Dedicated Portfolio

AAA

DEFINITION of 'Dedicated Portfolio'

A passive form of portfolio management that involves the matching of future cash inflows with future liabilities. The process of dedicating a portfolio may be used as an alternative to multiperiod immunization, which reduces the level of interest rate risk to which a portfolio is exposed.

INVESTOPEDIA EXPLAINS 'Dedicated Portfolio'

Because the portfolio is usually made up of investment-grade instruments, there is generally no need to rebalance it. Additionally, the payments are virtually guaranteed, as there is a low level of default risk associated with investment-grade instruments.

An example of a dedicated portfolio strategy could involve a pension fund that will begin making payment distributions to plan members in five years' time. To immunize this cash outflow, which is a liability to the pension fund, the fund could purchase five-year government bonds.

RELATED TERMS
  1. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  2. Asset Management

    1. The management of a client's investments by a financial services ...
  3. Liability

    A company's legal debts or obligations that arise during the ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Immunization

    A strategy that matches the durations of assets and liabilities ...
  6. Active Management

    The use of a human element, such as a single manager, co-managers ...
RELATED FAQS
  1. Where can I find year-to-date (YTD) returns for benchmarks?

    Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... Read Full Answer >>
  2. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
  3. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  4. Are so-called self-offering and self-management covered by "Financial Instruments ...

    As the Financial Services Agency (FSA) explains, self-offering of interests in collective investment schemes falls under ... Read Full Answer >>
  5. What type of asset allocation should I use if I am already retired?

    Among investors, asset allocation is a topic of discussion that receives a great deal of weight during the asset accumulation ... Read Full Answer >>
  6. How is portfolio variance reduced in Modern Portfolio Theory?

    According to modern portfolio theory, or MPT, portfolio variance can be reduced by diversifying a portfolio through the inclusion ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  2. Mutual Funds & ETFs

    4 Steps To Building A Profitable Portfolio

    This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation.
  3. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  4. Retirement

    Why It Pays To Be A Lazy Investor

    Be a couch potato! This passive, but diversified, investing strategy could be for you.
  5. Options & Futures

    Having A Plan: The Basis Of Success

    It ensures that you have a realistic outlook, and a solid strategy. We show you why and how.
  6. Professionals

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  7. Stock Analysis

    Playing Rising Rates with Ultra-Short Term Bonds

    With rising rates likely, investors may want to consider adding a dose of ultra-short bonds to their portfolios. Here are some ETFs to consider.
  8. Investing

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  9. Mutual Funds & ETFs

    Looking To Invest In Texas? Here Is How

    Ranging from energy to household names, here are some of the top investment opportunities in Texas.
  10. Professionals

    Why Investors Are Bailing on Bond ETFs

    Investors are fleeing bond ETFs. Should you follow the herd? Hint: It depends on the type of bond.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!