Deck 19: Portfolio Management

Question 1

Cash matching is typically used to match coupon payments,but not face value payments at maturity.

Answer 1

False
Explanation: Cash matching provides one approach to ensuring that sufficient cash flows exist to meet liabilities as they fall due.The initial portfolio is set up,and no further adjustment should be required to the portfolio.The cash flows generated from coupon and principal payments exactly meet the known liabilities.This task becomes less precise when the liability and the asset portfolio cash flows are uncertain.The liability may be a function of interest rates or the level of economic activity,and the assets may include default risk or call provisions.As uncertainty increases,the task focuses on minimising cash matching errors rather than exact matching.This is particularly the case where cash matching is based upon dividend flows from a share portfolio.

Question 2

A bond where the principal is amortised over the life of the security,and cash flows include both principal and interest,is known as an 'amortising bond'.

Answer 2

True
Explanation: The term 'amortising bond' is used to refer to bonds where the principal is amortised over the life of the security,and cash flows include both principal and interest.

Question 3

The Ambachtsheer (1994)study showed a difference between the annual transactions costs of passive and active investors of __________ basis points.

Answer 3

C
Explanation: Ambachtsheer (1994)provides an analysis of the split between passive and active bond funds in a 1992 sample.Passive investors constituted 39% p.a.of the sample,incurring management costs of seven basis points on average,while the remaining 61% p.a.of the sample was actively managed,and incurred costs of 29 basis points on average.

Question 4

According to the Ambachtsheer study in 1994,what proportion of funds managers favoured the active approach?

Question 5

What the GFC taught advisers and __________________ in the most powerful and painful way possible was that _________________ is/are the most important factor/s for investors.

Question 6

Which of the following is an example of a passive investment strategy?

Question 7

A common example of cash-flow matching is:

Question 8

An example of duration risk is where the yield curve is initially flat,but then shifts in an upward direction.

Question 9

Funds that set aside money during the working lives of people to cater for their financial needs during retirement are called:

Question 10

A major disadvantage of passive over active portfolio management strategies is the minimisation of transactions costs.

Question 11

If large yield changes are expected,it is advisable to match convexity as well as duration.

Question 12

Tactical asset allocation does not involve the shifting of funds into or out of an asset class based upon mispricing in that market.

Question 13

What kind of managed fund products have the primary objective of reinvesting earnings,such as interest and dividends,to take a medium-risk position to achieve capital growth.

Question 14

Superannuation involves only personal superannuation schemes.

Question 15

An approach to the management of bond portfolios involves choosing portfolios with a duration that matches the duration of liability cash flows.

Question 16

Portfolio insurance allows an investor to set a floor on the value of a portfolio.The underlying portfolio is hedged against a fall in value below the floor by setting up an offsetting portfolio of a call option.

Question 17

__________ portfolio management involves the setting of exposure levels to asset classes,and then selecting securities within asset classes with the view to holding these securities for the medium to long term.

Question 18

are pooled investment vehicles that enable investors to invest and withdraw through individual tradeable units.

Question 19

The two main components of an investment strategy of a managed fund are:

Question 20

An investor who may want to delay or accelerate the timing of cash flows would be motivated by bond swapping.

Question 21

What kind concept refers to the tendency for investors to over-weight their portfolio in investments in their home country and under-weight international investment?

Question 22

Which type of fund makes investments directly,rather than acting as an agent?

Question 23

Surveys by Benson and Pope 1993 reveal the limited use of _________________;they also find that most funds employ _____________________,believing that they have superior skills in stock picking.

Question 24

How many exchange-traded funds were listed at the end of 2005 on the Australian Stock Exchange?

Question 25

Reilly,Kao and Wright (1992)find that the major bond market indices in the USA have a correlation coefficient ranging from

Question 26

To construct a beta mimicking portfolio,a portfolio is constructed that has:

Question 27

In __________ the investor must forecast the equity market returns in the future,and then take an appropriate position with respect to the forecast.

Question 28

Alder (1983)highlights the _______________ that can be experienced when choosing a suitable ______________ with international bond investment.

Question 29

Interest rate anticipation is a bond _____________ approach and this requires second guessing the market and positioning the portfolio ____________ return.

Question 30

__________ requires an investor to identify bonds with superior returns and similar characteristics to existing bonds,and to liquidate current bonds and purchase higher yielding bonds.

Question 31

Which type of fund can typically be accessed through private placement,where a minimum subscription is required?

Question 32

When was the first exchange-traded fund listed in Australia?

Question 33

Which type of fund is sometimes called an alternative investment?

Question 34

Which of the following are active portfolio management strategies?

Question 35

__________ is an approach to manage bond portfolios by choosing portfolios with duration matching the duration of liability cash flows.

Question 36

Which of the following factors may affect the index tracking complexities?

Question 37

__________ involves purchasing a portfolio of bonds that produce cash flows matching closely those cash flows of the underlying liability.

Question 38

__________ involves knowledge of the factors influencing interest rates.

Question 39

The portfolio insurance approach works by using an offsetting portfolio of:

Question 40

Contingent immunisation is an example of strategies.