My understanding of the text is that he wants exposure to S&P and TSX with a portable alpha strategy with futures.
Why would he shed exposure to TSX index and short TSX futures? Shouldnt he go long because the TSX index manager is a long only manager?
i felt the same way after taking/reviewing that mock exam with that question.
i don’t understand why, and the explantion is poor, pretty much tells us that “the answer is A because B and C are wrong.”
after spending some time trying to figure out why that’s the answer, i chalked that one up as a “hope it’s not asked…my time is better spent elsewhere”
The explanations on the AM mock were generally poor especially GIPS section
the text states she wants to gain the alpha from the canada exposure and has found a manager who she thinks can generate alpha. In order to isolate the canadian managers alpha, you need to sell the “beta” from his portfolio, or, short TSX futures…that make sense?
The information we’re given says that the investor wants exposure to US mid caps and doesn’t believe active management does well in this space. We aren’t given any more information other than that so you know right away that we just want long market exposure to the S&P 400 so we buy futures. This eliminates B.
For the Canadian allocation we are just trying to earn Alpha in the market. Going long with a manger and shorting their respective index will do just this. We should get Manager Return - Benchmark = Alpha. Another way to eliminate C and get to the right answer is to look at what C is saying. If we go with C we are long US mid caps, long the Canadian manager, and long the Canadian index. We’d be way over allocated to Canadian equities.
The S&P/TSX index naming convention is a little confusing and the question isn’t well versed.