Asset Classes Flashcards
6 cards from real IMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Asset Classes flashcards as text
What are 'index-linked gilts' and what is their advantage?
Answer: UK government bonds where both coupon and principal are adjusted for inflation (RPI), providing inflation protection
Index-linked gilts (linkers) have their coupon payments and redemption value adjusted in line with the Retail Price Index (RPI). They protect investors against inflation by ensuring real purchasing power is maintained.
What is 'venture capital' as a form of private equity?
Answer: Capital invested in early-stage, high-growth potential companies in exchange for equity
Venture capital (VC) provides funding to early-stage or start-up companies with high growth potential that cannot access traditional financing. VC investors take equity stakes, accepting high risk for potentially very high returns if the company succeeds.
What is a 'convertible bond' and what dual nature does it have?
Answer: A bond that can be converted into equity shares at a specified price, combining bond and equity characteristics
A convertible bond is a fixed-income instrument that can be converted into a predetermined number of the issuer's ordinary shares at a specified conversion price. It offers bond-like downside protection with equity-like upside potential.
What is the purpose of 'asset allocation' in portfolio management?
Answer: To decide how to divide a portfolio among different asset classes to achieve return objectives while managing risk
Asset allocation is the strategic decision of how to distribute a portfolio across asset classes (equities, bonds, cash, alternatives, property). It is considered the primary determinant of long-term portfolio returns and risk, accounting for the majority of return variability.
What is 'tactical asset allocation' (TAA)?
Answer: Short-term deviations from the strategic asset allocation to exploit perceived market opportunities
TAA involves making short-term adjustments to portfolio weights away from the strategic asset allocation (SAA) to capitalise on market conditions or opportunities. For example, overweighting equities when valuations appear attractive.
What is a 'fund of funds'?
Answer: A fund that invests in a portfolio of other funds rather than directly in securities
A fund of funds (FoF) invests in a selection of other investment funds rather than directly in securities. This provides diversification across multiple fund managers and strategies, but typically incurs an additional layer of fees.