfolio that might not keep pace with inflation and so real value was eroded per Nestle v National Westminster Bank [1994] 1 All ER 118. Modern Portfolio Theory – Aim – The aim of modern portfolio theory is to maximise growth minimising risk through a diversification of investments. Investments should be spread between – A range of investments - Land, shares, bonds and cash; and A range of risk profiles – higher and lower risks must be balanced. Trustee Act 1958 (Vic) – S7(2) – Duty not to invest in speculative investments. s 8(1) – Viewed in its entirety to encourage modern portfolio theory, however s7(2)(b) – reviewing individual investments annually - seems to favour line by line. Implies that as long as trustee keeps portfolio balanced – can used either. s 12C – Regular review and formulation of investment strategy encourage modern portfolio theory s 12D – The extended set-off jurisdiction also supports portfolio theory. Review of Investments Trustee Act 1958 (Vic) s 6(3) – There is a positive duty to make regular reviews of investments as imposed by Statute. This can be altered by the trust declaration. ‘a trustee must, at least once in each year, review the performance of trust investments’ S8(1)(m) – Requires a trustee, when investing, to take into account the results of a review of existing trust investments. Matters to which a trustee must have regard when investing
Trusts_Summary.docx