2016 Past Exam Equity

Question 3D. I dont understand why they select market neutral instead of long only strategy.

I select manager Carina - long only because:

i.maintain the beta exposure of the emerging market equity allocation: long only -> increase the beta exposure to the market equity via exposure to small cap -> offset the decrease in beta exposure by removing emerging market equity manager

ii.provide no additional beta exposure:

Long only a specific number of small cap equities, satisfying

No of small cap equities * Value * beta of small cap = No of emerging * beta of emerging cap * Value

Hey there, Question 3 is no longer relevant to the 2019 exam.

Part D, i think it is still relevant

2016 exam is definitely relevant…just look at what they are testing. 3 A-C

A tests the Information Ratio reading 29

B tests HBS and RBS to identify the style reading 28

C tests long/short strats reading 29

2016 3C is not relevant

Are we sure HBS & RBS analysis are part of the 2019 curriculum? It’s not in reading 28. This question also thew me off, unless I’m completely having a brain freeze.

The IR and long/short strategies are definitely relevant.

To answer the question, the strategy of Octan is market neutral with equitizing. Octain would use long only derivatives to maintain exposure to EM and uses market neutral so that there’s no additional beta exposure.

One of the advantages of this strategy is that you get exposure from beta through equitizing (essentially a passive strategy), and the manager can focus on adding alpha to the market neutral strategy.

I am not sure if this is still relevant for the 2019 exam. If you have Konvexity mocks, Exam 1 AM 1Q has a similar question but more in depth.

Page 428 of equities. Section 6. Where they talk about morning star style box at the beginning.