CFA Level III Question and answers already passed GARP - correct answer Growth At a Reasonable Price
an investment strategy that combines tenets of both growth and value investing by finding companies that show consistent earnings growth but don't sell at overly high valuations
self-identi...
CFA Level III: Equities
GARP - correct answer ✔Growth At a Reasonable Price
an investment strategy that combines tenets of both growth and value
investing by finding companies that show consistent earnings growth but don't
sell at overly high valuations
self-identification - correct answer ✔funds with non-traditional styles should
self-identify for returns analysis purposes
Holdings-based attribution - correct answer ✔A "buy and hold" attribution
approach which calculates the return of portfolio and benchmark components
based upon the price and foreign exchange rate changes applied to daily
snapshots of portfolio holdings.
Returns-based attribution - correct answer ✔An attribution approach that
uses only the total portfolio returns over a period to identify the components of
the investment process that have generated the returns. The Brinson-Hood-
Beebower approach is a returns-based attribution approach.
Steps of an Active Quantitative Strategy - correct answer ✔the first step in
creating a quantitative, active strategy is to define the market opportunity or
investment thesis. Then, relevant data is acquired, processed, and
transformed into a usable format. This step is followed by back-testing the
strategy, which involves identifying the factors to include as well as their
weights. Finally, the strategy performance should be evaluated using an out-
of-sample back-test.
Factor Scores - correct answer ✔composite scores estimated for each
respondent on the derived factors
, Requirements for and Equity Index Benchmark - correct answer ✔The three
requirements for an index to become the basis for an equity investment
strategy are that the index be (a) rules based, (b) transparent, and (c)
investable.
Buffering - correct answer ✔Buffering involves establishing ranges around
breakpoints that define whether a stock belongs in one index or another.
Some index providers have adopted policies intended to limit stock migration
problems and keep trading costs low for investors who replicate indexes. Size
rankings may change daily with market price movements, so buffering makes
index transitions a more gradual and orderly process. As long as stocks
remain within the buffer zone, they stay in the current index, and as a result,
the holdings of the fund may exceed the holdings of the index.
a buffer zone is like a corridor before a stock bounces to another index. It
helps prevent indexes from reconstituting all the time.
like if a small cap is at the upper size limit, if gains value in one day it goes to
mid cap index definition and then it loses value next day it bounces back.
Buffer prevents this
Free Float - correct answer ✔Adjustment to index: Necessary to ensure
proper weighting of component securities such that they are reflective of
proportion of stock publicly traded. Balance Gov't held, for example.
Free float is the amount of shares not traded by insiders, etc
Basis Risk - correct answer ✔Basis risk results from using a hedging
instrument that is imperfectly matched to the investment being hedged. Basis
risk can arise when the underlying securities pay dividends, because the
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