RFC Investment Strategies & Portfolio Management 2

Question 1

Which portfolio rebalancing strategy involves selling assets that have exceeded their target allocation and buying those that have fallen below?

Accepted Answer

Threshold-based rebalancing

Answer

Threshold-based rebalancing triggers trades when an asset class drifts beyond a set percentage band from its target, maintaining intended risk exposure.

Question 2

A client has a portfolio with a Sharpe ratio of 0.85 and a Treynor ratio significantly lower than peers. What does this most likely indicate?

Accepted Answer

The portfolio has low total risk but high systematic risk

Answer

A high Sharpe (total risk) but low Treynor (systematic/beta risk) ratio suggests the portfolio carries substantial beta relative to its total volatility.

Question 3

The core-satellite investment approach typically uses which type of holding as the 'core' component?

Accepted Answer

Low-cost index or passive funds

Answer

The core is typically a broad, low-cost passive index fund providing market-rate returns, while satellite positions seek alpha through active management.

Question 4

Which term describes the strategy of overweighting asset classes expected to outperform in the short-to-medium term while maintaining a long-term strategic allocation?

Accepted Answer

Tactical asset allocation

Answer

Tactical asset allocation (TAA) involves short-term deviations from the strategic benchmark to exploit perceived market opportunities.

Question 5

A portfolio manager applies a momentum strategy. Which behavior does this strategy exploit?

Accepted Answer

Persistence of recent price trends

Answer

Momentum strategies buy recent winners and short recent losers, betting that recent price trends will continue in the near term.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Investment Strategies & Portfolio Management 2