I had some questions regarding the 2017 AM mock:
Question 1D : If a hedge fund index uses monthly returns, the index is not as investable as an index that uses daily returns. I had listed this as one of the responses, but it’s not in the guidelines answers. Is the statement correct?
2C II. Under unique circumstances, I had listed that Patel is a professional tennis player who retired early at age 35. The guideline answer is different and while understandable, is my answer also okay as a response?
10D : This was the question : "Brink considers performance evaluation measures for the Keynote funds. She believes that portfolio managers should not be penalized for volatility associated with positive performance. Brink also believes portfolio managers should not be rewarded when their annual returns are lower than the risk-free rate. However, she is not concerned when a fund deviates from its benchmark.
Brink compares three risk-adjusted performance evaluation measures: Sharpe ratio, information ratio, and Sortino ratio. Determine, based on Brink’s beliefs and concern, which performance measure (Sharpe ratio, information ratio, Sortino ratio) is most appropriate.
Answer : Sortino ratio. Sharpe ratios penalize performance when annual returns are lower than the risk free rate, right? So why is that an incorrect answer? How does Sortino ratio not penalize managers for volatility of returns?
Sortino uses downside deviation (standard deviation of returns below the MAR) while Sharpe uses deviation of both positive and negative returns. Brink believes managers shouldn’t be penalized for volatility due to positive performance so Sortino is the best answer.
As to your first question, I answered the same thing and not sure how it would be graded given it’s not in the answer key but in my opinion a valid answer. I linked it to the Measurable criterion of benchmarks, not Investability though.
^ exactly the Sortino is better risk adjusted return measure for Hedge Funds. This is key feature of Sortino to remember. This is related to downside deviation as explained above and with asymmetric risk-return distribution.
Hi all - good luck to everyone who is sitting the exam. I passed in 2017, and would love to see a copy of the exam which i managed to defeat, just! Could someone PM me for a copy please.
For 2C, I don’t think that is ok response. Keep in mind that the unique circumstances are as they relate to the IPS. While being a pro tennis player is unique, ask yourself this, how does that in of itself affect their objectives or constraints in a unique way? Unless there was something mentioned in the vignette, the person’s occupation is irrelevant.
Don’t think we can send docs in the PM’s here, you’ll have to provide an email for one of us to send to you.
hi - blackknight - i’ve sent you a pm with an email address… thank you.