Learning Outcome 8 - 8 standard questions / Understand the principles of investment planning Flashcards
Which portfolio management style is more volatile: top down or bottom up?
Bottom up
What is the aim of successful portfolio construction?
Achieve diversification on the basis that this should reduce risk
What is the order of constructing a portfolio using the top down investment management method?
- Asset allocation within worlds regions
- Sector weightings (e.g 5% mining, 2% pharmaceuticals)
- Stock selection within the sectors
Which levy fees are higher: active or passive funds? And why?
Active
Because they need to demonstrate that they are seeking value
Which method pays attention to index benchmarks? Top down or bottom up?
Bottom up
When following a top down investment management approach, what is the last consideration?
Stock selection
What are the 4 most widely recognised fund management styles?
- Value
- GAARP
- Momentum
- Contrarianism
Which type of fund management style believes that using deep and rigorous analysis, it can identify businesses whose value is greater than the price placed upon them by the market?
Value
Managers of equity income or income and growth funds, often adopt which style of fund management?
Value
What is the oldest style of fund management dating back to Warren Buffets 1930s mentor Benjamin Graham?
Value
Which style of fund management is mainly used by active growth managers?
GAARP
Which fund management style is based on finding companies with long-term sustainable advantages in terms of their business franchise, quality of management, technology or other specific factors?
GAARP
What do proponents argue in favour of with the GAARP fund management style?
That it’s worth paying a premium price for a business with premium quality characteristics
Which fund management style to ‘middle of the road’ fund managers tend to adopt?
Momentum
‘Sector rotation’ where sectors are expected to perform well at particular points in the economic cycle is an example of which style of fund management?
Momentum
Which fund management style says that study shows there is a small tendency for both good and bad performance to persist, but cannot show that it generates enough return to compensate for trading costs?
Momentum
Contrarianism is a fund style used most often with which type of fund manager?
Hedge fund
What does the contrarianism fund manager believe about the average opinion from other fund managers?
That they are usually wrong and that high returns can be achieved by going against the trend
Of the 4 most recognisable fund management styles, which one more difficult and risky?
Contrarianism
How can a fund manager lock in positive returns if not separating beta and alpha?
By purchasing index put options
‘Top-down investment management’, is driven by…
economic analysis
‘Bottom-up investment management’, is driven by…
stock selection
What are the 3 types of Sharia compliant funds?
Equity
Commodity
Ijarah
An investor might consider investing in an offshore investment bond because:
a. the product should have lower charges than an equivalent onshore bond.
b. the fund should grow more than the equivalent UK investment bond.
c. gains are tax free.
d. both income and gains are tax free.
the fund should grow more than the equivalent UK investment bond
Which planning tool planning tool explains to the client a range of possible investment outcomes that are based on different future asset allocations?
Stochastic modelling
What does it mean when a fund manager uses an ‘overlay’ strategy?
A core share portfolio is held
Derivatives are used to alter currency and market exposures
Optimisation strategy tends to be based on assumptions; true or false?
True
Which makes more assumptions; stochastic modelling or optimisation?
Stochastic
To limit the volatility in a portfolio, is an adviser more likely to recommend passive or active fund management?
Passive
Environmental, social and governance [ESG]. Which index would the adviser likely recommended to track?
FTSE4Good Index Series
Which type of portfolios can be constructed using sets of asset classes using historic data for returns and volatility?
Theoretical
A structured product that gives a guaranteed return of 120% of the FTSE 100 Index or full return of capital if the index is lower at redemption. Is this hard of soft protection?
Hard
A structured product that provides an income of 7% annually with a full return of capital unless the index falls by 50% or more, in which case capital loss is on a pro rata basis. Is this hard of soft protection?
Soft
When constructing a new portfolio, a manager selects the geographic area and then selects the sectors in which to invest. What method of investment management is this?
Top down
What is meant by pragmatic and theoretic approaches to asset allocation?
Pragmatic = historic date used as a reference point
Theoretic = maths uses to create optimised portfolios
What is mean reversion?
Adjustment of both volatility and returns
Combining theoretical and pragmatic approaches
Portfolio optimisation uses which modelling technique?
Stochastic
Which portfolios are said to be optimal?
Ones that generate the best returns that match the clients risk profile
MPT says that active tactical asset allocation is not consistent with MPT. True of false?
True
