Session 16 - Portfolio Management Styles

Question 1

This type of asset allocation refers to the proportion of various types on investments composing a long-term investment portfolio.

Answer 1

Strategic asset allocation

Question 2

A portfolio is ______ to bring the asset mix back to the target allocations.

Answer 2

Rebalanced

If the stock market should perform better than expected, the client’s proportion of stocks to bonds would be out of balance.

Question 3

_______ _______ refers to the spreading of portfolio funds among different asset classes.

Answer 3

Asset allocation

Question 4

______ _____ Plan is an investment plan that attempts to maintain the type of relationship shown in an example of 70% equity/30% debt model

Answer 4

Constant Ratio Plan

Question 5

_____ ______ Plan is an investment plan where the goal is to maintain a constant dollar amount in stocks, moving money in and out of a money market fund when necessary.

Answer 5

Constant Dollar Plan

Question 6

______ Asset Allocation refers to short-term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions.

Answer 6

Tactical Asset Allocation

Question 7

______ management relies on the manager’s stock picking and market timing ability to outperform market indexes.

Answer 7

Active management

Question 8

_______ portfolio manager believe that no particular management style will consistently outperform market averages and therefore constructs a portfolio that mirrors a market index, such as the S&P 500.

Answer 8

Passive Portfolio Manager

Question 9

_______ managers are looking for earnings momentum. Portfolio managers using the _____style of portfolio management focus on stocks on companies whose earnings are growing faster than most other stocks and are expected to continue to do so.

Answer 9

Growth Managers/ Growth Style

Question 10

Portfolio managers using the _____ style of management concentrate on undervalued or out-of-favor securities whose price is low relative to the company’s earnings or book value and whose earnings prospects are believed to be unattractive by investors and securities analysts.

Answer 10

Value Style of Management

Question 11

_______ managers expect to see high P/E rations (Price to Earnings Ratios) or high price-to-books rations which little or no dividends.

Answer 11

Growth managers

Question 12

________ managers expect to see a low P/E ration or low price-to-book ratio and dividends offering a reasonable yield. Another sign of a value stock is a large cash surplus, sometimes referred to as a rainy day fund

Answer 12

Value managers

Question 13

Example of a value style investor:

Answer 13

ABC Co. is a metal processor for parts used in the automotive industry. Earnings per share have grown by a compounded rate of 8% per year for the past 15 years but are somewhat susceptible to downturns in the economy. The stock has paid a quarterly dividend that has increased five times in the past 10 years and the current market price of the stock is 6 times earnings. Conservatively managed, the company owns assets and cast that exceed the market value of its common stock. ABC would be attractive to value investors because its intrinsic value is higher than its market value, it appears to pay liberal dividends and it is selling for a low earnings multiple.

Question 14

Market Capitalization - what the market things a company is worth.
_______ Cap - Size is $50M - $300M - Benchmark N/A
_______ Cap - Size is >$300M - $2B - Benchmark Russell 2000
_______ Cap - Size is >$2B - $10B - Benchmark S&P 400
_______ Cap - Size is >$10B - Benchmark S&P 500

Answer 14

Micro Cap - Size is $50M - $300M - Benchmark N/A
Small Cap - Size is >$300M - $2B - Benchmark Russell 2000
Mid Cap - Size is >$2B - $10B - Benchmark S&P 400
Large Cap - Size is

Question 15

A _______ is an investment manager who takes positions opposite of that of other managers or in opposition to general market beliefs

Answer 15

Contrarian

Question 16

______ is a securities market investment theory that attempts to derive the expected return on an asset on the basis of the asset’s systematic risk.

The basic premise is that every investment carries two distinct risks; systematic, which cannot be diversified away, and unsystematic risk, which can be mitigated through appropriate diversification.

Answer 16

CAPM - Capital Asset Price Model

Question 17

_______ portfolio theory is an approach that attempts to quantify and control portfolio risk. Emphasizes determining the relationship between risk and reward. This is derived from the CAPM (Capital Asset Pricing Model).

Answer 17

Modern Portfolio Theory.

Question 18

______ portfolio theory focuses on the relationships among all the investments in a portfolio.

Answer 18

Modern Portfolio Theory (MPT)

Question 19

______ ______ simulation is a risk analysis technique in which probable future events are simulated on a computer, generating estimated rates of return. Commonly used in personal financial planning for wealth forecasting with estimate cash flows.

Answer 19

Monte Carlo Simulations (MCS)

Question 20

______ _____ Hypotheses maintains that security prices adjust rapidly to new information with security prices fully reflecting all available information. “Just throw darts”

Answer 20

Efficient Market Hypothesis

Weak-Form Market Efficiency
Semi-Strong Form Market Efficiency
Strong-Form Market Efficiency

**There is no such term as semi-weak EMH

Question 21

Followers of the ____ _____ hypothesis believe that an efficient market is one that produces random results.

Answer 21

Efficient Market Hypothesis

Question 22

You have a client who has recently retired. A pressing question is, “How much can be withdrawn without running out of money?” One of the popular techniques for approximating an answer is by using ________

Answer 22

Monte Carlo Simulations

Question 23

Reduces unsystematic rest such, as business risk, and enhances returns.

Answer 23

Portfolio diversification

Question 24

This type of class includes passbook savings and checking accounts; money market account; money market funds; certificates of deposit; T-bills

Answer 24

Cash and cash equivalents

Question 25

This type in class includes corporate bonds; municipal bonds; treasury bonds; bond funds; mortgage-backed security’s

Answer 25

Fixed income investments

Question 26

This type of class includes preferred in common stock of all kinds: growth, income appreciation; stock mutual funds

Answer 26

Equities

Question 27

This type of equity real estate, collectibles, practice metals, and stones

Answer 27

Hard assets

Question 28

Different sectors of the economy are stronger at different points in the economic cycle this type of management technique is referred to as what.

Answer 28

Sector rotating

Question 29

Overweighting or underweighting industries based on the current phase of the business cycle is referred to as what management technique?

Answer 29

Sector rotating

Question 30

Investing consistent amount of money in a mutual fund or stock at regular periodic intervals such as monthly or quarterly is referred to as which averaging technique?

Answer 30

Dollar cost averaging

Question 31

The purpose of dollar cost averaging is to _______ the investors average cost to acquire a security over the buying period relative to its average price.

Answer 31

Reduce

Question 32

The shareholder is entitled to purchase the additional shares directly from the issuer paying little or no commission and often at a discount to market price.

Answer 32

Dividend reinvestment plans (DRIPS)