Portfolio Management Techniques Flashcards

A manager rebalances only when an asset class weight drifts more than ±5% from its target. This approach is known as:

Answer: Percentage-of-portfolio (corridor) rebalancing

Corridor rebalancing triggers trades only when weights breach a preset tolerance band, not on a fixed schedule.

All else equal, which factor justifies a WIDER rebalancing corridor for an asset class?

Answer: Higher transaction costs

Higher trading costs make frequent rebalancing expensive, so a wider band is optimal.

Under CPPI, a portfolio worth $100 has a floor of $80 and a multiplier of 3. What is the target equity exposure?

Answer: $60

Exposure = multiplier × (value − floor) = 3 × $20 = $60.

A constant-mix strategy tends to outperform buy-and-hold in which type of market?

Answer: An oscillating, mean-reverting market

Constant-mix buys after declines and sells after rises, which pays off when prices reverse.

In a core-satellite portfolio structure, the core is typically:

Answer: A low-cost index or enhanced index allocation

The core delivers cheap beta exposure while satellites pursue alpha.

Under US wash-sale rules, a harvested capital loss is disallowed if a substantially identical security is purchased within:

Answer: 30 days before or after the sale

The IRS wash-sale window spans 30 days before and after the sale (61 days total).

A pension fund gains S&P 500 exposure through futures and invests the freed cash in a market-neutral hedge fund. This technique is:

Answer: Portable alpha

Portable alpha separates beta (from futures) and alpha (from a market-neutral strategy) and combines them.