PT - JOURNAL ARTICLE AU - Ulf Herold TI - Portfolio Construction with Qualitative Forecasts AID - 10.3905/jpm.2003.319920 DP - 2003 Oct 31 TA - The Journal of Portfolio Management PG - 61--72 VI - 30 IP - 1 4099 - https://pm-research.com/content/30/1/61.short 4100 - https://pm-research.com/content/30/1/61.full AB - 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.