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Study Session 13: Alternative Investments for Portfolio Management

Reading 26. Hedge Fund Strategies (2020 CFAI curriculum)

EOC question 1 - Asks you to determine and justify among 4 strategies. On the justification part, the answer goes on to describe the strategies. I though the first sentence is enough justification?

So my question -  Is this how you answer a similar question in the exam or this is just to help candidates to understand better? I am repeating candidate, so I am trying to master AM exam answering technique.

Does direct RE investing exhibit lower volatility of returns?

Jerry Tannenbach Case Scenario (CFA practice questions). Solution said that “An advantage of direct real estate investing is the low relative volatility of average real estate returns.”

Referenced Reading 30: Alternative Investments Portfolio Management Learning Outcome

  1. Describe advantages and disadvantages of direct equity investments in real estate

I have scoured the reading and nowhere does it say anything about direct real estate investing exhibiting lower volatility of returns. 

Index Managment

Are there indexes that are not self reported, i.e: managers are always selecting which securities to construct the index, right?

Hedge fund benchmarks

Is it necessary to remember construction and interpretation of hedge fund benchmarks? (Reading 30 LOSe)

Commodity Investing

If somebody would be so kind as to explain this to me like I’m a child. I dislike this topic and will forever more. The topic is commodity investing.

Would it be fair to say (and hopefully the extent of what we need to know for exam purposes):

1) Convenience yield and inventory levels are inversely correlated.

2) Convenience yield and forward prices are inversely correlated. If so, why is this the case? My feeble mind is thinking that a decrease in inventories (point 1) would lead to an increase in price. 

R30 - EOC 11 B. - Annualized returns

I am not getting 0.6133% and -0.449% figures. Anyone knows how they are computed?

Annualized return for the hedge fund = 0.6133% × 12 = 7.360%.
Annualized return for the index = –0.449% × 12 = –5.388%.

Private Equity - No Survivorship Bias?

Hi all,

Could someone please explain why there can be survivorship bias when evaluating the performance of hedge funds but not when evaluating a private equity fund?


Commodity prices during economic distress.

In the reading 30, section 5.3.1 (investment characteristics) it is stated that “in periods of financial and economic distress, commodity prices tend to rise, potentially providing valuable diversification benefits in such times”…however, few lines down it is stated that “commodity prices tend to decline during periods of weakness in the economy.”

I’m quite confused with this? Does anyone have an explanation for these contradicting statements?

Thanks in advance

Interest Income (Money Market ROR) on a short sale against the box

“Because the long and short positions together constitute a riskless position, the investor will earn a money market rate of return on the $100 million position”

“The net cost of borrowing through a short sale against the box is quite low because the interest income earned on the completely hedged stock position greatly offsets the interest expense associated with the margin loan.”