Portfolio Performance and DFM Flashcards

1
Q

How can time weighted return be defined and what does it enable investors to do?

A

It enables investors to determine the rates of return taking into accout where capital is added or withdrawn from the available investment fund.

The TWR allows for a fair comparison of fund management performance, and is far more accurate that the MWR as it disregards the timing of cashflows outwith the fund managers control.

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2
Q

What are the three main methods of measuring risk adjusted returns?

A
  • Sharpe ratio
  • Alpha
  • information ratio
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3
Q

What does the sharpe ratio measure?

A
  • Sharpe ratio measures the excess return for every uit of risk taken
  • Sharpe ratio should be positive and the higher the better.
  • Negative sharpe ratios are misleading and should not be relied upon.
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4
Q

Which two types of investment analysis are used by fund managers in the ‘stock selection’ stage of top-down management?

A

Fundamental and technical analysis

  • Fundamental analysis is a detailed analysis of the company concerned and the industry in which it operates.
  • Technical analysis involves analysing past share prices & making investment decisions on the basis of trends.
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5
Q

Which of the following are likely to be more volatile, if all invested in the Far East?

investment trust

unit trust

OEIC

structured product

A

Investment Trust

  • Close ended and generally trade at a discount to NAV
  • ITs can gear the investment
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6
Q

Formula for Sharpe ratio?

A

Return - risk free rate / standard deviation

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7
Q

Forumla for Information ratio?

A

Return - benchmark return / tracking error

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8
Q

What factors should be considered when desigining a client portfolio?

A

EPIC FACT

Experience of investing

Psychology

Insurance cover

Cash reserves

Family situation

Age and time horizon

Current net worth and income expectations

Taxation

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9
Q

How

A
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