CIMA Manager Search and Selection 3

Question 1

What does a manager's 'information ratio' measure?

Accepted Answer

Active return generated per unit of tracking error

Answer

The information ratio measures active return (alpha) relative to tracking error, indicating the consistency and efficiency of a manager's active bets.

Question 2

A plan sponsor is selecting a fixed income manager and notices the manager's composite includes accounts with significantly different mandates. What is the primary concern?

Accepted Answer

The composite may not be representative of the strategy being evaluated

Answer

When a composite mixes accounts with different mandates, the reported performance may not accurately represent the specific strategy the plan sponsor intends to hire.

Question 3

Which of the following is an example of 'qualitative' criteria used in manager selection?

Accepted Answer

Depth and cohesion of the investment team

Answer

Qualitative criteria include judgment-based assessments such as team quality, investment culture, and organizational stability that cannot be fully captured by quantitative data.

Question 4

During reference checks for a manager finalist, a consultant speaks with a client who recently terminated the manager. What is the most valuable piece of information to obtain?

Accepted Answer

The reason for termination and whether performance met expectations

Answer

Understanding why a client terminated a manager and whether performance met expectations provides critical insight into the manager's real-world track record and client relationship management.

Question 5

A consultant recommends allocating to a manager with high active share. What does high active share suggest about the portfolio?

Accepted Answer

A large proportion of holdings differ from the benchmark, reflecting conviction bets

Answer

High active share indicates that a substantial portion of the portfolio differs from the benchmark, suggesting the manager is taking meaningful active positions rather than closet indexing.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Manager Search and Selection 3