volkovv Wrote: ------------------------------------------------------- > Etienne Wrote: > > > > It can’t be core-satellite since it said the > guy > > wanted to minimise misfit risk, which is a > > core-satellite problem. > > > > I went with Port alpha, but I think it should > have > > been stock-based enhanced indexing. > > > > I was thinking maybe he can use sell an > ETF/future > > to get rid of the maket risk. Then he would > still > > only be long equities. This doesn’t fit with > the > > no derivs or no short constraints. Common > sense > > dictates stock-based enhanced. > > It actually was core-satelite for exactly the > reason you described above. The guy wanted to > minimize misfit risk, and that is exactly the > property of core-staelite strategy that it does > minimize misfit risk, hence it is exactly what the > client wanted and the right answer. > > Usually minimizing misfit risk is considered a > disadvantage of core-satelite approach, because > misfit risk is a source of additional excess > return for the manager, but that perspective was > irrelevant for this particular question. Agee with you my friend. Best of a bunch of bad choices I guess.
mo34 Wrote: ------------------------------------------------------- > that was a small trick question: > > R_portfolio = R_invested + Borrowed/Equity ( > R_Bond - Cost of borrowing) > > the trick was R_invested (original portfolio) was > different from the return on the bond. was the return to be annualised ?coz if not .3% increase in bond in a month and u had borrowed it at 4.36% u cant possibely get 2.86%
volkovv Wrote: ------------------------------------------------------- > Etienne Wrote: > > > > It can’t be core-satellite since it said the > guy > > wanted to minimise misfit risk, which is a > > core-satellite problem. > > > > I went with Port alpha, but I think it should > have > > been stock-based enhanced indexing. > > > > I was thinking maybe he can use sell an > ETF/future > > to get rid of the maket risk. Then he would > still > > only be long equities. This doesn’t fit with > the > > no derivs or no short constraints. Common > sense > > dictates stock-based enhanced. > > It actually was core-satelite for exactly the > reason you described above. The guy wanted to > minimize misfit risk, and that is exactly the > property of core-staelite strategy that it does > minimize misfit risk, hence it is exactly what the > client wanted and the right answer. > > Usually minimizing misfit risk is considered a > disadvantage of core-satelite approach, because > misfit risk is a source of additional excess > return for the manager, but that perspective was > irrelevant for this particular question. At the risk of being obtuse… Misfit risk is the result of having managers benchmarked to a different index. If I remember rightly - and I really can’t bring myself to look it up - this is exactly the dilemma faced by a core-satellite strategy (also quite clear from Schweser).
Etienne Wrote: ------------------------------------------------------- > volkovv Wrote: > > > > It actually was core-satelite for exactly the > > reason you described above. The guy wanted to > > minimize misfit risk, and that is exactly the > > property of core-staelite strategy that it does > > minimize misfit risk, hence it is exactly what > the > > client wanted and the right answer. > > > > Usually minimizing misfit risk is considered a > > disadvantage of core-satelite approach, because > > misfit risk is a source of additional excess > > return for the manager, but that perspective > was > > irrelevant for this particular question. > > > At the risk of being obtuse… Misfit risk is the > result of having managers benchmarked to a > different index. If I remember rightly - and I > really can’t bring myself to look it up - this is > exactly the dilemma faced by a core-satellite > strategy (also quite clear from Schweser). Yeah, I thought that core-satellite has misfit risk and that this can only be eliminated using a completion portfolio (or something like that). But this is not always done since it can be optimal to have positive misfit risk. I went with stock-based enhanced indexing but could easily be wrong, as with nearly everything else on this f***ing exam.
L2 Candidate Wrote: ------------------------------------------------------- > itstoohot Wrote: > -------------------------------------------------- > ----- > > if the liabilities 5-7 year the best portfolio > is > > 2-10 year bonds or portfolio A?? > > > The liabilities had a duration of 5.8. There was > a portfolio that had a duration of 5.8 and bonds > with 5-7 year maturities - wasn’t that the one to > immunize the liabilities? yup they were zero coupons with the same maturity and duration. definetly the right answer.
oskigo Wrote: ------------------------------------------------------- > L2 Candidate Wrote: > -------------------------------------------------- > ----- > > itstoohot Wrote: > > > -------------------------------------------------- > > > ----- > > > if the liabilities 5-7 year the best > portfolio > > is > > > 2-10 year bonds or portfolio A?? > > > > > > The liabilities had a duration of 5.8. There > was > > a portfolio that had a duration of 5.8 and > bonds > > with 5-7 year maturities - wasn’t that the one > to > > immunize the liabilities? > > > yup they were zero coupons with the same maturity > and duration. definetly the right answer. Hurray… That’s my answer too.
