C14 - Alternative Investments & Private Markets (25-30 Qs C11-C14 'Asset Classes') NC Flashcards
Which of the following are characteristics of the property market?
1. Loose government regulation
2. Decentralised market
3. Importance of management costs
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above
C - 2 (Decentralised Market) and 3 (importance of management costs)
- A common example of a decentralised market is real estate, where buyers deal directly with sellers.
No single shareholder may hold more than what percentage of REIT capital?
A) 5%
B) 10%
C) 15%
D) 20%
B - 10%
Which of the following are possible explainations for the supply of propery being relatively inelastic?
1. Supply can be readily increased
2. Planning constraints
3. Geographical immobility
A) 3 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above
C - 2 (planning contraints) and 3 (geographically immobility)
What is the maximum percentage of NAV a REIT may commit to a single investment?
A) 30%
B) 20%
C) 40%
D) 75%
C - 40%
The maximum a REIT may commit to an investnement is 40% of their Net Asset Value (NAV)
A fund manager is concerned that inflation may increase and to protect the portfolio chooses to hedge by initiating a:
A) LONG position in GILTS
B) SHORT position in OIL FUTURES
C) LONG position in OIL FUTURES
D) LONG position in The Primary Refinitiv/CoreCommodity index figures
D - LONG position in The Primary Refinitiv/CoreCommodity index figures
The Primary Refinitiv/CoreCommodity index is constructed as an equally weighted arithmetic average of 19 categories from orange juice to crude oil. Commodities are positively correlated with inflation, hence going LONG the Primary Refinitiv/CoreCommodity index would be an appropriate hedge.
- Long: Involves buying an asset with the expectation that its price will increase. The investor holds the asset until the price stops rising.
- Short: Involves selling an asset that the investor has borrowed, with the expectation that its price will decrease. The investor then buys the asset back at a lower price and returns it to the lender.
What would have an impact on the demand for residential property?
1. Tax relief on mortgage interest
2. Change in interest rates
3. CHange in the structure of the population
A) 2 only
B) 1 and 3 only
C) All of the above
D) 2 and 3 only
C - All of the above
Which are chacteristics of property bond?
1. They represent shares in a property company
2. They are a form of indirect property investment
3. The coupons received from the bonds are linked to income received from the property
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above
C 2 (form of indirect property investment) and 3 (coupons linked to income from property)
A fund manager is concerned that tensions in the middle east may worsen and chooses to hedge be initiating:
A) a LONG position in GILTS
B) a SHORT position in OIL FUTURES
C) a LONG position in OIL FUTURES
D) a SHORT position on the Saudi stock market
C - a LONG position in OIL FUTURES
Tensions in the Middle East have histroically creatwed a oil shock (event risk), going long oil would be an appropriate hedge.
In trading, “long” and “short” are opposite strategies that investors use to profit from the market:
* Long: Involves buying an asset with the expectation that its price will increase. The investor holds the asset until the price stops rising.
* Short: Involves selling an asset that the investor has borrowed, with the expectation that its price will decrease. The investor then buys the asset back at a lower price and returns it to the lender.
Which of the following are TRUE of the property market:
1. It is heterogeneous
2. Property investments are generally indivisible
3. Returns include rental income
4. Leasehold property returns may include ground rent
A) All of the above
B) 1, 2 and 4 only
C) 3 only
D) 1 and 2 onlt
Heterogeneous: different in kind; unlike; incongruous
A - All of the above
A trustee wishes to select an appropriate benchmark to measure the funds commodity exposures, which of the following would be most relevant?
A) S&P 500 Index
B) Stanley Gibbons 100
C) S&P GSCI Index
D) S&P DJCI Index
D - S&P DJCI Index
- The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
- Stanley Gibbons 100 - ???
- The S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index was originally developed in 1991, by Goldman Sachs
- The Dow Jones Commodity Index is a broad measure of the commodity futures market that emphasizes diversification and liquidity.
If a property is purchased from an existing property owner and rented back to the seller this is known as:
A) Indirect property investment
B) Sale and lease back
C) Direct property investment
D) Back rental property investment
B - Sale and lease back
Indirect property investment might involve which of the following:
1. Property bonds
2. Freehold or leasehold property
3. Shares in property companies
A) None of the above
B) 1 and 3 only
C) 1 and 2 only
D) 2 and 3 only
B - 1 (property bonds) and 3 (Shares in property companies)
REITs must distribute what percentage of their profits as dividends?
