Investment Strategies Flashcards
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Read the first 7 Investment Strategies flashcards as text
Which investment concept describes spreading capital across assets that do not move in the same direction at the same time?
Answer: Non-correlated asset allocation
Holding non-correlated or negatively correlated assets reduces portfolio volatility because losses in one may be offset by gains in another.
When communicating about fixed-income investments to a general audience, which statement about bond prices and interest rates is accurate?
Answer: Bond prices fall when interest rates rise
Bond prices and interest rates have an inverse relationship; when rates rise, existing bonds paying lower rates become less attractive and their prices fall.
A corporate treasurer informs the communications team that the company will pursue a 'laddering' bond strategy. This means the company is:
Answer: Staggering bond maturities to manage reinvestment risk
Bond laddering staggers maturity dates so portions of the portfolio mature at regular intervals, reducing exposure to interest rate risk.
In an annual report, an investment holding described as 'held to maturity' signals that management intends to:
Answer: Hold the debt security until it repays principal at its maturity date
Held-to-maturity (HTM) classification means the company has the intent and ability to hold a debt instrument until it matures.
Which scenario best illustrates 'systematic risk' that cannot be eliminated through diversification?
Answer: A global recession causes broad market declines
Systematic risk affects the entire market or economy and cannot be diversified away, unlike unsystematic (company-specific) risk.
A communications consultant is preparing messaging for a hedge fund. Hedge funds differ from mutual funds primarily because they:
Answer: Use complex strategies including leverage, short-selling, and derivatives
Hedge funds employ sophisticated strategies unavailable to mutual funds, typically limiting participation to accredited investors due to higher risk.
When advising on transparent investor communications, which practice regarding investment performance reporting aligns with ethical standards?
Answer: Presenting returns over standardized, consistent time periods with relevant benchmarks
Ethical performance reporting requires consistent time periods, appropriate benchmarks, and fee-inclusive returns to prevent misleading stakeholders.