CIMA Asset Allocation 2

Question 1

Which concept refers to the empirical finding that asset allocation decisions account for the majority of portfolio return variability over time?

Accepted Answer

Policy portfolio dominance

Answer

Research by Brinson, Hood, and Beebower found that investment policy (asset allocation) explains approximately 90% or more of the variability in portfolio returns over time.

Question 2

In a liability-driven investing (LDI) framework, the primary goal of asset allocation is to:

Accepted Answer

Match or immunize the portfolio against future liability cash flows

Answer

LDI focuses on structuring assets so their value and cash flows are closely matched to the investor's liabilities, thereby reducing funding risk.

Question 3

Core-satellite portfolio construction combines which two elements?

Accepted Answer

A passively managed core with actively managed satellite positions

Answer

Core-satellite combines a large, low-cost passively managed core for broad market exposure with smaller active or alternative satellite positions intended to generate alpha.

Question 4

Which of the following is a key advantage of including alternative assets in a traditional stock-bond portfolio?

Accepted Answer

Potential diversification benefits due to low correlation with traditional assets

Answer

Alternative assets such as private equity, real estate, and hedge funds often have low or negative correlations with traditional stocks and bonds, potentially improving the risk-return profile of the overall portfolio.

Question 5

The 'glide path' concept in target-date funds refers to:

Accepted Answer

The gradual shift from growth-oriented to more conservative allocations as the target date approaches

Answer

A glide path describes the planned reduction in equity exposure and increase in fixed income exposure over time as an investor approaches their target date, reducing portfolio risk as the horizon shortens.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Asset Allocation 2