Suzanne Melby, a newly hired analyst for Taylor Capital Advisors, is making a presentation to Taylor’s investment committee about the practical concerns when adding new asset classes to an investment portfolio. In her presentation, Melby makes two statements: Statement 1: We have seen from the previous charts that adding international securities can increase the returns of a portfolio; however, from the investor’s standpoint, risk may be perceived as higher due to the inclusion of currency, political, and legal risk. Statement 2: The investment committee has decided that some type of alternative investment such as hedge funds should be included in all client portfolios, but the large amounts of capital required and the difficulty of finding information may prevent us from investing in alternative investments in some client portfolios. With regard to Melby’s statements, the Taylor Capital Advisors investment committee should: A) agree with Statement 1, but disagree with Statement 2. B) agree with both Statement 1 and Statement 2. C) disagree with Statement 1, but agree with Statement 2.
A ? Why would some clients portfolis not invest in AI ? it either non or all
I believe it is tricky question and hence you posted. I am tempted to go with B but I would go with C adding international securities do no guarantee higher return but it gives diversification for sure.
B
Your answer: C was incorrect. The correct answer was B) agree with both Statement 1 and Statement 2. The Taylor investment committee should agree with both of Melby’s statements as she has correctly identified some of the practical concerns when investing in global securities and alternative investments such as hedge funds. The practical considerations of including global securities in a portfolio relate to risks that an investor does not face with a domestic-only portfolio such as currency, political, and legal risks. Even if there are diversification benefits from including global securities, a portfolio manager needs to consider that the investor would be exposed to risks that they would not otherwise be exposed to. Melby’s second statement is also correct as a lack of information, large amount of required capital, and the need to carefully select out-performers are all drawbacks to alternative investments that potentially could prevent the investment manager from using them in client portfolios.
you got me here. I was thinking this can’t be that easy
donot see why statement 2 is right, it says “all client portfolios”, how can be sutiable to all clients?
Answer’s B. The 2nd part of Statement 2 is only true for some types of alt. investments… PE and VC. They could still buy commodities w/little capital upfront, e.g. If the Institute wasn’t trying to f*** with us and get people to pick wrongly, they would re-phrase: " …large amounts of capital required and the difficulty of finding information may prevent us from investing in SOME FORMS OF alternative investments in some client portfolios. "
becuase alt investement provide increased risk adj returns so if everyone had the opportunity to invest they could benefit. However, because of certain restrictions not all clients can ivest in alt investments, like capital requirements.
B may be correct but is flat out wrong - but is a great illustration of how the CFA gets its points…the idea that every portfolio is best served by including some form of AI refutes one of their central tenents concerning suitability - what about an investor that is pursuing an immunization strategy or has some other contraining requirement.
please tell me this is another retarded schweser question. if it’s a CFA question i’m gonna shoot myself.
B makes perfect sense to me because… Statement 1: We know that adding international securities movesthe EF up and to the left, so the first part is correct. The word “perceived” indicates a very real issue that any PM or Asset manager should be aware of. Statement 2: The committee knows its clients better than we do, and we can assume that they believe that an investment in a HF is appropriate and suitable. The contraints in this statement are also correct (the second part).
JohnyMac Wrote: ------------------------------------------------------- > B may be correct but is flat out wrong - but is a > great illustration of how the CFA gets its > points…the idea that every portfolio is > best served by including some form of AI refutes > one of their central tenents concerning > suitability - what about an investor that is > pursuing an immunization strategy or has some > other contraining requirement. 100% agree. Even if I see a question almost identical to this on exam day, I’m putting “A” and I’m gonna scribble next to the answer “it can’t possibly be suitable for an 85 year old man who’s current income is wholly dependent on his rather small portfolio, fuckers”. In fact, were we to see this question in the ethics portion of the test, you’d have to pick out statement number 2 as violating the “suitability” requirement. Fucking assholes.
skillionaire Wrote: ------------------------------------------------------- > JohnyMac Wrote: > -------------------------------------------------- > ----- > > B may be correct but is flat out wrong - but is > a > > great illustration of how the CFA gets its > > points…the idea that every portfolio > is > > best served by including some form of AI > refutes > > one of their central tenents concerning > > suitability - what about an investor that is > > pursuing an immunization strategy or has some > > other contraining requirement. > > 100% agree. > > Even if I see a question almost identical to this > on exam day, I’m putting “A” and I’m gonna > scribble next to the answer “it can’t possibly be > suitable for an 85 year old man who’s current > income is wholly dependent on his rather small > portfolio, fuckers”. > > In fact, were we to see this question in the > ethics portion of the test, you’d have to pick out > statement number 2 as violating the “suitability” > requirement. > > Fucking assholes. Was there more to this question than what was initially posted. How do we know who/what the individual clients are? If it isn’t given, I think it is reasonable that the investment committee knows their clients well enough and we can take what they say in statement 2 as being true.