Question 1

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Accepted Answer

A) True 
 B)False  True

Question 2

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Accepted Answer

A) True 
 B)False  True

Question 3

An attempt on the manager's part to generate alpha is generally referred to as indexing.

Accepted Answer

A) True 
 B)False  True

Question 4

Strategic asset allocation frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions.

Accepted Answer

A) True 
 B)False

Question 5

Exchange-Traded Funds (ETF) are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

Accepted Answer

A) True 
 B)False

Question 6

If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500) of 1.5, then if the market rises by 10 percent, what value would you expect your portfolio to have?

Accepted Answer

A)  $100 million 
B)  $110 million 
C)  $150 million 
D)  $165 million 
E)  $1.65 billion 
A)  $100 million 
B)  $110 million 
C)  $150 million 
D)  $165 million 
E)  $1.65 billion

Question 7

A way to distinguish between these strategies is to decompose the total actual return that the portfolio manager attempts to produce.

Accepted Answer

A) True 
 B)False

Question 8

The strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Accepted Answer

A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation. 
A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation.

Question 9

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

Accepted Answer

A) True 
 B)False

Question 10

In returns-based style analysis, a coefficient of determination of 95 percent would suggest that

Accepted Answer

A)  the portfolio manager outperformed 95 percent of his peers. 
B)  the portfolio manager was outperformed by 95 percent of his peers. 
C)  95 percent of the portfolio return variability could be attributed to portfolio style. 
D)  95 percent of the portfolio return variability could be attributed to stock selection skills. 
E)  5 percent of the portfolio return variability could be attributed to portfolio style. 
A)  the portfolio manager outperformed 95 percent of his peers. 
B)  the portfolio manager was outperformed by 95 percent of his peers. 
C)  95 percent of the portfolio return variability could be attributed to portfolio style. 
D)  95 percent of the portfolio return variability could be attributed to stock selection skills. 
E)  5 percent of the portfolio return variability could be attributed to portfolio style.

Question 11

The goal of the passive portfolio manager is to minimize

Accepted Answer

A)  alpha. 
B)  beta. 
C)  standard error. 
D)  tracking error. 
E)  portfolio risk. 
A)  alpha. 
B)  beta. 
C)  standard error. 
D)  tracking error. 
E)  portfolio risk.

Question 12

Growth oriented investors focus on the price component of the Price/Earnings ratio.

Accepted Answer

A) True 
 B)False

Question 13

All of the following are advantages of ETFs over mutual funds EXCEPT

Accepted Answer

A)  The ability for continuous trading while markets are open. 
B)  the ability to time capital gain tax realizations. 
C)  a smaller management fee. 
D)  ETFs can be bought and sold like common stock. 
E)  smaller brokerage commission. 
A)  The ability for continuous trading while markets are open. 
B)  the ability to time capital gain tax realizations. 
C)  a smaller management fee. 
D)  ETFs can be bought and sold like common stock. 
E)  smaller brokerage commission.

Question 14

Which of the following statements regarding 130/30 strategies is FALSE?

Accepted Answer

A)  Analysts can make full use of their knowledge of undervalued and overvalued stocks. 
B)  Long positions up to 130 percent of the value of the portfolio can be made. 
C)  Short positions up to 30 percent of the value of the portfolio can be made. 
D)  130/30 strategies are not very popular due to the increased risk of hedging. 
E)  The use of short positions creates leverage. 
A)  Analysts can make full use of their knowledge of undervalued and overvalued stocks. 
B)  Long positions up to 130 percent of the value of the portfolio can be made. 
C)  Short positions up to 30 percent of the value of the portfolio can be made. 
D)  130/30 strategies are not very popular due to the increased risk of hedging. 
E)  The use of short positions creates leverage.

Question 15

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

Accepted Answer

A)  timing the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. 
B)  shifting funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does. 
C)  individual stock picking in order to buy low and sell high. 
D)  using tactical asset allocation strategies. 
E)  All of these are correct. 
A)  timing the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. 
B)  shifting funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does. 
C)  individual stock picking in order to buy low and sell high. 
D)  using tactical asset allocation strategies. 
E)  All of these are correct.

Question 16

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Accepted Answer

A) True 
 B)False

Question 17

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

Accepted Answer

A) True 
 B)False

Question 18

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

Accepted Answer

A)  tactical asset allocation. 
B)  indexing. 
C)  sector rotation. 
D)  contrarian investing. 
E)  Bottom-up investing. 
A)  tactical asset allocation. 
B)  indexing. 
C)  sector rotation. 
D)  contrarian investing. 
E)  Bottom-up investing.

Question 19

A fundamental tenet of the contrarian investment strategy is the notion that

Accepted Answer

A)  all stock returns are mean reverting. 
B)  certain stocks outperform others during different stages of the business cycle. 
C)  value stock investing is superior to growth stock investing. 
D)  growth stock investing is superior to value stock investing. 
E)  None of these are correct. 
A)  all stock returns are mean reverting. 
B)  certain stocks outperform others during different stages of the business cycle. 
C)  value stock investing is superior to growth stock investing. 
D)  growth stock investing is superior to value stock investing. 
E)  None of these are correct.

Question 20

Passive portfolio managers attempt to "beat the market" by forming portfolios capable of producing actual returns that exceed risk-adjusted expected returns.

Accepted Answer

A) True 
 B)False

Exam 11: Equity Portfolio Management Strategies

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

An attempt on the manager's part to generate alpha is generally referred to as indexing.

Strategic asset allocation frequently adjusts the asset class mix in the portfolio to take advantage of changing market conditions.

Exchange-Traded Funds (ETF) are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500) of 1.5, then if the market rises by 10 percent, what value would you expect your portfolio to have?

A way to distinguish between these strategies is to decompose the total actual return that the portfolio manager attempts to produce.

The strategy that separately examines capital market conditions and the investor's objectives and constraints is called

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

In returns-based style analysis, a coefficient of determination of 95 percent would suggest that

The goal of the passive portfolio manager is to minimize

Growth oriented investors focus on the price component of the Price/Earnings ratio.

All of the following are advantages of ETFs over mutual funds EXCEPT

Which of the following statements regarding 130/30 strategies is FALSE?

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

A fundamental tenet of the contrarian investment strategy is the notion that

Passive portfolio managers attempt to "beat the market" by forming portfolios capable of producing actual returns that exceed risk-adjusted expected returns.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters