Chapter 9-Specialty Categories Flashcards
(35 cards)
Potential problems of ethical funds include:
1) Excluding certain types of companies ____.
2) It is impossible to totally ____.
3) There may be _______ in the portfolio.
1) can limit returns
2) screen out undesirable businesses
3) diversification holes
As a target date fund’s date approaches, the composition starts to favor ___.
Some target-date funds begin with an allocation of ___ in stocks and ___ in bonds, moving to a ____ split at the target date.
These funds either merge into a ____ or adopt an ___.
bonds and cash.
90%; 10%; 50/50
retirement income fund; allocation that preserves purchasing power.
3 fund companies manage over ____ of the money in the target date fund category: ____, ____ & ____.
Target date funds are particularly popular in ___.
80%; Fidelity; T. Rowe Price; Vanguard.
retirement plans like 401K plans.
Possible problems with target date funds include:
1) ________ of people in a similar target date can be quite different.
2) The greatest concern about target retirement funds is their ____ (according to IBF).
1) financial objectives
2) allocations are all over the board.
Mutual fund life cycle studies* show:
1) investors pick ____ than their age warrants.
2) when a couple retires, it should be expected that __.
3) the biggest risk to retirees is ___.
1)more aggressive portfolios
2) at least 1 will reach their 90s.
3) outliving their assets.
Most advisors think of FOCUSED funds as being funds holding ____
less than 40 stocks.
A focused fund should have …
1) ___ management
2) ____ family
3) superior ____
4) reasonable ____
5) a ____ strategy
1) seasoned
2) a highly regarded
3) long-term performance
4) expenses
5) risk reduction
Aggressive investors should probably ____ in a focused fund, and this focused fund should be in the ___ of their portfolio.
only have a small portion of their holdings; aggressive portion.
Focused funds with a low turnover tend to also have ___.
Funds that were in the quartile with the fewest ____ and in their category’s ____ quartile had a lower ___ than the category average in ____ of rolling 1-, 3-, 5-, & 10-year periods combined.
low volatility.
stocks; lowest-turnover; SD; over 75%
Flexible funds have the potential to _____ environments.
Advisors, investors, and media are wary of flexible funds, but there are no __.
____ was the best known flexible fund manager.
thrive in all sorts of market.
long-term studies indicating that this approach is better or worse than style-specific (growth, value, etc) funds.
Peter Lynch
Sector Fund facts
1) You can select hundreds of sector funds representing ___.
2) Funds investing in the same sector may hold ___.
3) The ___ and ___ performing funds are sector funds.
4) Sector funds can be significantly hurt by ___.
1) over 4 dozen industry segments
2) different stocks and use nearly opposite strategies
3) best; worst
4) the performance of just 1 company (since SFs hold so few stocks).
Reasons to buy sector funds
1) To invest in the ____ where you may have more of an ear to the ground.
2) To obtain ___ industry or theme.
3) A hands on investor may reason that having a few sector funds allows them to have an ____.
4) To obtain above average ____. Funds focusing on ___ stocks pay some of the largest dividends.
5) To ___ a portfolio. I.e. a gold fund can mitigate high inflation or other catastrophes.
1) industry in which you work
2) concentrated exposure to a promising
3) an industry expert managing each fund
4) income with some growth potential. financial, real estate & utility
5) hedge
If a client demands to be in a sector fund, consider the following:
1) long-term ___ and ____ sectors
2) make sure your client ____ years
3) help your client consider what sectors are ____.
4) it may be wise to use ____ funds to reduce overall risk. ___ or ___ are often underrepresented in a portfolio
5) risk-reducing sector funds should make up ____ of a portfolio; generally all other sector funds should ___ of a portfolio.
1) trends; out-of-favor
2) dollar-cost averages over 1-2
3) already represented in the portfolio
4) conservative sector
5) less than 20%; no more than 5-10%
Utility funds offer diversification with an R-squared of ____ vs.___ for large cap blend funds and ___ for the S&P 500.
43; 94; 100
Correlation to the S&P 500:
Large cap value funds__; Large cap blend funds ___; Large cap growth funds _.
Mid cap value funds & blend funds ___; mid cap growth funds __
Small cap value funds & small cap blend funds __; small cap growth funds __
.97; .99; .94
.90; .87
.84; .83
From 1974-2010, dividends accounted for ___ from utility stocks compared to ___ for the S&P 500.
69% of total returns; 42%
Bank loan funds are also referred to as ___.
The bank lends money to borrowers with ___.
The bank then packages these loans and sells them to ____; thus, ___ is transferred to purchasers of those packages.
prime rate or senior loan funds.
imperfect credit profiles
institutional investors and funds; all credit risk
Bank loan funds can be appealing because ___ even compared to medium or long-term bonds And because yields are ____.
yields are high; adjusted quarterly
3 Negatives of bank loan funds are
1) ___ is possible
2) ___ marketability
3) high ___
1) loss of principal
2) limited
3) fees
Most bank loan funds only allow ____.
As of early 2024, bank loan funds own debt instruments with an average maturity of ___; the average bank loan fund had ____.
Because the market for these loans is so thin, it is ____ to fulfill redemptions; a quarterly redemption policy allows a ____.
Floating rate bank loan funds have correlation of __ to investment grade corporate bonds, __to US gov bonds, __ to US equities, __ to foreign equities.
redemptions quarterly.
5 years; 420 different holdings.
difficult for the fund to find ready buyers; certain level of liquidity.
.1; -.1; .3; .4
Floating-rate (bank loan) funds have credit ratings ___.
The interest rate on bank loans is reset every ___; the reset is usually based on the ____.
BB & below.
30-90 days; London Interbank Offered Rate (LIBOR)
Most inflation-indexed bond funds are comprised of ___; principal of these is tied to ___.
___ pay interest every 6 months, a fixed rate applied to ____.
Each interest payment is calculated by multiplying adjusted principal by ____.
TIPS; the CPI
TIPS; adjusted principal
1/2 the interest rate
On a $1000 bond, its initial coupon rate is 3% and CPI is 1% after 6 months, principal is adjusted to ___; the investor receives a semiannual payment of ___ (1.5% of ___).
$1010; $15.15; $1010
During deflationary periods, ___ bonds can perform extremely well.
medium- and long-term
