Chapter 16 Flashcards
What is asset allocattion?
Its how an invetor distributes their money such as
1.Cash (no risk no return)
2. Fixed income (low risk, low return)
3. Equities (high risk, high return)
There are two types of asset allocation, what are they?
- Passive
- Active
What is passive asset allocation?
keeping the same mix of investments over time without changing
What is active asset allocation?
changing our investments based on how the market is
How is the market flow?
- Expansion (economic profit and growth)
- Peak (max economic activitiy and profit)
- Contraction (economic profit and growth decline)
- Trough (minimal economic activity + profit)
What is the goal of asset allocation?
To be invested in equities between trough and peak
What is high level asset allocation called?
strategic
is it more passive or active
passive (fixed)
What is ‘tactical, dynamic, integrated asset allocation’?
It is when we shift our assets based on short-term expectations
What are some passive asset allocation strategies?
Do not try to time the market try to hold one set of assets over some time.
What is industry sector rotation?
Asset allocation is when money is shifted between industries or sectors
What are cyclical stocks?
Stocks that fluctuate go up and down.
What are defensive stocks?
These do not change much with the economy and stay consistent.
What is interest rate sensitive?
These stocks are directly impacted by changing interest rates
What are Equity Manager styles?
- Growth
- Value
- Sector Rotation
What does growth mean for an ‘equity manager’?
Focuses on companies with high revenue growth (ex: google, Meta)
What does value mean for an ‘equity manager’?
Focus on mature companies with stable revenue
What does sector rotation mean for an ‘equity manager’?
Macro-driven industry selection
What are the four types of bond manager styles
Intrest rate anticipators
Term to maturity
Credit quality
Spread Traders
What are intrest rate anticipators
Its basedon rates rising or falling
What are term to maturity
Bonds restriceticted to specific matuirities
What are credit quality
Shows which yield the best credit quality
What are spread traders
long short bond stragety that bets the yield for the bond to rise or fall
How do we evaluate an investments performance
Comapre the total return of the investment to a benchmark (can be a combo of diff things)
Equation for TR
Cash flow +(end- beg) /bef
What is the sharpe ratio?
Used to evaluate a portfolios risk adjusted return
How do we calculate
(rp-rf)/sdp
rp = total return - risk free rate
