Question 1

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Accepted Answer

Tactical asset allocation involves making active and strategic changes to a portfolio's asset allocation based on current market conditions and expectations. By doing so, a portfolio manager may be able to generate excess returns, or alpha, over a passive strategy of simply holding a static allocation.

Question 2

Which of the following is not considered an asset allocation strategy?

Accepted Answer

The answer of Which of the following is not considered...

Question 3

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

Accepted Answer

The answer of Which of the following is considered a...

Question 4

In ____ asset allocation, the investor's risk tolerance and constraints are assumed to be constant over time. However, changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Accepted Answer

The answer of In ____ asset allocation, the investor's risk...

Question 5

Which of the following statements about investment style is false?

Accepted Answer

The answer of Which of the following statements about investment...

Question 6

In equity portfolio management, tracking error occurs when

Accepted Answer

The answer of In equity portfolio management, tracking error occurs...

Question 7

Which of the following is not a technique for constructing a passive index portfolio?

Accepted Answer

The answer of Which of the following is not a...

Question 8

A fundamental tenet of the contrarian investment strategy is the notion that

Accepted Answer

The answer of A fundamental tenet of the contrarian investment...

Question 9

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

Accepted Answer

Sector rotation is a portfolio management strategy that involves over-weighting a particular industry or sector, based on the expected phase of the business cycle. This involves analyzing the trends and performance of different sectors and adjusting the portfolio to benefit from the changing economic environment. Tactical asset allocation and indexing do not necessarily involve over-weighting a particular industry. Contrarian investing and bottom-up investing are not related to sector rotation at all.

Question 10

Which of the following statements is false?

Accepted Answer

This statement is false as an investment manager's style can be used as a basis for measuring the manager's performance relative to a benchmark. Benchmark performance measures are often used to assess the performance of investment managers, and the manager's investment style can be compared to the benchmark to evaluate their performance.

Question 11

Which of the following is not considered a mainstream investment style?

Accepted Answer

Value, Growth, Market-oriented and Small-cap are all considered mainstream investment styles, while Benchmark is not. Benchmark refers to a standard against which the performance of a particular investment can be measured.

Question 12

Which of the following statements concerning active equity portfolio management strategies is true?

Accepted Answer

The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. This is the definition of active management and distinguishes it from passive management, where the goal is to match the return of a benchmark index. Choices B, C, and D are all false statements. An actively managed equity portfolio typically has higher total transaction costs, higher risk, and higher turnover compared to a passive benchmark. Maximizing trading activity is not a key to success but can actually increase costs and taxes, lowering the net return for investors.

Question 13

The following is an example of a fundamental active equity portfolio management strategy.

Accepted Answer

Bottom up investing is a fundamental active equity portfolio management strategy that involves analyzing individual companies and selecting stocks based on their financial performance, management quality, and industry trends. This approach focuses on the specific characteristics of a company, rather than broader market trends or macroeconomic factors. It is a popular strategy among value investors who seek to identify undervalued stocks and companies with strong growth potential.

Question 14

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Accepted Answer

Sector rotation strategy involves overweighting certain economic sectors or industries in anticipation of the next phase of the business cycle. This approach is based on the premise that different sectors perform differently at different stages of the economic cycle. For example, during a recession, defensive sectors such as healthcare, utilities, and consumer staples tend to outperform, while cyclical sectors such as industrials, materials, and consumer discretionary tend to underperform. By overweighting sectors that are expected to perform well and underweighting sectors that are expected to perform poorly, investors can potentially enhance their returns relative to the benchmark.

Question 15

____ is a strategy used because the market seems to reward companies that have steady, above average earnings growth, or whose prices are rising because of market optimism.

Accepted Answer

The answer of ____ is a strategy used because the...

Question 16

Which of the following is not considered an active management strategy?

Accepted Answer

Full replication is a passive management strategy where the objective is to replicate the performance of a benchmark index rather than trying to outperform it through active management. A, B, C, and E are all considered active management strategies that involve making investment decisions to outperform a benchmark index.

Question 17

Growth stocks would have the following characteristics:

Accepted Answer

Growth stocks are companies with high potential for revenue and earnings growth. As such, they typically have high EPS growth and high profitability. Low price/book and low price/earnings are characteristic of value stocks. High price/earnings and low price/book are characteristic of high-growth companies that have yet to turn a profit.

Question 18

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Accepted Answer

The answer of The asset allocation strategy that separately examines...

Question 19

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Accepted Answer

Insured asset allocation involves reallocating funds between an existing equity portfolio and a risk-free security such as bonds or cash to provide a level of protection against investment losses.

Question 20

Value stocks would have the following characteristics:

Accepted Answer

Value stocks typically have a low price relative to their book value and earnings, as they are considered undervalued by the market. Therefore, the best choice is B, which states low price/book and low price/earnings. Choices A, C, and D do not accurately reflect the characteristics of value stocks.

Quiz 16: Equity Portfolio Management Strategies