CIC Portfolio Management & Asset Allocation 3

Question 1

A portfolio manager uses a 60/40 stock/bond mix. After equities rally strongly, the portfolio is now 70/30. Selling equities to restore 60/40 is called:

Accepted Answer

Strategic rebalancing

Answer

Restoring the portfolio to its original 60/40 strategic target after drift is strategic rebalancing, maintaining the long-term policy mix.

Question 2

Which risk measure considers ONLY returns below the mean or a minimum acceptable return?

Accepted Answer

Semivariance

Answer

Semivariance (or semi-deviation) measures dispersion of returns only on the downside, below a target or the mean.

Question 3

The Capital Market Line (CML) differs from the Security Market Line (SML) in that the CML:

Accepted Answer

Applies only to efficiently diversified portfolios, not individual securities

Answer

The CML applies to efficient (fully diversified) portfolios using total risk (σ), while the SML applies to all assets and uses beta (systematic risk).

Question 4

An investor wants to minimize tracking error relative to the S&P 500 while slightly overweighting technology. This best describes:

Accepted Answer

Enhanced indexing

Answer

Enhanced indexing attempts to closely replicate an index while making limited active bets to add modest alpha with minimal tracking error.

Question 5

Which of the following is a characteristic of alternative investments that makes them attractive for portfolio diversification?

Accepted Answer

Low or negative correlation with traditional asset classes

Answer

Alternatives such as hedge funds, private equity, and real assets often exhibit low correlation with stocks and bonds, improving portfolio diversification.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Portfolio Management & Asset Allocation 3