Equity Portfolio Management Flashcards
6 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Equity Portfolio Management flashcards as text
The primary distinction between growth investing and value investing is:
Answer: Value investors seek underpriced stocks relative to fundamentals, while growth investors seek companies with above-average earnings growth potential
Value investing focuses on purchasing stocks trading below their intrinsic value, while growth investing targets companies expected to grow earnings significantly faster than the market.
Which equity valuation multiple compares stock price to earnings per share and is most widely used by analysts?
Answer: Price-to-earnings (P/E)
The price-to-earnings (P/E) ratio is the most widely used equity valuation multiple, comparing a stock's current price to its earnings per share to assess relative value.
A portfolio manager's active share measures:
Answer: The percentage of portfolio holdings that differ from the benchmark, indicating the degree of active management
Active share quantifies how different a portfolio's holdings are from its benchmark; a high active share indicates meaningful active bets, while a low active share suggests benchmark-hugging.
Factor investing (smart beta) attempts to systematically capture returns associated with:
Answer: Well-documented risk premia such as value, momentum, quality, and low volatility
Factor investing targets specific, academically documented risk premia (e.g., the value premium, momentum, quality) by systematically tilting portfolio weights toward stocks with those characteristics.
Which of the following best describes the information ratio (IR) in equity portfolio management?
Answer: The ratio of active return (alpha) to tracking error, measuring the efficiency of active management
The information ratio measures how much active return (alpha) a manager generates per unit of active risk (tracking error), assessing the skill and efficiency of active management decisions.
In a top-down equity portfolio management approach, the manager begins by:
Answer: Analyzing macroeconomic conditions, then sectors, then individual stocks
Top-down investing starts with macroeconomic analysis (GDP growth, interest rates, inflation), then identifies favorable sectors, and finally selects individual stocks within those sectors.