Portfolio Management Process Flashcards
7 cards from real CSC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Portfolio Management Process flashcards as text
Which of the following best describes the purpose of an Investment Policy Statement (IPS) in the portfolio management process?
Answer: To document the client's financial goals, risk tolerance, and investment constraints
An IPS formalizes the client's objectives, risk tolerance, time horizon, and constraints to guide all portfolio decisions.
In the context of the CSC, which constraint is most likely to restrict a portfolio manager from investing in certain securities?
Answer: Liquidity requirements
Liquidity requirements constrain the portfolio by ensuring sufficient assets can be converted to cash when needed, limiting illiquid investments.
A client has a 30-year investment horizon and a high risk tolerance. Which asset allocation is most appropriate?
Answer: 80% equities, 20% fixed income
A long horizon and high risk tolerance support a growth-oriented allocation with a large equity component to maximize long-term returns.
Strategic asset allocation differs from tactical asset allocation in that strategic allocation:
Answer: Establishes long-term target weights based on the IPS
Strategic asset allocation sets long-term target weights aligned with the client's goals and risk profile as defined in the IPS.
When rebalancing a portfolio, a manager sells outperforming assets and buys underperforming ones. This practice is known as:
Answer: Contrarian rebalancing
Contrarian rebalancing systematically sells assets that have risen above target weights and buys those that have fallen below, restoring the target allocation.
Which of the following is an example of a unique circumstance that would be documented in a client's IPS?
Answer: A restriction on investing in tobacco stocks for ethical reasons
Unique circumstances such as ethical screens, legal restrictions, or concentrated stock positions are client-specific constraints recorded in the IPS.
The monitoring and feedback stage of the portfolio management process primarily involves:
Answer: Comparing portfolio performance to benchmarks and reassessing client objectives
Monitoring involves tracking performance against benchmarks, reviewing whether client circumstances have changed, and determining if adjustments are needed.