Portfolio Management: Planning and Construction

Question 1

Asset class

Answer 1

A group of assets that have similar characteristics, attributes, and risk/return relationships.

Question 2

Best-in-class

Answer 2

An ESG implementation approach that seeks to identify the most favorable companies in an industry based on ESG considerations.

Question 3

Capital market expectations

Answer 3

An investor’s expectations concerning the risk and return prospects of asset classes.

Question 4

ESG integration

Answer 4

The integration of qualitative and quantitative environmental, social, and governance factors into traditional security and industry analysis.

Question 5

Exclusionary screening

Answer 5

An ESG implementation approach that excludes certain sectors or companies that deviate from an investor’s accepted standards.

Question 6

Minimum-variance portfolio

Answer 6

The portfolio with the minimum variance for each given level of expected return.

Question 7

Negative screening

Answer 7

An ESG investment style that focuses on the exclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific ESG criteria.

Question 8

Nonsystematic risk

Answer 8

Unique risk that is local or limited to a particular asset or industry that need not affect assets outside of that asset class.

Question 9

Portfolio planning

Answer 9

The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.

Question 10

Rebalancing policy

Answer 10

The set of rules that guide the process of restoring a portfolio’s asset class weights to those specified in the strategic asset allocation.

Question 11

Risk budgeting

Answer 11

The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.

Question 12

Security selection

Answer 12

The process of selecting individual securities; typically, security selection has the objective of generating superior risk-adjusted returns relative to a portfolio’s benchmark.

Question 13

Self-investment limits

Answer 13

With respect to investment limitations applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.

Question 14

Shareholder engagement

Answer 14

The process whereby companies engage with their shareholders.

Question 15

Strategic asset allocation

Answer 15

The set of exposures to IPS-permissible asset classes that is expected to achieve the client’s long-term objectives given the client’s investment constraints.

Question 16

Sustainable investing

Answer 16

The practice of identifying companies that can efficiently manage their financial, environmental, and human capital resources to generate attractive long-term profitability.

Question 17

Systematic risk

Answer 17

Risk that affects the entire market or economy; it cannot be avoided and is inherent in the overall market. Systematic risk is also known as non-diversifiable or market risk.

Question 18

Tactical asset allocation

Answer 18

The decision to deliberately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative performance of asset classes.

Question 19

Thematic investing

Answer 19

An ESG implementation approach that focuses on investing in companies within a specific sector or industry theme.

Question 20

Tracking error

Answer 20

The standard deviation of the differences between a portfolio’s returns and its benchmark’s returns.

Question 21

Tracking risk

Answer 21

The standard deviation of the differences between a portfolio’s returns and its benchmarks returns.

Question 22

Value at risk

Answer 22

A money measure of the minimum value of losses expected during a specified time period at a given level of probability.