mcg79 Wrote: ------------------------------------------------------- > Etienne Wrote: > -------------------------------------------------- > ----- > > volkovv Wrote: > > > > > > > It actually was core-satelite for exactly the > > > reason you described above. The guy wanted to > > > minimize misfit risk, and that is exactly the > > > property of core-staelite strategy that it > does > > > minimize misfit risk, hence it is exactly > what > > the > > > client wanted and the right answer. > > > > > > Usually minimizing misfit risk is considered > a > > > disadvantage of core-satelite approach, > because > > > misfit risk is a source of additional excess > > > return for the manager, but that perspective > > was > > > irrelevant for this particular question. > > > > > > At the risk of being obtuse… Misfit risk is > the > > result of having managers benchmarked to a > > different index. If I remember rightly - and I > > really can’t bring myself to look it up - this > is > > exactly the dilemma faced by a core-satellite > > strategy (also quite clear from Schweser). > > > Yeah, I thought that core-satellite has misfit > risk and that this can only be eliminated using a > completion portfolio (or something like that). But > this is not always done since it can be optimal to > have positive misfit risk. > > I went with stock-based enhanced indexing but > could easily be wrong, as with nearly everything > else on this f***ing exam. I also went with stock-based enchanced indexing.
umuc Wrote: ------------------------------------------------------- > There are two ways of annualizing: > > 1) geometric linking > 2) simply multiply by number of periods in a year GIPS uses geometric linking > Trust CFAI to give a difficult question like this. > We know data is to be reported monthly. To find > annual rate do we multiply by 12 or do we > geometrically link? > > J Maybe we had different tests but my data was quarterly, not monthly.
LargeMouthBass Wrote: ------------------------------------------------------- > It was growth and small cap. But both were > answers so I went with Growth. I hate to go back to the first page of the discussion, but we’ve cleared this one up, right? It’s growth because the socially responsible investor was moving away from energy, materials, and utilities which are all value stocks according to Schweser.
Growth seemed like the answer they were leading you to by naming the sectors.
SRI has a growth and small-cap bias and both answers were among the choices.
Road2CFA Wrote: ------------------------------------------------------- > CFAAtlanta Wrote: > -------------------------------------------------- > ----- > > not core satellite. > > > > portable alpha. He didn’t want to overpay for > > manager who delivers passive returns. > > > > he couldnt go alpha as he was restricted to hold > only, so it is core satellite > > he wants to take advantage of multiple managers’ > strategy so core satellite fits in. Portable alpha > can’t serve the purpose of minimize the tracking > error I’m not sure if this is the same question, but were the other two options stock based enhanced indexing and derivatives based enhanced indexing? I remember those two answers for one of the questions (it may be the same one as above) but I put stock based enchanced indexing.
former trader Wrote: ------------------------------------------------------- > SRI has a growth and small-cap bias and both > answers were among the choices. When I saw that they had both choices I almost got up and slapped the procter… in any case typical CFAI question but I went with growth since they were naming value sectors.
With respect to enhanced indexing vs alpha/beta separation vs core-satellite, the problem stated they wanted to minimize misfit risk, which I believe eliminates a core-satellite without completion, they also wanted a multi-manager portfolio in which they were paying appropriate fees for alpha and beta respectively. My impression of enhanced indexing is that it is a single manager. Additionally, it did not state long only, it stated equities only…definately alpha/beta separation.
johngalt Wrote: ------------------------------------------------------- > With respect to enhanced indexing vs alpha/beta > separation vs core-satellite, the problem stated > they wanted to minimize misfit risk, which I > believe eliminates a core-satellite without > completion, they also wanted a multi-manager > portfolio in which they were paying appropriate > fees for alpha and beta respectively. My > impression of enhanced indexing is that it is a > single manager. Additionally, it did not state > long only, it stated equities only…definately > alpha/beta separation. I didn’t get this right, but it definitely said “equities-HOLD only” which, while confusing, most likely means long only. Whether it also means no derivatives, I’m not sure (i.e. did they mean you can’t short equities, but going short in derivatives is OK? I doubt they meant this, but the wording is ambiguous.) Either way, if you’re allowed to short equities, this exam might as well be in another language.
The very fact that so many of these multiple choice questions can be so thoroughly debated without resolution, in some cases with solid arguments for 3 of the options, is pretty indicative of a serious problem with the way the exam was written.
johngalt Wrote: ------------------------------------------------------- > With respect to enhanced indexing vs alpha/beta > separation vs core-satellite, the problem stated > they wanted to minimize misfit risk, which I > believe eliminates a core-satellite without > completion, they also wanted a multi-manager > portfolio in which they were paying appropriate > fees for alpha and beta respectively. My > impression of enhanced indexing is that it is a > single manager. Additionally, it did not state > long only, it stated equities only…definately > alpha/beta separation. a core satellite would minimize misfit risk compared to full active management.
^^ agreed that is why I went with core satellite it def minimize misfit risk and the case stated they wanted that. Can it be another answer probably since CFAI likes to mess with us.
comp_sci_kid Wrote: ------------------------------------------------------- > -7 for me total. You are still doing pretty good > 
I am -3 for sure in PM (FCFE, Repo, and Coincident/Lagging) plus some that could go either way, and half of ethics that you never can be sure of you got it right or not. So, you maybe in better shape than me afterall
s23dino Wrote: ------------------------------------------------------- > ^^ agreed that is why I went with core satellite > it def minimize misfit risk and the case stated > they wanted that. Can it be another answer > probably since CFAI likes to mess with us. I thought it was the completion fund that minimized/eliminated misfit risk. Does core satellite do that as well? I missed the small cap and growth question. Didn’t even realize growth was an option. Saw small cap and filled in the bubble. That question was definitely growth, as the vignette mentioned restrictions against value-type companies.