CFA 2018 AM Mock Question 27

Looking for help on the 2018 AM Question 27

My assumptions are:

The investor wants to add $100M to US Midcap

Investor has not found someone capable of generating alpha in US Midcap

Investor has found long-only CAD PM who can generate alpha with TSX

“Tan wants to create a portable alpha strategy that will earn the alpha of the CAD portfolio, and meet Benchmark in US Midcap.”

I thought going long US Midcap was to gain Beta exposure but I’m not sure why I’m shorting TSX to earn alpha in CAD?


alpha = Long + Short

Portable alpha = alpha (from any asset class) that can be “ported” with a desired market exposure

in this case, alpha = Long TSX + Short TSX

You have a manager that can do Long-only TSX, so you will need to Short TSX- to ensure “market neutral” alpha that comes from TSX (CAD portfolio)

  • Long US midcap (for beta exposure) to construct a porttable alpha strategy.