IFC Investment Strategies 4

Question 1

Which investment strategy is most appropriate for an investor who wants to ensure that a specific sum is available at a future date regardless of market fluctuations?

Accepted Answer

Immunization

Answer

Immunization matches the duration of assets to a specific liability date, ensuring the target sum is available even if interest rates change.

Question 2

A Canadian fund manager who increases equity exposure when valuations are low and reduces it when valuations are high is practicing:

Accepted Answer

Contrarian tactical asset allocation

Answer

Contrarian tactical asset allocation increases exposure to asset classes that appear undervalued and reduces it when they appear overvalued, betting against prevailing sentiment.

Question 3

What does a negative information ratio indicate about an active fund manager?

Accepted Answer

The manager's active bets have detracted value relative to the benchmark on a risk-adjusted basis

Answer

A negative information ratio means active return (alpha) is negative relative to tracking error, indicating the manager's decisions have subtracted value.

Question 4

In a 'covered call' options strategy applied to a Canadian equity fund, the fund manager:

Accepted Answer

Sells call options on holdings to generate premium income while capping upside

Answer

A covered call involves selling call options on existing holdings to collect premium income, which enhances yield but limits participation if the stock rises sharply.

Question 5

Which of the following best describes the 'buy-and-hold' approach to investing in mutual funds?

Accepted Answer

Purchasing fund units and retaining them regardless of short-term market movements

Answer

Buy-and-hold investors purchase assets and maintain positions long-term, avoiding frequent trading costs and the risk of mistimed market exits.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Investment Strategies 4