Chapter 16

Question 1

What is asset allocattion?

Answer 1

Its how an invetor distributes their money such as
1.Cash (no risk no return)
2. Fixed income (low risk, low return)
3. Equities (high risk, high return)

Question 2

There are two types of asset allocation, what are they?

Answer 2

1. Passive
2. Active

Question 3

What is passive asset allocation?

Answer 3

keeping the same mix of investments over time without changing

Question 4

What is active asset allocation?

Answer 4

changing our investments based on how the market is

Question 5

How is the market flow?

Answer 5

1. Expansion (economic profit and growth)
2. Peak (max economic activitiy and profit)
3. Contraction (economic profit and growth decline)
4. Trough (minimal economic activity + profit)

Question 6

What is the goal of asset allocation?

Answer 6

To be invested in equities between trough and peak

Question 7

What is high level asset allocation called?

Answer 7

strategic

Question 8

is it more passive or active

Answer 8

passive (fixed)

Question 9

What is ‘tactical, dynamic, integrated asset allocation’?

Answer 9

It is when we shift our assets based on short-term expectations

Question 10

What are some passive asset allocation strategies?

Answer 10

Do not try to time the market try to hold one set of assets over some time.

Question 11

What is industry sector rotation?

Answer 11

Asset allocation is when money is shifted between industries or sectors

Question 12

What are cyclical stocks?

Answer 12

Stocks that fluctuate go up and down.

Question 13

What are defensive stocks?

Answer 13

These do not change much with the economy and stay consistent.

Question 14

What is interest rate sensitive?

Answer 14

These stocks are directly impacted by changing interest rates

Question 15

What are Equity Manager styles?

Answer 15

1. Growth
2. Value
3. Sector Rotation

Question 16

What does growth mean for an ‘equity manager’?

Answer 16

Focuses on companies with high revenue growth (ex: google, Meta)

Question 17

What does value mean for an ‘equity manager’?

Answer 17

Focus on mature companies with stable revenue

Question 18

What does sector rotation mean for an ‘equity manager’?

Answer 18

Macro-driven industry selection

Question 19

What are the four types of bond manager styles

Answer 19

Intrest rate anticipators
Term to maturity
Credit quality
Spread Traders

Question 20

What are intrest rate anticipators

Answer 20

Its basedon rates rising or falling

Question 21

What are term to maturity

Answer 21

Bonds restriceticted to specific matuirities

Question 22

What are credit quality

Answer 22

Shows which yield the best credit quality

Question 23

What are spread traders

Answer 23

long short bond stragety that bets the yield for the bond to rise or fall

Question 24

How do we evaluate an investments performance

Answer 24

Comapre the total return of the investment to a benchmark (can be a combo of diff things)

Question 25

Equation for TR

Answer 25

Cash flow +(end- beg) /bef

Question 26

What is the sharpe ratio?

Answer 26

Used to evaluate a portfolios risk adjusted return

Question 27

How do we calculate

Answer 27

(rp-rf)/sdp

rp = total return - risk free rate