IFC Investment Strategies 5

Question 1

A fund that benchmarks against the MSCI World Index but restricts holdings to companies meeting specific ESG criteria is best described as:

Accepted Answer

An ESG-integrated or socially responsible investment (SRI) fund

Answer

An ESG-integrated fund uses non-financial environmental, social, and governance criteria to screen or tilt holdings while still tracking a conventional benchmark.

Question 2

Which scenario best illustrates 'style drift' in an actively managed Canadian equity fund?

Accepted Answer

A large-cap growth fund begins purchasing significant positions in small-cap value stocks

Answer

Style drift occurs when a fund deviates from its stated investment mandate — such as a large-cap growth fund migrating into small-cap value territory.

Question 3

An investor in a Canadian mutual fund wants to reduce currency risk on U.S. dollar-denominated equity holdings. The most direct hedging tool would be:

Accepted Answer

Entering a forward contract to sell U.S. dollars and buy Canadian dollars

Answer

A CAD/USD forward contract locks in an exchange rate, directly offsetting the currency exposure from holding U.S. dollar assets.

Question 4

Which strategy involves constructing a portfolio that mirrors the liability structure of a pension fund to minimize funding risk?

Accepted Answer

Liability-driven investing (LDI)

Answer

Liability-driven investing aligns the portfolio's duration and cash flows with a fund's liability profile to reduce the risk that assets will fall short of obligations.

Question 5

A mutual fund that targets a consistent positive return regardless of market conditions and uses derivatives and alternative assets to achieve it is called:

Accepted Answer

An absolute return fund

Answer

Absolute return funds aim to deliver positive returns in both rising and falling markets by using long/short positions, derivatives, and unconstrained mandates.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Investment Strategies 5