Chapter 10 – the principles of investment planning

Question 1

How can advise apply asset allocation without the use of probablistic statistical techniques?

Answer 1

By using longer and historic average returns and volatility data for the major asset classes as the basis of constructing portfolios.

Question 2

Why might a portfolio lying on the efficient frontier deliver less than optimal performance over the next five years?

Answer 2

If actual (or realised) return and volatility over the investment period do not correspond to those assumed in the portfolio modelling process

Question 3

Between which pair of us are classes would you expect the highest degree of correlation over any three-year period:

A.Cash and equities;
B.gilts and equity;
C.cash and gilts.

Answer 3

C.cash and gilts.

Question 4

Which investment style is most commonly adopted by managers of the UK equity income funds?

Answer 4

Value investing

Question 5

For what reason is Might an advisor decide not to use close ended funds in a portfolio with a cautious risk profile?

Answer 5

Close ended funds are more volatile because of the gearing and the variations in the discount/premium to net asset value