Podcast
Questions and Answers
Which of the following best describes the passive portfolio management style?
Which of the following best describes the passive portfolio management style?
- Primarily focuses on stock picking and market timing
- A long-term buy and hold strategy (correct)
- Frequently trades to capture short-term opportunities
- Actively managed to outperform the market
What is the primary method used to evaluate passive fund managers?
What is the primary method used to evaluate passive fund managers?
- How well they track the target index (correct)
- Their frequency of trading
- Their ability to outperform the market
- Their success in stock picking and timing the market
Which of these market indexes is commonly used for tracking portfolios in passive management?
Which of these market indexes is commonly used for tracking portfolios in passive management?
- S&P 500 index (correct)
- Russell 2000 index
- Dow Jones Industrial Average
- NYSE Composite Index
What is the expected return in passive portfolio management defined as?
What is the expected return in passive portfolio management defined as?
Why might a passive portfolio slightly underperform the target index?
Why might a passive portfolio slightly underperform the target index?
What distinguishes active equity portfolio managers from passive fund managers?
What distinguishes active equity portfolio managers from passive fund managers?
Which investment style focuses on identifying undervalued stocks?
Which investment style focuses on identifying undervalued stocks?
What is the primary goal of active portfolio management?
What is the primary goal of active portfolio management?
Why are costs involved in tracking the index?
Why are costs involved in tracking the index?
What can cause a passive portfolio to deviate from the target index's performance?
What can cause a passive portfolio to deviate from the target index's performance?
What is market capitalization?
What is market capitalization?
What is the main difference between full replication and sampling methods for constructing an index portfolio?
What is the main difference between full replication and sampling methods for constructing an index portfolio?
What does tracking error measure in managed portfolio performance?
What does tracking error measure in managed portfolio performance?
What is 'alpha' in the context of active management?
What is 'alpha' in the context of active management?
What is the main focus of top-down fundamental strategy in active equity portfolio management?
What is the main focus of top-down fundamental strategy in active equity portfolio management?
What is the primary characteristic of contrarian investment strategy?
What is the primary characteristic of contrarian investment strategy?
'Factor-based investment strategies form portfolios based on specific characteristics believed to produce better risk-adjusted returns than traditional passive index funds.' Which characteristic do these strategies primarily focus on?
'Factor-based investment strategies form portfolios based on specific characteristics believed to produce better risk-adjusted returns than traditional passive index funds.' Which characteristic do these strategies primarily focus on?
'The weekend effect' and 'The January effect' are phenomena related to which aspect of stock returns?
'The weekend effect' and 'The January effect' are phenomena related to which aspect of stock returns?
'Factor-based investment strategies' primarily focus on which type of stock characteristic?
'Factor-based investment strategies' primarily focus on which type of stock characteristic?
'The weekend effect' refers to which phenomenon in stock returns?
'The weekend effect' refers to which phenomenon in stock returns?
Which market anomaly is considered by some to be evidence against the efficient markets hypothesis?
Which market anomaly is considered by some to be evidence against the efficient markets hypothesis?
What does portfolio turnover measure?
What does portfolio turnover measure?
What does a growth investor focus on?
What does a growth investor focus on?
What characteristics are typically associated with value stocks?
What characteristics are typically associated with value stocks?
What is the primary focus of style analysis in investment?
What is the primary focus of style analysis in investment?
Which type of investor assumes a constant P/E ratio and focuses on EPS growth?
Which type of investor assumes a constant P/E ratio and focuses on EPS growth?
What does the January Effect provide evidence against?
What does the January Effect provide evidence against?
What does measures of tax efficiency involve?
What does measures of tax efficiency involve?
'Style drift' refers to unintentional changes in what aspect of investing?
'Style drift' refers to unintentional changes in what aspect of investing?
Which investment approach involves anticipating a market correction and focusing on improving company fundamentals?
Which investment approach involves anticipating a market correction and focusing on improving company fundamentals?
Study Notes
- Market capitalization is the product of share price and number of shares. The market index undergoes daily rebalancing, requiring fund managers to sell shares of companies that no longer belong in the index and buy shares of those that do.
- Two methods for constructing an index portfolio: Full replication and sampling. Full replication involves purchasing securities in proportion to their weight in the index, ensuring close tracking but increasing transaction costs. Sampling buys a representative sample of stocks with lower commissions.
- Tracking error is the difference between a managed portfolio's return and the benchmark's return in a specific period. Measured as the standard deviation of these differences, typically annualized.
- Active management involves attempting to earn returns above the market average, known as "alpha." Active equity portfolio managers use fundamental and technical strategies to achieve this.
- Fundamental strategies include top-down and bottom-up approaches. Top-down focuses on broad asset class and sector allocations, while bottom-up emphasizes individual securities selection.
- Technical strategies include contrarian investment and price momentum. Contrarian investment involves buying stocks when most investors are bearish and selling when they are bullish. Price momentum strategy focuses on past price trends.
- Factor-based investment strategies form portfolios based on specific characteristics believed to produce better risk-adjusted returns than traditional passive index funds.
- Earnings momentum strategy focuses on buying stocks with accelerating earnings and selling those with disappointing earnings.
- The weekend effect is a phenomenon in which stock returns on Mondays are often lower due to the release of bad news on Fridays.
- The January effect is a perceived tendency for stocks to rise in January due to tax-loss harvesting and re-investment.
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Description
Test your knowledge of passive and active portfolio management styles, techniques for constructing passive index portfolios, themes used by active equity portfolio managers, and differences between value-oriented and growth-oriented investment styles.
