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Optimized Portfolio As Listed Securities (OPALS)

Reviewed by Bhavana | Updated on Sep 30, 2020

Catalogue

Meaning of Optimized Portfolio As Listed Securities (OPALS)

It is a single-country stock index with fewer holdings than the benchmarked index. Morgan Stanley built an integrated portfolio as listed securities in 1994. This is seen as a precursor to the rise of exchange-traded funds.

## What is Portfolio Optimization?

Portfolio optimization is the method of choosing the best portfolio (asset allocation) from a selection of all possible portfolios to be considered in order to achieve the objective. Typically, this process seeks to maximize the factors, such as expected return, while minimizing the factors, such as expenditure, volatility, and risk. The ideal portfolio varies and is informed by the return expectations and risk tolerance of each individual investor.

Portfolio optimization mostly takes place in two stages: optimizing the weights of asset classes and optimizing the weights of securities in the same asset class. Optimizing asset class weights would require decisions, such as determining the percentage of portfolios put in equities vs bonds or real estate.

Whereas, an example of security selection would include deciding precisely which securities or bonds are to be held. Holding some of the portfolios in each class provides for some diversification, and having various common assets within each class allows for more diversification.

## Importance of OPALS

Optimized Portfolios As Listed Securities are structured to follow a single-country index, but are expected to outperform the index by having fewer holdings; in other words, by being optimized. Portfolios can be sold before expiry or resolved by the physical transfer of the underlying securities.

The commodity is intended for cross-border equity investors who cannot make effective use of futures or who cannot use futures for regulatory purposes and who cannot justify operating their own country-by-country equity operations.

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