Does this make sense, from Schweser “For actively managed long-only accounts, you would expect the manager to hold primarily positive active positions” Surely if you are overweight one stock you have to be underweight something else???
i’m just guessing here (not being a Schweser user) - but this sounds like one of Baily’s 6 tests of Benchmark quality. in LOS 47(i) I remember them as BRACETS - as in: B - similar Beta R - similar sources of systematic RIsk A - mainly positive Active prositions C - high Coverage ratio E - minimal tracking Error T - low Turn-over S - Size - market cap similar this sounds like the “A” bit…so it’s referring to primarily Active positions relative to the particular BM he is using. If most of the positions are negative active positions relative to the BM then he is using the wrong BM (ps “BRACETS” goes along with “SAMURAI” - the 7 tests of a valid BM)
Bond Supply Wrote: ------------------------------------------------------- > Does this make sense, from Schweser > > “For actively managed long-only accounts, you > would expect the manager to hold primarily > positive active positions” > > Surely if you are overweight one stock you have to > be underweight something else??? The idea here is that the manager usually only holds a subset of the stock universe he/she is picking from. So, for example, if the universe is 500 stocks, the manager will hold say 50 of those. The implication here is that the manager will generally be overweight relative to the benchmark for the stocks that he/she has chosen (ie positive active weight), otherwise, why would he/she choose the stock to hold in the first place rather than just leave it out entirely? This relationship holds for a long-only manager because the “most negative” they can be on a stock is to hold a $0 position. If short sales are allowed then the manager can take negative bets on the price as well. In those cases the distinction is a little less clear cut so the manager could have a variety of active bets.
i think the original statement is true if you say “large positive active positions”. i agree with OP that the manager is going to have tons of small negative active positions.
http://www.analystforum.com/phorums/read.php?13,966580,966580#msg-966580 I had the same problem and still don’t have it fully resolved in my noggin.
Looks like a case of learn the CFA answer and spew it up on exam day. It’s a nonsense statement though.
The CFA material actually notes that “When a good custom security benchmark has been built, the manager should be expected to hold largely positive active positions for actively managed long only accounts”. So technically, it matters which type of benchmark you are using. It also states that when an account is benchmarked to a published index containing securities for which a long only manager has no invemtment opinion and which the manager does not own, negative active positions will arise.