About Portfolio Management for the Level II CFA Exam

This forum contains discussion of Portfolio Management for the Level II CFA exam.

  • Portfolio Management is covered in Study Sessions 16 and 17
  • Portfolio Management has an exam weight of 5-15%

Study Session 16

“This study session begins by examining exchange-traded funds (ETFs), including the creation and trading of ETFs, costs and risks of using ETFs, and how ETFs are used in strategic, tactical, and portfolio efficiency applications. Multifactor models including the arbitrage pricing theory (APT) and Carhart (4 factor) model are introduced as alternatives to the capital asset pricing model (CAPM). Considerations and applications of the three multifactor model types (macroeconomic, fundamental,
statistical) are presented. The session ends with a discussion on value at risk (VaR) and its use in measuring and managing market risk. The three VaR approaches (parametric, historical simulation, Monte Carlo) along with the advantages and limitations of each are examined.”
Source: CFA Institute

Study Session 17

“This study session begins by identifying and explaining the ties between the real economy and financial markets, including effects on asset values. The “fundamental pricing equation” is presented as a basic pricing framework for financial instruments. The asset prices of risk-free debt, risky debt, public equities, and real estate are shown to be affected via the business cycle’s impact on risk-free rates, the yield curve, inflation, and risk premiums. Analysis of active portfolio management follows, including a discussion of active risk and active return (Sharpe, information ratios). The fundamental law of active management is presented along with several investment applications. The session concludes with an overview of how securities trading supports the investment process. This reading discusses direct and indirect costs of trading, developments in electronic trading and the effects on transaction costs and market fragmentation, and the risks posed by electronic trading and how regulators control them.”
Source: CFA Institute