LA 7.4: R&B CH 13 Equity Portfolio Management - ASSET ALLOCATION STRATEGIES ONLY

Question 1

What is Integrated asset allocation? What does it examine in order to achieve it’s objectives?

Answer 1

Integrated asset allocation is a strategy that separately examines
1. Capital market conditions
2. the investor’s objectives and constraints
to decide the portfolio asset mix best suited towards the investors needs

Question 2

What is the result of Strategic asset allocation?

Answer 2

A portfolio with long-term policy asset weights.

Question 3

How is strategic asset allocation done? Give the general idea.

Answer 3

Long-term average asset returns risk and covariances (HISTORICAL INFO) are used to generate EFFICIENT FRONTIERS from which the investor DECIDES on an ASSET MIX for their TIME HORIZON

Question 4

Is the asset mix selected using Integrated asset allocation process adjusted? What sources does this come from?

Answer 4

It is adjusted by inclusion of new information in the optimization process, FROM EITHER:

• Change in capital market conditions
• change in investor’s circumstances

Question 5

Is Integrated asset allocation a static or dynamic process?

Answer 5

It is dynamic since it has a feedback loop which allows for adjustments in response to new information.

Question 6

Is strategic asset allocation dynamic or static?

Answer 6

Static, since it is a CONSTANT-MIX asset allocation with PERIODIC REBALANCING to this mix.

Question 7

On what premise is Tactical Asset Allocation based upon?

Answer 7

mean reversion

Question 8

What is Tactical Asset Allocation?

Answer 8

Frequent adjustment of the asset class mix in order to take advantage of changing market conditions.

Question 9

What type of approach does a Tactical Asset Allocation investor take?

Answer 9

Contrarian

Question 10

What is Insured Asset Allocation?

Answer 10

An approach that continually adjusts the asset class mix in response to the investor’s wealth position:

• increase risk when portfolio value (wealth) increases
• decrease risk when portfolio value (wealth) decreases

Question 11

What is another name for Insured asset allocation?

Answer 11

Constant proportion strategy

Question 12

What is the primary assumption underlying Insured Asset Allocation?

Answer 12

Expected market returns and risk are CONSTANT OVER TIME