CTFA Investment Management for Trust Accounts 3

Question 1

Which environmental, social, and governance (ESG) investment approach screens out industries or companies that conflict with specific values?

Accepted Answer

Negative screening (exclusionary screening)

Answer

Negative screening excludes specific sectors (e.g., tobacco, weapons, fossil fuels) from the investable universe based on ethical or values-based criteria.

Question 2

A trustee's duty to diversify investments can be overridden in which circumstance?

Accepted Answer

When the trust document expressly permits retention of a concentrated position

Answer

Under the UPIA, a trustee is not required to diversify if the trust document contains express language permitting or directing retention of a concentrated position.

Question 3

What is the primary purpose of a total return investment approach in trust management?

Accepted Answer

To manage the trust for both income and capital appreciation to balance current distributions and long-term growth

Answer

A total return approach manages the trust for maximum risk-adjusted return (income plus appreciation) rather than focusing exclusively on yield, balancing current and future beneficiary interests.

Question 4

Which measure is used to evaluate a bond fund manager's ability to add value above the benchmark after fees?

Accepted Answer

Alpha

Answer

Alpha represents the excess return generated by a manager above what would be predicted by the portfolio's level of systematic risk (beta), measuring true value added.

Question 5

In trust investment management, what is the function of an asset allocation policy statement?

Accepted Answer

To establish target allocations and ranges for each asset class based on the trust's objectives, risk tolerance, and time horizon

Answer

An asset allocation policy statement documents the strategic mix of asset classes—equities, fixed income, alternatives—appropriate for the trust's goals and constraints.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Investment Management for Trust Accounts 3