Investment Strategies Flashcards

A fintech platform offers 'alternative investments' including hedge fund replication strategies. What is the primary method hedge fund replication uses?

Answer: Factor models that mimic hedge fund return patterns using liquid securities

Hedge fund replication uses quantitative factor models to reproduce hedge fund return characteristics using liquid, lower-cost instruments.

In a fintech-enabled separately managed account (SMA), what is the primary benefit of 'tax-loss harvesting' for a taxable investor?

Answer: Realizing capital losses to offset capital gains, reducing current tax liability

Tax-loss harvesting sells depreciated securities to realize losses that offset capital gains, reducing current-year tax liability while maintaining market exposure.

A CFP uses a fintech platform's Monte Carlo simulation for retirement planning. What does a 90% success rate in a Monte Carlo simulation indicate?

Answer: The portfolio survived all spending requirements in 90% of simulated market scenarios

A 90% Monte Carlo success rate means the portfolio funded all withdrawals without depletion in 90 out of 100 simulated market scenarios.

Which investment strategy is best suited for an investor who believes markets are mostly efficient but wants to tilt toward higher expected returns?

Answer: Evidence-based factor tilting using low-cost index funds overweighting value and small-cap

Evidence-based factor tilting accepts market efficiency while systematically overweighting factors (value, size) that academic research associates with higher long-term returns.

A fintech platform offers 'impact investing' through ESG screening. What does 'negative screening' mean in an ESG context?

Answer: Excluding companies in industries like tobacco, weapons, or fossil fuels from the portfolio

Negative screening in ESG investing excludes entire sectors or companies that fail to meet specified ethical criteria, such as tobacco, weapons, or coal.

An investor accesses private credit through a fintech platform. What is the primary risk premium investors expect from private credit versus public investment-grade bonds?

Answer: Illiquidity premium for accepting reduced ability to quickly sell the investment

Private credit offers an illiquidity premium above public bond yields because investors sacrifice the ability to quickly sell their positions in secondary markets.

A fintech advisor constructs a 'barbell strategy' for a client's fixed income allocation. What does a barbell strategy involve?

Answer: Concentrating holdings in very short-term and very long-term maturities while avoiding the middle

A fixed-income barbell strategy concentrates investments at the short and long ends of the yield curve, avoiding intermediate maturities to balance liquidity and yield.