TY - JOUR T1 - Portfolio Construction with Qualitative Forecasts JF - The Journal of Portfolio Management SP - 61 LP - 72 DO - 10.3905/jpm.2003.319920 VL - 30 IS - 1 AU - Ulf Herold Y1 - 2003/10/31 UR - https://pm-research.com/content/30/1/61.abstract N2 - The vast majority of active portfolio managers use a fundamental investment approach. They do not generate quantitative forecasts but instead express their market views in a qualitative manner. The portfolio construction approach in practice is usually purely ad hoc: overweighting assets with a bullish outlook by some prespecified amount, and underweighting assets for which the view is bearish. A structured approach for portfolio construction leads to a more consistent implementation of market views and to more balanced portfolios in terms of risk profile. This approach incorporates several diagnostic tools and a Bayesian model. It also allows a portfolio manager to compute the shrinkage in the information ratio when implementing a suboptimal portfolio. This mitigates the need for transactions and hence reduces transaction costs. ER -