Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Portfolio Management > LM 3: Portfolio Management: An Overview > Flashcards

LM 3: Portfolio Management: An Overview Flashcards

1
Q

What is the portfolio approach to investing?

A

Invest in a portfolio instead of individual risk, or putting all eggs in one basket.

reduces portfolio risk while not necessarily reducing expected return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 3 steps in portfolio management process?

A
  1. Planning Step
  2. Execution Step
  3. Feedback Step
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 2 steps in the planning stage of the portfolio management process?

A
  1. Understand client needs
  2. Preparation of Investment Policy Statement (IPS)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the 3 steps in the execution stage of the portfolio management process?

A
  1. Asset Allocation
  2. Security Analysis
  3. Portfolio Construction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 2 steps in the feedback stage of the portfolio management process?

A
  1. Portfolio monitoring & rebalancing
  2. Performance measurement & reporting
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the 2 types of investors?

A
  1. Individual investors
  2. Institutional Investors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the difference between defined contribution plan and a defined benefit plan?

A

Defined Contribution: retirement plan in which the firm contributes a sum each period to employees retirement account (example. 401k)

Defined Benefit: the firm promises to make periodic payments to employees after retirement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is an institutional investor?

A

An institutional investor is an organization that pools together large sums of money and puts that money to use in other investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the 6 types of institutional investors? DEBIIS

A
  1. Defined benefit plan
  2. Endowments & foundations (provide financial support to affiliated organizations)
  3. Banks
  4. Insurance companies
  5. investment companies
  6. Sovereign wealth funds
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Whats the difference between active management and passive management?

A

active management focuses on outperforming the market through increase leverage or etc.

passive management focuses on mimicking the performance of a specific index to achieve maximum profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Whats the difference between traditional vs alternative assets managers?

A

Traditional asset managers focus on long-only position in stocks, bonds, and cash

Alternative asset managers focus on alternative investments like private equity, hedge funds, real estate, and etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the 3 key trends in asset management industry?

A
  1. Growth of Passive Investing (cheaper)
  2. Use of “Big Data” (technology advancements have allowed big data to be used in the asset management industry)
  3. Robo-advisors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a mutual fund?

A

a fund that allows investors to pool money together than is managed by a portfolio manager.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the difference between a open-end mutual fund and a closed-end mutual fund?

A

Open-ended mutual fund: new shares are created whenever an investor buys them.
Close-ended mutual fund: issue only a set number of shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the 4 types of mutual funds?

A
  • Money Market Fund
  • Bond Mutual Funds
  • Stock Mutual Funds
  • Hybrid/ Balanced Fund
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a money-Market fund and goal?

A

mutual fund that invest in short-term money market instruments such as treasury bills, certificates of deposits, and commercial paper.

Goal provide security of principal, high levels of liquidity, and returns in line with money market rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a bond mutual fund?

A

an investment fund consisting of bonds, and occasionally preferred shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the 6 types of bonds? GGCHIN

A
  1. Global
  2. Government
  3. Corporate
  4. High Yield
  5. Inflation Protected
  6. National Tax-Free Bonds
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a stock mutual fund?

A

an investment fund consisting of stocks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is a hybrid/balanced fund?

A

mutual fund that invests in both bonds & stocks

21
Q

What are the 5 types of investment products? MSEHP

A
  1. Mutual Funds
  2. Separately Managed Accounts
  3. Exchange-Traded Funds
  4. Hedge Funds
  5. Private Capital & Venture Capital
22
Q

What are separately managed accounts (SMA)?

A

an account managed exclusively for an individual or institution unlike mutual funds which are pooled.

23
Q

What is an exchange traded fund?

A

A fund that trades on exchanges, generally tracking a specific index.

24
Q

What is a hedge fund?

A

An investment pool that typically has a complex investment strategy, is leveraged, and employs long and short strategies. usually loosely regulated.

25
Q

What is private equity and venture capital funds?

A
  • alternative funds that seek to buy, optimize, and ultimately sell portfolio companies to generate profits.
  • private equity is capital invested in company that is not publicly listed or traded
  • venture capital is funding provided to startups or other young businesses that show strong potential for long-term growth
26
Q

What is asset allocation?

A

the process of spreading your money among several different types of assets to lessen risk

27
Q

What is security analysis?

A

analyzing the value of securities in terms of prices, return and risks.

28
Q

What is portfolio construction?

A

the process of understanding how different asset classes, funds and weightings impact each other, their performance and risk and how decisions ladder up to an investor’s objectives.

29
Q

What is portfolio monitoring & rebalancing?

A
  • portfolio monitoring is the way critical performance metrics are collected, monitored and tracked
  • portfolio rebalancing is adjusting the weightings of different assets classes
30
Q

What is the diversification ratio formula?

A

diversification ratio = Standard deviation of equally weighted portfolio / Standard deviation of a randomly selected security in the portfolio

31
Q

What does contagion mean?

A

when market downturns impact all assets

32
Q

What is systematic risk?

A

risk that effects entire market

33
Q

What is unsystematic risk?

A

It is a risk that affects a single asset or a small group of assets

34
Q

What are beta strategies?

A

strategies that focus on specific factors

eg. size, value, or momentum

35
Q

What does modern portfolio theory say about risk?

A

only systematic risk matters (market risk)

non systematic risk can be diversified away

36
Q

What is the difference between buy side firms and sell-side firms?

A

buy-side firms manage assets

sell-side firms sell securities and provide independent investment research to buy-side firms

37
Q

What are the 2 investment objectives of an endowment?

A
  1. real capital value preservation
  2. income generation to support institution
38
Q

What is the real (inflation adjusted) value of assets formula for endowments?

A

amount * (1+inflation rate)

39
Q

What is the ownership structure like for most asset management firms?

A

structured as privately owner limited liability corporations (LLC) or limited partnerships (LP)

40
Q

Are majority of asset management firms privately or publicly owners?

A

privately owned

41
Q

What 2 things distinguish alternative asset managers from traditional asset managers?

A

alternative asset managers are willing to take short positions (hedge funds) and generate large share of industry revenues.

42
Q

What is a no load fund?

A

a mutual fund in which shares are sold without a commission or sales charge.

No-load funds are possible because the shares are distributed directly by the investment company, instead of going through a secondary party.

43
Q

Which type of mutual fund trades at their NAV per share?

A

closed end mutual funds

44
Q

What 5 things distinguish ETFS from Mutual Funds?

A
  1. ETFS trade throughout day, MF’s end of day
  2. ETFS can be sold short and on margin
  3. ETF price don’t deviate from NAV.
  4. ETF dividend to invest, MF reinvest dividends
  5. ETF lower minimum investment requirements
45
Q

What is the largest category of mutual funds in terms of AUM?

A

Stock mutual funds

46
Q

What is a life cycle fund?

A

a target date fund.

47
Q

What is M2 Alpha & formula?

A

M2 is the expected return over the market.

M2- market return

M2 = SD * Sharpe ratio + Risk Free

48
Q

What is multi boutique asset manager?

A

holding company that owns many several asset management firms

49
Q

What is the information ratio and formula?

A

information ratio = A1 / Oei

information ratio = alpha / nonsystematic risk

the consistency of the fund manager in generating superior risk adjusted performance

Portfolio Management (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions