Chapter 05-07 Asset Allocation Flashcards
Assset Allocation CFAI Flashcards
Active risk budgeting
Risk budgeting that concerns active risk (risk relative to a portfolio’s benchmark).
Asset-only
With respect to asset allocation, an approach that focuses directly on the characteristics of the assets without explicitly modeling the liabilities.
Calendar rebalancing
Rebalancing a portfolio to target weights on a periodic basis; for example, monthly, quarterly, semiannually, or annually.
Decision-reversal risk
The risk of reversing a chosen course of action at the point of maximum loss.
Dynamic asset allocation
A strategy incorporating deviations from the strategic asset allocation that are motivated by longer-term valuation signals or economic views than usually associated with tactical asset allocation.
Economic balance sheet
A balance sheet that provides an individual’s total wealth portfolio, supplementing traditional balance sheet assets with human capital and pension wealth, and expanding liabilities to include consumption and bequest goals. Also known as holistic balance sheet.
Extended portfolio assets and liabilities
Assets and liabilities beyond those shown on a conventional balance sheet that are relevant in making asset allocation decisions; an example of an extended asset is human capital.
Goals-based
With respect to asset allocation or investing, an approach that focuses on achieving an investor’s goals (for example, related to supporting lifestyle needs or aspirations) based typically on constructing sub-portfolios aligned with those goals.
Goals-based investing
An investment industry term for approaches to investing for individuals and families focused on aligning investments with goals (parallel to liability-driven investing for institutional investors).
Home-country bias
The favoring of domestic over non-domestic investments relative to global market value weights.
Liability-driven investing
An investment industry term that generally encompasses asset allocation that is focused on funding an investor’s liabilities in institutional contexts.
Liability glide path
A specification of desired proportions of liability-hedging assets and return-seeking assets and the duration of the liability hedge as funded status changes and contributions are made.
Liability-relative
With respect to asset allocation, an approach that focuses directly only on funding liabilities as an investment objective.
Passive management
A buy-and-hold approach to investing in which an investor does not make portfolio changes based upon short-term expectations of changing market or security performance.
Percent-range rebalancing
An approach to rebalancing that involves setting rebalancing thresholds or trigger points, stated as a percentage of the portfolio’s value, around target values.
Rebalancing
In the context of asset allocation, a discipline for adjusting the portfolio to align with the strategic asset allocation.
Rebalancing range
A range of values for asset class weights defined by trigger points above and below target weights, such that if the portfolio value passes through a trigger point, rebalancing occurs. Also known as a corridor.
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
Shortfall probability
The probability of failing to meet a specific liability or goal.
Tactical asset allocation
Asset allocation that involves making short-term adjustments to asset class weights based on short-term predictions of relative performance among asset classes.
Trigger points
In the context of portfolio rebalancing, the endpoints of a rebalancing range (corridor).
Resampled mean-variance optimixation
Combines Markowitz’s mean-variance optimization framework with Monte Carol simulation and, all else equal leads to more-diversfied asset allocations.
