Equity R17

Question 1

Compare fundamental and quantitative approaches to active management

Answer 1

Fundamental:
Subjective, Discretionary, uses judgement and human skill, research, forecast future corporate perfomance

Quantitative:
Objective, systematic, uses data and statistics, finds relationships between rewarded factors

Question 2

Analyze bottom-up active strategies including rational and process

Answer 2

Bottom up analyzes company level information to generate investment ideas. Value and growth styles.

Question 3

Analyze top-down active strategies including rational and process

Answer 3

Top down focuses on the macroeconomic environment, demographics and government policies to make decisions.

Question 4

Analyze factor-based active strategies including rational and process

Answer 4

Quantitative uses factor-based models to identify rewarded factors

Question 5

Analyze activist strategies including rational and process

Answer 5

Activist investors specialize in taking meaningful stakes in comapnies then publicly pushing for changes to management/strategy/capital structure to enhance value

Question 6

Describe statistical arbitrage and market microstructure

Answer 6

Look to profit from anomolies ion techincal market data (price, volume), such as pairs trading.

Event driven strategies exploit price inefficiencies surrounding corporate events

Question 7

Describe how fundamental active investment strategies are created

Answer 7

Define investment opportunity (why it exists)

Pre-screen universe

Analyze companies

Forecast performance

Convert forecasts into valuations

Construct portfolio

Rebalance when needed

Question 8

Describe how quantitative active investment strategies are created

Question 9

Equity investment style analysis classifications

Answer 9

Returns based and holdings based.

Return analyzes manager style by regressing against style indexes

Holdings based analyzes the style scores of individual holdings