Chapter 15-18 Equity

Question 1

Active share

Answer 1

A measure of how similar a portfolio is to its benchmark. A manager who precisely replicates the benchmark will have an Active Share of zero; a manager with no holdings in common with the benchmark will have an Active Share of one.

Question 2

Breadth

Answer 2

The number of truly independent decisions made each year.

Question 3

Buffering

Answer 3

Establishing ranges around breakpoints that define whether a stock belongs in one index or another.

Question 4

Cash drag

Answer 4

Tracking error caused by temporarily uninvested cash.

Question 5

Closet indexer

Answer 5

A fund that advertises itself as being actively managed but is substantially similar to an index fund in its exposures.

Question 6

Completion overlay

Answer 6

A type of overlay that addresses an indexed portfolio that has diverged from its proper exposure.

Question 7

Currency overlay

Answer 7

A type of overlay that helps hedge the returns of securities held in foreign currency back to the home country’s currency.

Question 8

Exhaustive

Answer 8

An index construction strategy that selects every constituent of a universe.

Question 9

Expected shortfall

Answer 9

The average loss conditional on exceeding the VaR cutoff; sometimes referred to as conditional VaR or expected tail loss.

Question 10

Expected tail loss

Answer 10

Expected shortfall The average loss conditional on exceeding the VaR cutoff; sometimes referred to as conditional VaR or expected tail loss.

Question 11

Information coefficient

Answer 11

Formally defined as the correlation between forecast return and actual return. In essence, it measures the effectiveness of investment insight.

Question 12

Optional stock dividends

Answer 12

A type of dividend in which shareholders may elect to receive either cash or new shares.

Question 13

Overlay

Answer 13

A derivative position (or positions) used to adjust a pre-existing portfolio closer to its objectives.

Question 14

Packeting

Answer 14

Splitting stock positions into multiple parts.

Question 15

Portfolio overlay

Answer 15

An array of derivative positions managed separately from the securities portfolio to achieve overall intended portfolio characteristics.

Question 16

Program trading

Answer 16

A strategy of buying or selling many stocks simultaneously.

Question 17

Rebalancing overlay

Answer 17

A type of overlay that addresses a portfolio’s need to sell certain constituent securities and buy others.

Question 18

Selective

Answer 18

An index construction methodology that targets only those securities with certain characteristics.

Question 19

Transfer coefficient

Answer 19

The ability to translate portfolio insights into investment decisions without constraint.