Investment Strategies and Asset Allocation Flashcards

What is 'liability-driven investing' (LDI)?

Answer: Structuring a portfolio to meet specific future liabilities

LDI structures a portfolio specifically to match and fund known future liabilities such as pension payments.

What is 'dynamic asset allocation'?

Answer: Adjusting asset mix based on changing market conditions or economic outlook

Dynamic asset allocation involves actively adjusting the portfolio's asset mix in response to changing market conditions, valuations, or economic forecasts.

What characterizes an 'absolute return' investment strategy?

Answer: Seeking positive returns regardless of market direction

Absolute return strategies aim to generate positive returns in all market conditions, unlike relative return strategies that are judged against a benchmark.

What is a 'barbell strategy' in fixed income portfolio management?

Answer: Concentrating holdings in short-term and long-term bonds while avoiding intermediate maturities

A barbell strategy concentrates bond holdings at two extremes — very short and very long maturities — while avoiding intermediate-term bonds.

What does 'international diversification' add to a US-focused portfolio?

Answer: Exposure to different economic cycles and growth opportunities beyond the US

International diversification provides exposure to different economic cycles, growth rates, and opportunities that may not correlate strongly with US markets.

What is 'alternative investment' allocation used for in portfolios?

Answer: Providing diversification and potential returns uncorrelated with stocks and bonds

Alternatives such as real estate, private equity, and hedge funds can provide diversification benefits due to their lower correlation with traditional asset classes.