Investment Management for Trust Accounts Flashcards
6 cards from real CTFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Management for Trust Accounts flashcards as text
Which environmental, social, and governance (ESG) investment approach screens out industries or companies that conflict with specific values?
Answer: Negative screening (exclusionary screening)
Negative screening excludes specific sectors (e.g., tobacco, weapons, fossil fuels) from the investable universe based on ethical or values-based criteria.
A trustee's duty to diversify investments can be overridden in which circumstance?
Answer: When the trust document expressly permits retention of a concentrated position
Under the UPIA, a trustee is not required to diversify if the trust document contains express language permitting or directing retention of a concentrated position.
What is the primary purpose of a total return investment approach in trust management?
Answer: To manage the trust for both income and capital appreciation to balance current distributions and long-term growth
A total return approach manages the trust for maximum risk-adjusted return (income plus appreciation) rather than focusing exclusively on yield, balancing current and future beneficiary interests.
Which measure is used to evaluate a bond fund manager's ability to add value above the benchmark after fees?
Answer: Alpha
Alpha represents the excess return generated by a manager above what would be predicted by the portfolio's level of systematic risk (beta), measuring true value added.
In trust investment management, what is the function of an asset allocation policy statement?
Answer: To establish target allocations and ranges for each asset class based on the trust's objectives, risk tolerance, and time horizon
An asset allocation policy statement documents the strategic mix of asset classes—equities, fixed income, alternatives—appropriate for the trust's goals and constraints.
What is the reinvestment risk associated with holding fixed-income securities in a trust portfolio?
Answer: The risk that interest payments will be reinvested at lower rates if interest rates decline
Reinvestment risk is the risk that cash flows (coupon payments) from a fixed-income investment will have to be reinvested at a lower interest rate than the original bond's yield.