R22: Overview Of Equity Portfolio Management

Question 1

Role of equities

Answer 1

• Capital appreciation
• Dividendend income
• Diversification benefits
• Inflation hedge

Question 2

Ways to classify style

Answer 2

• Holdings-based (MorningStar)

- Returns-based (regress portfolio returns vs of passive style index)

Question 3

Income sources

Answer 3

• Dividend
• Securities lending
• Sell call options (covered call)
• Sell put options (cash covered put)

Question 4

Potential issues with shareholder engagement

Answer 4

• Time consuming
• Costly
• Insider fraud
• Conflict of interest

Question 5

If benchmark is narrow, passive or active?

Answer 5

Passive

Question 6

Risks with active management

Answer 6

• Reputation

- Key person

Question 7

Why is tax lower for passive?

Answer 7

Lowert turnover

Question 8

What’s a cash-covered put?

Answer 8

Write a put while depositing money equal to the exercise price into a designated account

Question 9

What’s predatory trading?

Answer 9

Purchase (or sell shorts) of shares prior to their inclusion or deletion from an index. Cost to investors

Question 10

What are depositary fees?

Answer 10

Ensure that custodians segregate assets and that portfolio complies with any investment limits, leverage requirements and limits on cash holdings

Question 11

What are market oriented managers?

Answer 11

They use a combination of value and growth techniques

Question 12

What’s dividend capture?

Answer 12

Buy stocks just before ex-div dates, earn dividend and sell

Question 13

Is cap-weighted mean-variance efficient?

Answer 13

Yes, offers the highest return for a given level of risk