Podcast
Questions and Answers
Which of the following is NOT a reason why investors would include alternative investments in their portfolio?
Which of the following is NOT a reason why investors would include alternative investments in their portfolio?
What is a primary characteristic of timberland investments that makes them attractive?
What is a primary characteristic of timberland investments that makes them attractive?
Which type of investment is NOT typically associated with private equity?
Which type of investment is NOT typically associated with private equity?
How does diversification affect portfolio risk according to the investment principles discussed?
How does diversification affect portfolio risk according to the investment principles discussed?
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Which of the following investments would most likely provide a method for accessing timber assets?
Which of the following investments would most likely provide a method for accessing timber assets?
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What significant change occurred regarding the regulation of commodity pools in Canada on January 3, 2019?
What significant change occurred regarding the regulation of commodity pools in Canada on January 3, 2019?
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What are alternative mutual funds informally referred to as?
What are alternative mutual funds informally referred to as?
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Which of the following statements about alternative mutual funds is true?
Which of the following statements about alternative mutual funds is true?
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What was a primary goal of the CSA's modernization of Investment Product Regulation?
What was a primary goal of the CSA's modernization of Investment Product Regulation?
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Which of the following restrictions remains for alternative mutual funds?
Which of the following restrictions remains for alternative mutual funds?
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Which category includes the differences between conventional mutual funds and alternative funds?
Which category includes the differences between conventional mutual funds and alternative funds?
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What characterizes hedge funds compared to liquid alternative funds?
What characterizes hedge funds compared to liquid alternative funds?
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During times of market distress, the differences in returns between hedge funds and liquid alternatives tend to?
During times of market distress, the differences in returns between hedge funds and liquid alternatives tend to?
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In what way do alternative mutual funds differ from traditional hedge funds?
In what way do alternative mutual funds differ from traditional hedge funds?
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Which aspect is NOT typically a difference between conventional mutual funds and alternative funds?
Which aspect is NOT typically a difference between conventional mutual funds and alternative funds?
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What does Portfolio X demonstrate in relation to Portfolio A?
What does Portfolio X demonstrate in relation to Portfolio A?
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What is the primary reason Portfolio X has a higher expected return than Portfolio A?
What is the primary reason Portfolio X has a higher expected return than Portfolio A?
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Why are points below the efficient frontier considered inefficient?
Why are points below the efficient frontier considered inefficient?
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What happens if a portfolio contains more than 20% stocks?
What happens if a portfolio contains more than 20% stocks?
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Which portfolio represents the lowest expected return and the lowest risk?
Which portfolio represents the lowest expected return and the lowest risk?
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Study Notes
Alternative Investments: Benefits, Risks, and Structure
- Alternative investments include hedge funds and alternative mutual funds
- Alternative investments differ from conventional mutual funds in terms of benefits, risks, and structure
- Learning objectives include explaining alternative investments, identifying categories, discussing benefits, describing risks, and outlining structural features of different investment types
- Alternative investments can be categorized by strategy and structure, such as exempt market alternative funds (hedge funds), alternative mutual funds, exchange-traded funds (ETFs), and closed-end funds
- Alternative investments are assets different from traditional stocks, bonds, and cash
- Alternative investments are categorized into alternative strategy funds, real assets (commodities, real estate, collectibles), and private equity
- Relative value strategies aim to exploit discrepancies in related assets' prices
- Event-driven strategies target companies involved in corporate actions (mergers, etc.)
- Directional strategies profit from anticipated market movements
- Commodities include agricultural products, precious metals, and energy products
- Real estate encompasses commercial, industrial, and residential property
- Collectibles encompass fine art, classic cars, rare stamps, and coins among other items
- Infrastructure includes roads, ports, and water works
- Natural resources include timberland and farmland
- Private equity entails investments in companies not publicly traded
- Benefits of alternative investments include diversification, alpha enhancement, and increased absolute returns
- Diversification minimizes risk by distributing investments across different assets
- Alpha adds value beyond expected returns based on market conditions
- Increasing absolute return creates more resilience against market declines
- Alternative investments have risks like diversification, alpha, and heightened risk
- Incentive fees for hedge fund managers are often performance-based, calculated after deducting management fees and expenses, based on the manager's performance
- High water marks ensure managers are paid incentives only on net new profits
- Hurdle rates are a minimum return requirement before incentive fees are paid
- Hedge funds involve unique features, like incentive fees, high-water marks, and hurdle rates.
- Hedge funds have reduced volatility and professional management, access to hedge funds, and ability to diversify with a smaller investment.
- Hedge funds can encounter issues regarding manager and business risk, additional costs, no guarantees of positive returns, and diversification.
- Alternative mutual funds offer limitations, restrictions, and protections
- Alternative funds compare to conventional funds based on considerations like disclosures, liquidity, fees, and regulatory oversight
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Description
Explore the essential aspects of alternative investments, including their benefits, risks, and structural features. This quiz will guide you through various categories of alternatives, such as hedge funds and private equity, and help you understand the differences from conventional investments. Test your knowledge on the strategies involved in these unique assets.
