Risk and reward Flashcards
Smart Beta:
Instead of using a market index, smart beta funds will use alternative weighting methods, such as dividends paid, sales revenue or cash flow generated. Once the benchmark is created, it is tracked passively.
Active bond portfolio management
• Anomaly switching
- Exploiting mispricing in the bond market
• Policy switching
- Exploiting market shifts caused by, for example, interest rate movements
• Inter-market switch
- Trading on the spread between a bond and its benchmark
• Riding the yield curve
- Buying a longer-term bond than required and selling it before maturity
Passive bond portfolio management
• Cash matched/dedicated portfolios
- Matching cash flow of bonds to the liabilities
• Duration matching/immunisation
- Matching the duration of bonds to the liability
Immunisation
Bullet immunisation – bonds with durations close to the timing of the liability.
Barbell immunisation – bonds that have equal weightings either side of the liability. E.g. 10 year liability met with 50% 8 year duration bonds and 50% 12 year duration bonds.
Ladder immunisation – a variety of bonds with different durations either side of the liability. The weighted average duration will be the same as the liability.
Laddering is a term used to describe diversification of a bond portfolio by maturity date.
Greenwashing:
Making misleading environmental claims for marketing purposes with the aim of improving their reputation to attract environmentally and socially aware consumers, employees and investors, thereby increasing profits
Publication
• Reported trades published on the Stock Exchange
• Disclosure of price-sensitive information shown on primary information services
- For example, LSEs Regulatory News Service
• Secondary information providers then disseminate the information to the wider
financial community
- Examples include:
• Bloomberg
• Thomson Reuters
• Dow Jones
