Week 4 - Passive portfolio strategies Flashcards
What is the goal of global bond portfolio management
to maximize the risk-adjusted total return of all holdings
What is Total return of a bond?
total return measure allows a portfolio manager to project the performance of a bond over the planned investment horizon
What are the Five steps of IM (investment management)?
setting investment objectives, establishing investment policy, selecting a portfolio strategy, selecting assets, measuring and evaluating performance
What is SAA?
Asset allocation decision
What is enhanced indexing?
A protfolio strategy when the portfolio is mostly indexed, but employ a low-risk strategies to enhance the protfolios return
What is a tracking error?
Measure for active risk in a portfolio
how is the tracking error measured
by the standard deviation of the return of the portfolio relative to the return of the benchmark index
what is backward-looking tracking error?
also called ex-post or actual tracking error
A tracking error computed from observed active returns of a portfolio
What are the multi-factor models?
Multi-factor risk models are used in finance to assess the sources of risk in a portfolio by considering multiple factors that can impact the performance of investments.
how do you compute the forward-looking tracking error?
You compute the risk of the portfolios and the benchmark using the multi-factor risk models and then find the tracking error
What is the forward-looking TE for passive and active strategies?
The forward-looking TE is small fro passive strategies and larger for active.
What is the forward-looking TE for passive and active strategies?
What is a cell-based approach in indexing methods?
The index is divided into cells, each cell representing a different characteristic of the index
what drives the ETF bid/ask spred?
Underlying bid/ask spread
Cost of creation/redemption
Underlying markets open/closure
Underlying volatility
Hedge effectiveness
Buyer/seller activity
