IFC Constructing Investment Portfolios 3

Question 1

Which of the following is an example of a liability-driven investment (LDI) approach?

Accepted Answer

Matching asset cash flows to future pension liabilities

Answer

LDI focuses on structuring the portfolio so that asset cash flows align with the timing and magnitude of specific future liabilities, such as pension payments.

Question 2

A core-satellite portfolio construction approach typically involves:

Accepted Answer

A passive core holding plus active satellite positions for alpha

Answer

Core-satellite combines a low-cost passive core (tracking the market) with smaller active satellite positions that seek to generate excess returns.

Question 3

Which risk measure captures the potential loss in a portfolio under extreme but plausible market conditions?

Accepted Answer

Conditional Value at Risk (CVaR)

Answer

CVaR (also called Expected Shortfall) measures the average loss beyond the Value at Risk threshold, capturing tail risk under extreme scenarios.

Question 4

When a client's time horizon shortens from 20 years to 5 years, how should their portfolio typically be adjusted?

Accepted Answer

Shift toward more fixed-income and less volatile assets

Answer

A shorter time horizon reduces the ability to recover from market downturns, so the portfolio should be shifted toward more stable, lower-risk assets.

Question 5

Which portfolio construction technique uses macroeconomic forecasts to adjust asset class weights?

Accepted Answer

Tactical asset allocation

Answer

Tactical asset allocation involves making short-to-medium-term deviations from the strategic target weights based on current market views or economic forecasts.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Constructing Investment Portfolios 3