PM Overview

Question 1

Diversification ratio:

Answer 1

= stdv of portfolio / stdv of a single security within the portfolio

• a lower ratio is better, it implies a higher degree of diversification

Question 2

The three steps in the portfolio management process

Answer 2

1. the planning step: IPS - objectives and constraints
2. the execution step: asset allocation and security selection. then purchase securities; “portfolio construciton”
3. the feedback step: monitor and rebalance, performance of portfolio, benchmarking

Question 3

Net asset value:

Answer 3

= value of assets - liabilities

• the value of a mutual fund is called the net asset value

Question 4

Can shares in a closed-end fund trade like regular shares? Be bought or sold on margin and/or shorted?

Answer 4

Yes

Question 5

The assets in a SMA are owned by…

Answer 5

• unlike a mutual fund, the individual or institution owns the assets while someone else manages them.
• fees and min investment are higher than a mutual fund

Question 6

ETFs v Mutual Funds

Answer 6

ETFs combine features of closed-end and open-end funds:

• trade like closed-end; shortable and margin options
• their prices are close to NAV like open-end
• lower expenses than funds
• ETFs do not have capital gains distributions and the minimum required investment is usually smaller than mutual funds

Question 7

Venture capital funds tend not to use ….

Answer 7

• VC doesnt use leverage