Hedge funds Flashcards
_______ funds take stance on the performance of broad market sectors. They are easy, simple bets that one sector will outperform the market. _________ funds establish market-neutral positions on relative misplacing. Usually designed to exploit temporary misalignments in security valuations.
a) Directional, hedge
b) Nondirectional, hedge
c) Directional, nondirectional
d) Hedge, mutual
c) Directional, nondirectional
What is statistical arbitrage?
a) The simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset’s listed price.
b) The use of quantitative systems to uncover many perceived misalignments in relative pricing and ensure profits by averaging over all of these small bets
c) Taking stance on the performance of broad market sectors.
d) Establishing market-neutral positions on relative misplacing.
b) The use of quantitative systems to uncover many perceived misalignments in relative pricing and ensure profits by averaging over all of these small bets
True or false
Mutual funds typically charge investors both a management fee and an incentive fee equal to a percentage of profits beyond some threshold value
False
HEDGE funds typically charge investors both a management fee and an incentive fee equal to a percentage of profits beyond some threshold value
Which of the following describe distressed firm funds?
a) Have insignificant betas
b) Exhibit substantial negative betas on the S&P index
c) Have significant exposure to credit conditions
d) Show negative exposure to a stronger U.S. dollar
c) Have significant exposure to credit conditions
Which of the following describe dedicated short bias funds?
a) Have insignificant betas
b) Exhibit substantial negative betas on the S&P index
c) Have significant exposure to credit conditions
d) Show negative exposure to a stronger U.S. dollar
b) Exhibit substantial negative betas on the S&P index
Which of the following describe market-neutral funds?
a) Have insignificant betas
b) Exhibit substantial negative betas on the S&P index
c) Have significant exposure to credit conditions
d) Show negative exposure to a stronger U.S. dollar
a) Have insignificant betas
Which of the following describe global macro funds?
a) Have insignificant betas
b) Exhibit substantial negative betas on the S&P index
c) Have significant exposure to credit conditions
d) Show negative exposure to a stronger U.S. dollar
d) Show negative exposure to a stronger U.S. dollar
What is true about HEDGE funds?
a) Limited liability partnerships that provide only minimal disclosure of strategy and portfolio composition to their investors only.
b) No more than 100 sophisticated, wealthy investors
c) Very flexible, funds can act opportunistically and make a wide range of investments.
d) Allowed to use derivatives.
e) Often impose lock-up periods.
f) Both management fees and incentive/ performance fees
g) All of the above
g) All of the above
What is the main difference between hedge funds and mutual funds?
a) Transparency
b) Investment strategy
c) Number of participants
d) Liquidity
e) Compensation structure
a) Transparency
HF: limited liability partnerships that provide only minimal disclosure of strategy and portfolio composition to their investors only.
MF: regulations require public disclosure of strategy and portfolio composition. This is the most transparent asset class in the market, since it allows investors to know the net asset value of the fund at all times.
Which of the following describe the ‘convertible arbitrage’ style?
a) Goal is to exploit market inefficiencies in emerging markets. Typically, long-only because short-selling is not feasible in many of these markets.
b) Commonly uses long/ short hedges. Typically controls for industry, sector, size and other exposures, and establishes market-neutral positions designed to exploit some market inefficiency. Commonly involves leverage. Designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
c) Net short position, usually in equities, as opposed to pure short exposure.
d) Hedged investing in convertible securities, typically long convertible bonds and short stock, i.e., you buy the equities and the bond convertibles issued by the same company.
d) Hedged investing in convertible securities, typically long convertible bonds and short stock, i.e., you buy the equities and the bond convertibles issued by the same company.
Which of the following describe the ‘dedicated short bias’ style?
a) Goal is to exploit market inefficiencies in emerging markets. Typically, long-only because short-selling is not feasible in many of these markets.
b) Commonly uses long/ short hedges. Typically controls for industry, sector, size and other exposures, and establishes market-neutral positions designed to exploit some market inefficiency. Commonly involves leverage. Designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
c) Net short position, usually in equities, as opposed to pure short exposure.
d) Hedged investing in convertible securities, typically long convertible bonds and short stock, i.e., you buy the equities and the bond convertibles issued by the same company.
c) Net short position, usually in equities, as opposed to pure short exposure.
Which of the following describe the ‘emerging markets’ style?
a) Goal is to exploit market inefficiencies in emerging markets. Typically, long-only because short-selling is not feasible in many of these markets.
b) Commonly uses long/ short hedges. Typically controls for industry, sector, size and other exposures, and establishes market-neutral positions designed to exploit some market inefficiency. Commonly involves leverage. Designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
c) Net short position, usually in equities, as opposed to pure short exposure.
d) Hedged investing in convertible securities, typically long convertible bonds and short stock, i.e., you buy the equities and the bond convertibles issued by the same company.
a) Goal is to exploit market inefficiencies in emerging markets. Typically, long-only because short-selling is not feasible in many of these markets.
Which of the following describe the ‘market neutral’ style?
a) Goal is to exploit market inefficiencies in emerging markets. Typically, long-only because short-selling is not feasible in many of these markets.
b) Commonly uses long/ short hedges. Typically controls for industry, sector, size and other exposures, and establishes market-neutral positions designed to exploit some market inefficiency. Commonly involves leverage. Designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
c) Net short position, usually in equities, as opposed to pure short exposure.
d) Hedged investing in convertible securities, typically long convertible bonds and short stock, i.e., you buy the equities and the bond convertibles issued by the same company.
b) Commonly uses long/ short hedges. Typically controls for industry, sector, size and other exposures, and establishes market-neutral positions designed to exploit some market inefficiency. Commonly involves leverage. Designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
Which of the following describe the ‘event driven’ style?
a) Attempts to profit from situations such as mergers, acquisitions, restructuring, bankruptcy or reorganization. No anticipation, and action is taken first after the announcement of the corporate event.
b) Involves long and short positions in capital or derivative markets across the world. Portfolio positions reflect views on broad market conditions and major economic trends.
c) Equity-oriented positions on either side of the market (i.e., long or short), depending on outlook. Not meant to be market neutral.
d) Attempts to profit from price anomalies in related interest rate securities. Includes interest rate swap arbitrage, U.S. vs. non-U.S. government bond arbitrage, yield-curve arbitrage and mortgage-backed arbitrage.
a) Attempts to profit from situations such as mergers, acquisitions, restructuring, bankruptcy or reorganization. No anticipation, and action is taken first after the announcement of the corporate event.
Which of the following describe the ‘fixed income-arbitrage’ style?
a) Attempts to profit from situations such as mergers, acquisitions, restructuring, bankruptcy or reorganization. No anticipation, and action is taken first after the announcement of the corporate event.
b) Involves long and short positions in capital or derivative markets across the world. Portfolio positions reflect views on broad market conditions and major economic trends.
c) Equity-oriented positions on either side of the market (i.e., long or short), depending on outlook. Not meant to be market neutral.
d) Attempts to profit from price anomalies in related interest rate securities. Includes interest rate swap arbitrage, U.S. vs. non-U.S. government bond arbitrage, yield-curve arbitrage and mortgage-backed arbitrage.
d) Attempts to profit from price anomalies in related interest rate securities. Includes interest rate swap arbitrage, U.S. vs. non-U.S. government bond arbitrage, yield-curve arbitrage and mortgage-backed arbitrage.