A) 70%
B) 80%
C) 90%
D) 100%
C - 90%
What is the minimum number of properties that must be owned by a real estate investment trust (REIT)?
A) 1
B) 3
C) 10
D) 20
B - 3
REITs must own a minimum of three properties, with no asset being more than 40% of the total portfolio
Investing in commodities can be viewed as hedging against which of the following?
A) Default risk
B) Inflation risk
C) Liquidity risk
D) Interest rate risk
B - Inflation risk
Commodities have historically been a good hedge against unanticipated inflation
What is the source of much of the difference between spot price returns and the returns experienced by investors in commodity futures?
A) Interest rate changes
B) Basis change
C) Roll yield
D) Spot basis
C - Roll Yield
Commodity futures expire periodically and investors have to ROLL into new contracts to maintain their exposure. This happens regularly and is known as the ROLL YIELD.
If the futures curve is upward sloping the roll yield will be NEGATIVE, and if the curve is downward facing it will be POSITIVE.
In relation to commodity investments, contango is caused by which of the following?
A) An UPWARD sloping FUTURES price curve
B) A DOWNWARD sloping FUTURES price curve
C) An UPWARD sloping SPOT price curve
D) A DOWNWAED sloping SPOT price curve
A - An UPWARD sloping FUTURES price curve
An update sloping futures curve is said to be in contango.
Which of the following is NOT a cryptocurrency?
A) Bitcoin
B) Ethereum
C) Ripple
D) SDR
D - SDR
The MSCI Investment Property Databank (MSCI IPD) indices of commercial property returns are constructed using which of the following types of data?
A) Survey data
B) Transactions data
C) Portfolio valuations
D) Model forecasts
C - Portfolio Valuations
The IPD indicies are constructed using portfolio valuations
Reference rates for oil and oil-related products are published by:
A) Porters
B) Platts
C) LME
D) NYSE
B - Platts
Platts, now part of S&P Global Commodity Insights, provides daily price assessments and benchmarks for various commodities, including oil, and is a key source for oil price reference, particularly for crude oil and refined products.
Which one of the following is NOT a feature of the hedge fund industry?
A) Leverage
B) Short selling
C) Index tracking
D) Use of derivatives
C - Index tracking
Hedge funds are alternative investment vehicles. They engage in many ACTIVE strategies but they do not pursue index tracking which is seen as passive management.
Which of the following statements best describes the strategy of a market neutral hedge fund?
A) It aims to have returns that have a low correlation with returns on traditional assets
B) It aims to replicate returns on traditional assets
C) It aims to have returns with a high correlation with returns on traditional assets
D) It aims to provide a hedge in the event that returns on traditional assets fall
A - It aims to have returns that have a low correlation with returns on traditional assets
Market neutral funds aim to have no directional bias in their trading. If executed successfully they should lead to a low correlation with traditional assets.
An investment analyst is evaluating the role of cryptocurrencies in a diversified portfolio. Which of the following statements is most accurate regarding cryptocurrencies as an asset class?
A) Cryptocurrencies are typically considered a risk-free asset due to their decentralized nature and fixed supply.
B) Cryptocurrencies have historically exhibited high volatility and low correlation with traditional asset classes, which may offer diversification benefits.
C) The intrinsic value of cryptocurrencies is primarily derived from their regulatory backing and government-issued status.
D) The valuation of cryptocurrencies is based solely on fundamental financial metrics, similar to equities and bonds.
B - Cryptocurrencies have historically exhibited high volatility and low correlation with traditional asset classes, which may offer diversification benefits.
Cryptocurrencies are highly volatile and have shown low correlation with traditional asset classes (e.g., equities, bonds), making them a potential diversification tool in a portfolio.
- A is Incorrect: Cryptocurrencies are not risk-free; they face regulatory, technological, and market risks.
- C is Incorrect: Unlike fiat currencies, cryptocurrencies are not backed by governments or central banks. Their value is derived from market demand and supply dynamics.
- D is Incorrect: Cryptocurrencies lack traditional financial metrics like earnings or cash flows; their valuation is largely driven by speculative demand, adoption, and technological developments.
CFA IMC textbook notes 7 key risks for Crypto being:
1. Volatility
2. Decentralised
3. Unregulated
4. Not reserve-backed
5. Lack of scalability (where fiat money is theoretically unlimited)
6. Susceptibility (to human error, hacking and tech glitches)
7. Potential lack of transparency
