Deck 13: Equity Portfolio Management Strategies

Question 1

In ____ strategy, certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

A) sector rotation
B) price momentum
C) earnings momentum
D) return rotation
E) none of the above

Answer 1

A

Question 2

In returns-based style analysis a coefficient of determination of 95% would suggest that

A) the portfolio manager outperformed 95% of his peers.
B) the portfolio manager was outperformed by 95% of his peers.
C) 95% of the portfolio return variability could be attributed to portfolio style.
D) 95% of the portfolio return variability could be attributed to stock selection skills.
E) 5% of the portfolio return variability could be attributed to portfolio style.

Answer 2

C

Question 3

Which of the following is not considered an active management strategy?

A) Sector rotation
B) Use of factor models
C) Quantitative screens
D) Full replication
E) Linear programming

Answer 3

D

Question 4

A portfolio manager who is trying to generate alpha could use

A) hedge funds.
B) mutual funds.
C) insured asset allocation.
D) ETFs.
E) none of the above.

Question 5

Growth stocks would have the following characteristics:

A) low price/book, high price/earnings.
B) low price/book, low price/earnings.
C) high EPS growth, high profitability.
D) low EPS growth, high profitability.
E) none of the above.

Question 6

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

A) Time the markets by shifting between different types of securities based on market forecasts and estimated risk premiums.
B) Shift funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the 'hot' concept before the remainder of the market does.
C) Individual stockpicking in order to buy low and sell high.
D) Choices a and b only.
E) All of the above.

Question 7

A fundamental tenet of the contrarian investment strategy is the notion that

A) all stock returns are mean reverting.
B) certain stocks outperform others during different stages of the business cycle.
C) value stock investing is superior to growth stock investing.
D) growth stock investing is superior to value stock investing.
E) none of the above.

Question 8

Which of the following statements concerning active equity portfolio management strategies is true?

A) An actively managed equity portfolio has lower total transaction costs.
B) The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis.
C) An actively managed equity portfolio has lower risk than the passive benchmark.
D) A key to success for an actively managed equity portfolio is to maximise trading activity.
E) All of the above.

Question 9

Which of the following statements about investment style is false?

A) Growth stocks generally have smaller capitalisations than value stocks.
B) Value stocks have P/E and P/B ratios significantly lower than those of growth stocks.
C) Value stocks dividend yields are much higher than those of growth stocks.
D) Growth and levels of earnings is higher in growth stocks.
E) Value stocks have a higher risk premium.

Question 10

Which of the following is not considered an asset allocation strategy?

A) Integrated asset allocation
B) Strategic asset allocation
C) Tactical asset allocation
D) Insured asset allocation
E) None of the above (that is, all are asset allocation strategies)

Question 11

Which of the following is an example of a fundamental active equity portfolio management strategy.

A) Contrarian investing.
B) Earnings momentum investing.
C) Low P/E and low P/BV investing.
D) Bottom up investing.
E) Investing on the basis of calendar effects.

Question 12

A portfolio management strategy that overweights a particular industry, relative to the benchmark portfolio, based on the next expected phase of the business cycle is called

A) tactical asset allocation.
B) indexing.
C) sector rotation.
D) contrarian investing.
E) bottom up investing.

Question 13

The following are ways to implement index portfolio investing:

A) buying shares in index mutual funds;
B) buying hedge funds;
C) buying exchange traded funds;
D) a and b;
E) a and c.

Question 14

Which of the following statements regarding momentum strategies is true?

A) Price momentum is a fundamental strategy.
B) Earnings momentum is a technical strategy.
C) Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings.
D) The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises.
E) All of the above statements are true

Question 15

In equity portfolio management, tracking error occurs when

A) the managed portfolio outperforms the benchmark portfolio.
B) the managed portfolio under performs the benchmark portfolio.
C) the return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio.
D) the return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio.
E) the return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio.