Portfolio Management Flashcards
7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Portfolio Management flashcards as text
In an Investment Policy Statement, a client's ability to take risk is high, but their willingness to take risk is low. What should the advisor generally do?
Answer: Adopt the lower (more conservative) risk tolerance and possibly educate the client
When ability and willingness conflict, the IPS usually adopts the more conservative level, though the advisor may educate the client.
Which statement best distinguishes tactical asset allocation from strategic asset allocation?
Answer: Tactical allocation makes short-term deviations from policy weights to exploit perceived opportunities
Strategic allocation sets the long-term policy mix, while tactical allocation makes temporary deviations based on short-term market views.
Compared with calendar rebalancing, percentage-range (corridor) rebalancing:
Answer: Triggers trades only when an asset class drifts outside a set band
Corridor rebalancing trades only when weights breach tolerance bands, tying rebalancing to actual drift instead of the calendar.
In a core-satellite approach, the core portion is typically:
Answer: Invested passively or in low-tracking-error strategies, while satellites seek alpha
The core provides low-cost benchmark exposure, and the satellites use active strategies to add alpha.
A defined-benefit pension plan that structures its bond portfolio to match the duration of its future benefit payments is using:
Answer: Liability-driven investing
Liability-driven investing builds assets around the characteristics of liabilities to reduce surplus risk.
A client plans to pay college tuition of $80,000 in eight months. In the IPS, this is mainly a:
Answer: Liquidity constraint
A known near-term cash need is a liquidity requirement that the portfolio must be able to meet.
Constant-mix (buy-low, sell-high) rebalancing tends to outperform buy-and-hold in which market environment?
Answer: An oscillating, mean-reverting market without a clear trend
Constant-mix strategies sell winners and buy losers, which pays off when prices reverse but lags in trending markets.