Learning Module 4 Basics of Portfolio Planning and Construction

Which of the following is the primary purpose of an Investment Policy Statement (IPS)?

A client states she requires a 6 percent nominal annual return to meet her goals, and she wants no more than a 10 percent chance of losing more than 8 percent in any 12-month period. How should these objectives be classified in the IPS?

Which two components combine to form an investor’s overall risk tolerance according to the chapter?

An adviser uses a five-question psychometric scale similar to the chapter’s example and the client’s summed score is high. That score primarily informs which element of the IPS?

Which IPS constraint would be most relevant for an investor who expects a large tuition payment in two years?

What is the most direct effect of tax status on portfolio construction for a taxable investor versus a tax-exempt pension fund?

Which of these asset-class specifications would give the most control over fixed-income exposures in an SAA?

When constructing capital market expectations to build an SAA, which three inputs are commonly quantified?

In mean-variance portfolio theory, the efficient frontier represents portfolios that:

An investor’s SAA is derived by finding the point of tangency between which two constructs?

Which of the following describes tactical asset allocation (TAA)?

A fund has a policy corridor of +/- 2% around a 30% equity policy weight. If market movement increases the equity weight to 32.4%, what should the rebalancing policy indicate?

In risk budgeting, what is meant by the term 'risk budget'?

Which of the following is NOT a common ESG investment approach listed in the chapter?

Which IPS appendix is commonly used to state the long-term policy portfolio and how to maintain it?

If an institutional investor's liabilities are well-known and long-dated, which investment approach does the chapter say may be appropriate?

Which metric does the chapter identify as a relative risk measure that is widely used when an investor expects to hold a diversified portfolio?

An investor requires a portfolio that will likely generate a steady income for the next 10 years and has low risk tolerance. Which asset allocation from the chapter's examples is most consistent?

Which of the following is the most likely reason an endowment would have a significant allocation to alternative assets (private equity, hedge funds, real assets)?

If an asset-class benchmark excludes certain industries due to ESG screening, what important IPS implementation change does the chapter recommend?

Which statement best reflects the chapter’s guidance on re-evaluating the IPS?

Which of the following choices best captures the chapter’s view on bottom-up vs top-down security analysis?

A university endowment has a 5.25% target spending rate with a smoothing rule combining prior year spending and long-term target. This policy example in the chapter is intended to illustrate:

Which of the following best describes the trade-off when using negative screening for ESG (excluding certain industries)?

Which approach to portfolio construction is most likely to cause higher portfolio turnover and more capital gains distributions in taxable accounts?

If a client expresses ethical concerns that preclude investing in tobacco and gambling businesses, which IPS element should document that preference?

Which of the following statements regarding closed-end vs open-end funds is consistent with the chapter?

Which of the following is most consistent with the chapter’s discussion of a top-down analysis?

A charity begins the year with policy weights and after six months equities have outperformed causing drift. If the charity chooses not to rebalance and instead increases equities to exploit momentum, the chapter would classify that action as:

What is the chapter’s main caution about using historical correlations and volatilities for asset-class inputs?

Which of the following best reflects the chapter’s guidance on manager selection and implementation after the SAA is set?

An investor who is 40 years away from retirement and highly risk-tolerant is most likely to:

When a client’s portfolio drifts from policy weights due to market movements, the chapter suggests that rebalancing helps to:

Which investor type listed in the chapter is most likely to have the greatest need for liquidity?

Which of the following is a potential downside of delegating stewardship and proxy voting entirely to an external manager without client input as discussed in the chapter?

Which of the following best characterizes a lifecycle or target-date fund discussed in the chapter?

If an IPS states the client wants 95% confidence that 12-month losses will not exceed 4%, which risk metric does the chapter suggest is most appropriate to express this objective?

Which of the following is a sensible governance response, as the chapter recommends, if a manager finds the portfolio's asset-class weights have drifted outside the agreed corridor?

Why might a pension plan with many current retirees place more emphasis on income and liquidity than a growing DB plan, according to the chapter?

Which of the following best explains why portfolio managers document an SAA in the IPS rather than leave it implicit?

Which of the following is the best description of "drift" in portfolio management as used in the chapter?

How does the chapter recommend dealing with the additional complexity introduced by ESG exclusions when estimating asset-class expectations?

An investor sets an IPS objective to 'achieve returns within +/- 4% of the index 95% of the time.' Which measure would best operationalize monitoring this objective?

Which of the following is a correct implication of documenting an IPS for a manager-client relationship as emphasized in the chapter?

Why does the chapter caution that peer-group or 'top quartile' return objectives can be problematic?

Which of the following is the chapter’s recommended first step when an adviser begins fact-finding for an IPS?

Which of the following best describes the role of scenario analysis in SAA and risk management as per the chapter?

A Swiss individual with significant home-country holdings prefers to invest locally because she believes she has informational advantages and likes investing in local businesses. The chapter would classify this inclination as an example of:

Which of the following is the chapter’s recommended treatment when an investor’s ability to take risk (high wealth, long horizon) conflicts with a low willingness to take risk?

Which best practice does the chapter recommend for managing concentrations in employer stock within an employee’s retirement account?